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Will A Weak Economy Be Saddled With Greenhouse Gas Regulations?

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Will A Weak Economy Be Saddled With Greenhouse Gas Regulations?

Op-ed in The Insider

President Obama will find he faces two main problems in relation to greenhouse
gas emissions, a domestic one and an international one.

Domestically,
Mr. Obama the candidate promised to regulate carbon dioxide as a
pollutant if Congress does not take action. This will be a real
problem. The current rule proposed by the EPA to do exactly that will undoubtedly
create regulatory chaos. As over 30 free-market groups have noted, the
rule “would trigger a regulatory cascade throughout the [Clean Air]
Act, imposing potentially crushing burdens on regulated entities and
the economy.” So President Obama will be dependent on Congress taking
action to avoid such a disaster.

The
sort of Congressional action President Obama had previously backed as a
Senator was a “cap and trade” program for greenhouse gas emissions, a
form of disguised tax on energy use. This comes in two versions: a weak
version in which emissions permits are distributed to emitting
industries for free, and
a strong version in which the permits are auctioned. Industry,
especially power utilities, is actually quite keen on the weak version.
The EU has adopted a weak scheme, which has led to windfall profit for
utilities, increased bills for consumers, and—crucially—no reduction in
emissions. This last point is why Senator Obama supported a strong
cap-and-trade scheme in his campaign. However, a strong scheme will be
strongly opposed by the same
industry forces that support a weak scheme. It is unlikely to gain
majority support in the Senate and will therefore force Mr. Obama
either to adopt a weak scheme or to fall back on regulatory action.

Meanwhile,
internationally there is strong pressure for the United States to agree
to join a successor to the Kyoto Treaty at the planned Copenhagen
summit in December 2009. Given the problems surrounding Kyoto, however,
President Obama is unlikely to sign an international treaty before
having a domestic program in place (although there are indications that
he is seeking ways to agree to an international pact that does not rise
to treaty status, requiring Senate ratification). This places the 2009 date in serious
jeopardy, perhaps meaning that once again the United States will be viewed as delaying international action.