Thursday, March 26, 2009

Is The White House Backing Away From Cap And Trade?

Mar 25: Amid financial jitters in Congress amplified by projections of significant declining revenues and increasing deficits, a careful reading of Obama Administration comments, comments from Congressional budget leaders, and statements from the Moderate Democrats coalition (now being referred to as "ConservaDems") [See WIMS 3/19/09], seems to imply the Administration is likely to put cap and trade off for future consideration outside of the budget process. Even the President's own comments at his primetime press conference were unclear on how cap and trade would be handled [See WIMS 3/25/09].

In a revealing interview on "Hardball" with Senator Evan Bayh (D-IN) one of the leaders of the Moderate Democrats coalition, which has the political power to control Senate passage of controversial parts of the President's budget proposal, Bayh talks of being careful to do cap and trade "the right way" and also points out a little discussed fact, that if such things as health care reform and cap and trade are pushed through Congress under the budget reconciliation process (with only 50 votes as opposed to 60) that they will have to be reauthorized in five years. He points out, these are long term programs that need stability. Bayh's interview was conducted after President Obama met with the Moderate Democrats coalition earlier in the day.

Bayh indicated that you're going to need the Democrats from the adversely affected states to do it the "right way." He said, "The President is wise enough and smart enough to know that it needs to be cooperative, and if he continues in that spirit I think we can get a whole lot of what he wants done, and in a way that middle America will embrace and it will work in a practical way." He said on cap and trade, "you're probably going to need 60 votes because it affects so many states economically that if you don't do it in the right kind of way you're taking money from carbon intensive states like Ohio, Michigan, Indiana, Pennsylvania, West Virginia and redistributing it to California, New York. That's just a very hard sell to our people when they're hurting. And you're also running the risk of taking jobs away and not actually solving global warming."

OMB Director Peter Orszag said in a Teleconference "we are very pleased that the House and Senate Budget Committees are taking up resolutions that are fully in line with the President's key priorities for the budget. Not only do they embody the four key principles that the President has put forward for the budget, but they are 98 percent the same as the budget proposal the President sent up in February. With regard to the four principles, as the President said last night and as we have emphasized since the budget was sent up, we want to make sure that the budget reflects key investments in health care, in energy, in education and cuts the deficit in half. And both the House and Senate Chairmen's marks do precisely that. First, with regard to cutting the deficit in half, the House Budget Committee's resolution hits $586 billion in 2013; the Senate Budget Committee's resolution hits $570 billion in 2013. Both of those meet the standard of cutting the deficit in half. . .

"Another thing that has been noted is that we had tied the extension of Making Work Pay to revenue from cap and trade. The House and Senate budget resolutions do adopt a different approach. I would note with regard to Making Work Pay that we have already in the Recovery Act gotten two years of that tax credit. So we have two years to figure this out." In response to questions relating to cap and trade, Orszag commented as follows:

Question: "I agree with you that the budget resolution is a dollar amount, but it's also sort of a first go-round on the politics of these underlying budget and tax decisions. And isn't it fair to say that on cap and trade, the charity tax change you proposed, and the tax credit, all three of those are in a higher degree of jeopardy than they were when you proposed the budget, and what is the administration going to do to change that?"

OMB Orszag: ". . .And on the budget, I guess what I would say is, again, everyone is -- you know, you all are looking for small differences between what the President sent up and what the House and Senate are considering -- 98 percent the same, and in the four key areas that the President identified, exactly and fully in line. . ."

Question: "But having covered the campaign, Peter, the tax credit and cap and trade are central features of the President's --"

OMB Orszag: ". . .With regard to climate change, there's already legislation that is being considered on the House side. The Senate is also active. The fact that it's not treated in the budget resolution the same way that we proposed in no way means that the House and Senate can't take the legislation up. And in fact, I think some may argue that the political economy of getting climate change done this year may actually be better outside of the -- outside of the budget resolution than inside of it."

Later in the day, at the daily White House press briefing, Press Secretary Robert Gibbs had an exchange that also addressed the cap and trade issue. That exchange went as follows:

Question: ". . .it does seem to me that the most important part of your program that's got a real political challenge in terms of its prospects for passing is cap and trade. What is your assessment of the viability of that program specifically? And if you can't pass it, what are alternatives that might achieve the President's goals?

Press Secretary Gibbs: Well, as you know, the House Energy and Commerce Committee is working on cap and trade legislation. There are ideas that are bouncing around in the Senate and have for some time about -- about ways to institute a cap and trade program that the President and the administration are looking at and are encouraged by.

"I think, though, that the President believes, whether it's - - whether it's funding in the recovery or moving forward with more comprehensive energy -- legislation on energy independence, that there are steps outside of a cap and trade program that he talked about during the campaign and has talked about as President that can put our country on a greater path towards energy independence -- whether that's increased domestic production, whether that's something like the stop he did last week on battery technology, alternative fuels, investments in tax credits for wind and solar power generation -- that all of those things, be it in the budget, in the recovery plan, or in separate energy legislation, the President believes we have the opportunity to do what hasn't been done in quite some time."

The House and Senate Budget Committees are now considering their budget resolutions to implement the Obama Administration proposed budget and the proposed revenues to be generated from a cap and trade program are highly controversial. Even though the White House is indicating the resolutions are 98% consistent with the President's core proposals, many details are omitted.

The Senate Budget Committee released its Chairman’s Mark for FY 2010 Senate Budget Resolution. According to information from Chairman Kent Conrad (D-ND), "The Chairman’s Mark for the Fiscal Year 2010 Senate Budget Resolution is a fiscally responsible budget plan that addresses the fiscal and economic crises inherited by the Obama Administration and lays the foundation for long-term economic security. It preserves the major priorities in President Obama’s budget: reducing our dependence on foreign energy; striving for excellence in education; and reforming our health care system. It provides significant middle-class tax relief, directed at families with incomes under $250,000. And it cuts the deficit in half by 2012 and by two-thirds by 2014."

A summary indicates that the Congressional Budget Office’s re-estimate of the President’s budget shows the 10-year deficits will be $2.3 trillion more than originally projected by the Administration. The Chairman’s Mark responds to this worsening situation by making "adjustments in the President’s budget proposal, while maintaining the President’s core priorities."

One of the major "adjustments" is explained as, "It has never been more clear that our nation’s economic and national security are directly linked to our energy policy. We must address our dangerous addiction to foreign oil and confront the challenges of global climate change. In the process, we can create new “green collar” jobs that will help our nation’s economic recovery. To meet these challenges, the Chairman’s Mark builds on the energy initiatives in the economic recovery package with continued investments in alternative and clean energy technology, energy efficiency, and modernization of our energy infrastructure. It includes a deficit-neutral reserve fund that could accommodate initiatives to invest in clean energy or address global climate change, such as that proposed by the President." The so-called, "deficit-neutral reserve fund" is essentially a placeholder, but would require the programs to be paid for by known revenues. Thus, the budget resolution does not include what Republican's are calling a $646 billion "energy tax" raised by projected revenues from a cap and trade program.

Access the Orszag teleconference transcript (click here). Access the Gibbs press briefing transcript (click here). Access the "Hardball" interview with Senator Evan Bayh (click here). Access a Summary of Chairman’s Mark for FY 2010 Senate Budget Resolution (click here). Access the Chairman's Mark for FY 2010 Senate Budget Resolution (click here). Access House Budget Committee Chairman John Spratt statement on the House FY 2010 Budget Resolution (click here). Access a 10-page Senate Budget Committee summary of the Administration budget (click here). [*Climate]