17 August 2009

The Australian Gambit

It sounds like the title of a Robert Ludlam novel or a chess strategy, but it may be a description of where US cap and trade legislation is headed. Quick on the heals of a failed vote last week on its proposed cap-and-trade legislation in the Australian Senate, the Labor government has split its renewable energy legislation from its cap and trade program:

Labor has backed down on its hard line on emissions trading and will split the legislation allowing a vote on its renewable energy target as early as this week.

The decision breaks the deadlock over the Government's 11 bills introducing an emissions trading scheme (ETS), which were defeated in Parliament last Thursday and are not due to be reintroduced until November.

With pressure for a split in the bills from the renewable energy industry, the Opposition, the Australian Greens and independent Senator Nick Xenophon have forced the Government's hand to give the industry certainty by setting the renewable energy target (RET).

The Opposition and the Government have already started negotiating amendments to the RET and industry has welcomed the backdown.

Clean Energy Council chief executive Matthew Warren said an expanded RET had overwhelming public support and, together with other energy efficiency measures, would "unleash" $28 billion of new investment and 28,000 new jobs over the next decade.

"We welcome this important step towards delivering the RET bill by the end of the week. We need the RET passed in three days, not three months," Mr Warren said.

As recently as Friday, the Government was adamant the two could not be separated because they share complementary compensation packages - even though the ETS will not begin until mid-2011 while the RET starts in January.

Climate Change Minister Penny Wong announced the change of mind today, saying it was "plan B" and a less than perfect way of dealing with the carbon pollution reduction scheme (CPRS), or ETS, and the RET.

Australia may yet again revisit it cap and trade program in the legislative process as the threat of double dissolution hangs over the heads of the opposition. However, splitting the bills likely guarantees that Australia has something positive to take to Copenhagen rather than showing up under the cloud of last week's Senate vote.

Now to the US, where Bloomberg reports:
The U.S. Senate should abandon efforts to pass legislation curbing greenhouse-gas emissions this year and concentrate on a narrower bill to require use of renewable energy, four Democratic lawmakers say.

“The problem of doing both of them together is that it becomes too big of a lift,” Senator Blanche Lincoln of Arkansas said in an interview last week. “I see the cap-and-trade being a real problem.”

The resistance by Lincoln and her Senate colleagues undercuts President Barack Obama’s effort to win passage of legislation that would cap carbon dioxide emissions and establish a market for trading pollution allowances, said Peter Molinaro, the head of government affairs for Midland, Michigan- based Dow Chemical Co., which supports the measure.

“Doing these energy provisions by themselves might make it more difficult to move the cap-and-trade legislation,” said Molinaro, who is based in Washington. “In this town if you split two measures, usually the second thing never gets done.”

The House passed cap-and-trade legislation in June.

Leaders of the Democratic-controlled Senate say they are sticking with their plan to combine a version of that bill with a separate measure mandating energy efficiency and the use of renewable sources such as solar and wind power. The legislation also provides for an extension of offshore oil and gas drilling in certain areas, broadening its support.

Reid’s Comment

“I don’t think we are going to take to the Senate floor a bill stripped of climate provisions,” Senate Majority Leader Harry Reid, a Democrat from Nevada, told reporters in Las Vegas on Aug. 11.

The Senate Energy and Natural Resources Committee passed the renewable-energy legislation, 15-8, in June. Reid has set a deadline of Sept 28 for committees to complete work on climate- change provisions.

Ben Nelson of Nebraska and North Dakota Senators Kent Conrad and Byron Dorgan joined Lincoln in suggesting that the climate measure be put off.

“We should separate the energy bill from the climate bill,” Conrad told reporters this month. ‘It needs to be done as soon as we can get it done,” he said, referring to the energy legislation.

For cap and trade supporters in the US, the problem with splitting the bills will be that some of the renewable energy provisions are key to getting support for the overall bill. Splitting them could very well reduce support for cap and trade. And of course, there is no threat of double dissolution, however one-and-a-third dissolution happens every two years like clockwork. The Australian gambit probably won't work for U.S. cap and trade supporters, and I'd bet those playing this card in the U.S. know that quite well.