Obama Moves Away From 'Cap And Trade'

(Bloomberg News) President Barack Obama distanced himself from the "cap-and-trade" program he once backed, saying he wants to work with Republicans to find other ways to curb carbon emissions.

"Cap-and-trade was just one way of skinning the cat," Obama said at a White House news conference yesterday, referring to a system in which companies buy and sell a declining number of pollution allowances. "It was a means, not an end," he said. "I'm going to be looking for other means to address this problem."

Futures contracts in the U.S. Northeast's carbon market fell to their lowest level in six weeks yesterday after Obama's remarks.

Obama spoke the day after Republicans won control of the House of Representatives and gained at least six seats in the Senate after a campaign in which Republican candidates and some Democrats denounced cap-and-trade as a disguised energy tax. A cap-and-trade bill backed by Obama passed the House last year, then stalled in the Senate this year.

Senate Republican Leader Mitch McConnell of Kentucky said today that there is no reason Republicans and the Obama administration can't work together on issues including energy.

"The president has said he's for nuclear power, we're for nuclear power," McConnell told reporters on Capitol Hill in Washington. "The president has said he's for clean-coal technology, we're for clean-coal technology."

Carbon dioxide from power plants, cars and other man-made sources is a primary greenhouse gas blamed by scientists for global warming.

Prospects for a U.S. carbon market are more remote than before the election because "the vast majority of Republicans have opposed cap-and-trade proposals to date," Peter Shattuck, a carbon-markets policy analyst at Environment Northeast, an advocacy group based in Rockport, Maine, said in a telephone interview yesterday.

Permits from the Regional Greenhouse Gas Initiative for December delivery fell 2 cents, or 1.1%, yesterday to $1.88 on the Chicago Climate Futures Exchange, matching a record low closing price set on Sept. 22. They rose 1 cent to $1.89 at 10:01 a.m. today. Each permit, also called an allowance, gives a power plant the right to emit one ton of carbon dioxide. The state-run carbon trading program covers plants from Maryland to Maine.

U.S. Northeast carbon prices has fallen 18% this year as the cap-and-trade bill faltered after narrowly passing the Democrat-controlled House in June 2009.

Democrats from coal-producing states joined in campaign attacks on cap-and-trade. Governor Joe Manchin of West Virginia literally shot a hole through legislation labeled "cap-and- trade" in a television commercial for his successful Senate campaign.

Republicans in the next Congress are likely to increase pressure on Obama to delay or scrap his plan to regulate carbon through the Environmental Protection Agency, said Kevin Book, managing director of ClearView Energy Partners LLC in Washington.

Business groups such the American Petroleum Institute, the largest U.S. lobbying group for the oil industry, have opposed EPA regulation. Democratic Senator Jay Rockefeller of West Virginia has sponsored legislation that would impose a two-year delay.

The EPA is preparing to start regulating greenhouse gases from power plants and oil refineries on Jan. 2. A U.S. Supreme Court decision in 2007 said the EPA had the power to regulate carbon as a pollutant under the Clean Air Act. Obama and EPA Administrator Lisa Jackson have said they would prefer to tackle the issue mainly through Congress.

Obama repeated this preference yesterday, saying the EPA "wants help from the legislature on this."

"I don't think that the desire is to somehow be protective of their powers here," he said.

Obama may be signaling a willingness to find an alternative to EPA action, said Scott Segal, a Washington lawyer at Bracewell & Giuliani LLP.

"The president didn't seem 100 percent resolute that the agency has to regulate and regulate quickly," Segal, who lobbies for coal-fired utilities such as Southern Co. and Duke Energy Corp., said in an interview yesterday. "That may be a sign that the administration is willing to sit down and discuss a more reasonable path forward."

An alternative to cap-and-trade legislation offered by lawmakers such as Senator Jeff Bingaman, a New Mexico Democrat, would set a national standard requiring the use of renewable fuel such as solar and wind power. Senator Richard Lugar, an Indiana Republican, has said he plans to introduce renewable- energy legislation that would add nuclear and "clean-coal" plants to the sources of alternative energy.

Senator Lisa Murkowski, who is from Alaska and the senior Republican on the Senate Energy and Natural Resources Committee, said today that she'd be happy to work with Obama on energy issues, though EPA's plans to regulate carbon must be stopped so lawmakers can proceed.

"If the president wants to start with the work the Energy Committee has already done, I would be happy to work with him," she said in an e-mailed statement, referring to legislation that includes Bingaman's measure. "But I also believe we must first preempt the EPA from meddling in the work of Congress when it comes to setting climate policies."

Murkowski earlier this year led an unsuccessful effort to block EPA's authority to regulate greenhouse gases.

Any attempt by Congress to take away the EPA's power would be vetoed by the president, Jackson said in an August interview.

The president remains committed to moving ahead with "common-sense" EPA regulation of greenhouse gases, Heather Zichal, deputy assistant to the president for energy and climate change, said yesterday in an e-mailed response to questions.

Obama has pledged as part of United Nations-led climate treaty talks to cut U.S. emissions about 17 percent by 2020. The administration will stand by its target when countries meet to negotiate in Mexico next month, Todd Stern, Obama's top climate negotiator, has said.