Senate retirements narrow cap-trade window

January 6, 2010

— John Kemp is a Reuters columnist. The views expressed are his own —

LONDON – Yesterday’s announcement by Senator Byron Dorgan (Democrat, North Dakota) that he would not seek a fourth term in November, coupled with today’s expected announcement by Senator Chris Dodd (Democrat, Connecticut) that he won’t seek a sixth term, will remove two veterans, once secure legislators from the Democratic caucus.
It highlights the mounting problems confronting congressional Democrats facing voters in November’s midterms amid high unemployment, a relatively unpopular agenda led by the administration, and concerns about the party’s capture by special interests.

Dodd’s retirement is not surprising, given his plummeting poll numbers and criticism for being too close to the banking and insurance industries he regulates as chairman of the Senate Banking Committee but which have been major campaign contributors.

Despite trying to reinvent himself as a populist in recent months, the legislation he has worked on has sometimes appeared to show too much favouritism for the industry. He has also run into criticism for receiving VIP mortgages in 2003 from Angelo Mozilo’s failed Countrywide Financial.

Dorgan’s departure is more unexpected. He was re-elected with 68 percent of the vote in 2004. But the state leans towards the Republicans, breaking 53-45 percent in favour of Senator John McCain last year. A poll published last month showed Dorgan trailing behind popular state governor John Hoeven in a hypothetical match up.

In terms of climate change legislation, the prospective departures do not change the overall calculus but do step up the pressure for legislation to be passed within the next six months, if it is to be passed at all.

Dodd and Dorgan are emblematic of the division running through the center of the Democratic Party over cap-and-trade — pitting supporters from liberal states on the coast against sceptics from the heavy-industrial and coal-producing states of the Midwest and Appalachia, as well as Republican-leaning states in the interior.
Dodd from coastal, liberal Connecticut, has been a consistent supporter of cap-and-trade, while Dorgan, representing a Republican-leaning coal state in the interior, has expressed reservations.
Their contrasting positions were highlighted in last year’s preliminary vote on the proposal. Senator Mike Johanns (Republican, Nebraska) offered an amendment to the annual budget resolution (Senate Vote 126-111, S Amdt 735 to S Con Res 13) prohibiting the reconciliation process being used to approve a cap-and-trade programme. The vote was widely seen as a straw poll for senator’s views on cap-and-trade.
Normally, legislation would require 60 votes to secure a motion to proceed under Rule XXIII and forestall a filibuster.

But the reconciliation process provides for expedited consideration of essential budget bills and would have cut this majority to 50 (with the vice-president breaking the tie).

Although it is meant to ensure timely passage of critical tax and spending measures, reconciliation has been used in the past as a back door way to bypass threatened filibusters on controversial legislation.

Dorgan together with 25 of his Democratic colleagues from industrial and interior states broke with the majority of his party to vote in favour of the amendment, thus preserving the 60-vote requirement.

In contrast, Dodd joined 30 Democrats and their allies from coastal and liberal states, to reject it, which would have lowered the required majority to 50. But with all 41 Republicans voting in favour, the amendment passed, and the reconciliation route was closed.

In the short term, the retirements will not alter the legislative calculus much. Dodd can be relied on as a vote in favour of cap-and-trade until December 2010. Dorgan’s position is harder to gauge. In theory, retirement frees him from the need to face the voters, so he could help the administration by casting a party vote in favour.
But he has announced an intention to “work on energy policy in the private sector”, which might or might not make him more inclined to back cap-and-trade, depending on which parts of the energy industry he hopes to represent.

Much of the sector now backs cap-and-trade because it would at least create certainty for new investment, but other elements are more hostile. North Dakota is a major coal state that could be hit hard if climate legislation penalises coal-fired-power generation.

In the longer term, the retirements will probably cost the Democrats their 60-vote super-majority in the Senate. So after December, the administration will have to negotiate legislation with the Republican caucus, which remains mostly opposed.

There is probably a six-month window in which to pass cap-and-trade before Congress is consumed with the midterm elections. But it faces tough obstacles:

* It must compete for scarce political space with healthcare.

* There is a sense cap-and-trade has become a distraction for lawmakers, distant from the concerns of ordinary voters facing 10 percent unemployment and a deep recession.

* The administration’s failure to secure matching commitments to emissions reduction from trading partners such as China and India at Copenhagen risks accusations that the increased burden will make U.S. manufacturers uncompetitive.

If cap-and-trade cannot get through Congress before June, the opportunity may have gone forever. The prospects are worse in 2011, as attention turns to the 2012 presidential vote.

Public support for cap-and-trade is lukewarm. One recent poll showed only 55 percent of respondents backed federal government action if it raised household bills by $25 per month.

Another showed more voters would prefer a straightforward carbon tax to a trading system.

If cap-and-trade cannot pass in the first half of this year, it may be stripped out of the climate bill and could lose momentum in the longer-term to a system based more closely on a tax.
And without movement on the domestic front, it may be impossible to persuade China and other big emitters in emerging markets to agree to binding reduction targets in the international negotiations.

Time is running out.

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An obvious solution is a carbon tax swap in which other taxes are swapped for a carbon tax. This way taxpayers don’t have to worry about their bills. In fact, such swap is actually cutting taxpayers taxes.

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