Cap-and-trade appears to be running into rough waters and if it fails, the administration won’t be able to blame the Republican party. In fact, the culprits are going to be their fellow Democrats.

Kimberley Strassell wrote and industry article in the Friday edition of the WSJ analyzing the political roadblocks to the plan.

Not that you couldn’t see this coming even last year, when Speaker Nancy Pelosi engineered her coup against former Energy chairman John Dingell. House greens had been boiling over the Michigan veteran’s cautious approach to climate-legislation. Mr. Dingell’s mistake was understanding that when it comes to energy legislation, the divides aren’t among parties, but among regions. Design a bill that socks it to all those manufacturing, oil-producing, coal-producing, coal-using states, and say goodbye to the very Democrats necessary to pass that bill.

And that is exactly what’s coming to pass. Representatives from coal producing states, manufacturing states and oil producing states, in fact any state that uses large amounts of energy are caught in this vice. They may generally be sympathetic to some sort of carbon limiting bill but they still have to explain it back home. Complicating that problem is that most represent conservative constituencies and so have no natural hold on their seats.

It appears that Speaker Pelosi may press on with a vote anyway. With her large majority she may well be able to overcome the holdouts but she risks recreating a dynamic that served her party poorly once before.

Keith Hennessey recounts on his blog the history of President Clinton’s BTU tax. Proposed in 1993 the tax squeaked through the House and got hammered in the Sentat. In fact the Senate didn’t even vote on the bill. As Hennessey points out, those House members that voted for the bill and were conflicted as many are today, paid a high cost. They used up political capital without realizing any policy benefit. Hennessey claims that this resulted in a new addition to the vocabulary of Washington politics; the Senate BTU’d the House.

Fast forward to today and the same dynamic is taking shape. Even if Pelosi forces a bill through the House, it has scant chance in the Senate.

Hennessey’s analysis:

All indications from the Senate are that legislation similar to the Markey bill is extremely unlikely to pass the Senate this year.  Two important votes in the Senate budget resolution debate sent incredibly strong signals about the Senate’s intentions:

• 67 Senators, including 26 Democrats, voted against creating fast-track reconciliation protections for a cap-and-trade bill, meaning that supporters would need 60 votes to pass a bill, rather than 51.
• 54 Senators, including 13 Democrats, voted for an amendment that would allow any Senator to initiate a vote to block any climate change provision which “cause[s] significant job loss in manufacturing or coal-dependent U.S. regions such as the Midwest, Great Plains, or South.”

These votes suggest that there is not even a working majority in the Senate for an aggressive cap-and-trade bill.  When an actual bill with measurable and visible costs is debated, I expect Senate support to be even weaker.

Proponents of a cap-and-trade system argue that Congress will come around since they don’t want the EPA regulating carbon. This is now referred to as Obama’s big stick. I’d submit that it’s more a very large piece of balsa wood.

The EPA as a practical matter requires businesses that emit regulated pollutants to obtain operating permits that require the agency’s approval of the technology used to control pollutants. The U.S. Chamber of Commerce estimates that over 1 million businesses would be required to obtain EPA certification. That would simply overwhelm the capacity of the agency.

In addition, though the EPA may issue new regulations, the likelihood is that they would end up in litigation that will literally clog the courts for years. More so if the agency follows the path it indicates it might and selectively regulates only certain parts of the economy. 

One suggested path to make cap-and-trade more palatable to Democrats from areas that would be more severely impacted is to give them pollution permits as opposed to forcing their industries to pay for them. The theory is that they could then sell the permits and use the proceeds to subsidize users.

This would then seem to render the entire exercise an artifice with no practical positive impact. If you are indeed going to limit carbon emissions, there has to be a cost in not doing so. Absent a financial penalty there is no incentive not to pollute.

Realistically, it would appear as if there is no way that cap-and-trade is going to get through Congress this year. Turning lose the EPA has lots of political risks and may in fact not produce any meaningful results. It’s also possible that obstinately pursuing the policy might simply compound the political damage of failure.