Washington Energy Update

The extended health care debate appears to be having an impact on the fate of energy and climate legislation in the Senate, despite repeated assertions from Senate Democrats that they intend to pass climate change legislation this year. Senate Democrats had expected a floor vote on health care before the August recess, which would have cleared the way for the climate bill in the fall. Now, with health care legislation slated for a vote in the fall and Democrats still divided, there may be little time or appetite for moving forward with another major contentious issue.

With this, the Senate leadership may decide to move an energy bill without mandatory greenhouse gas controls, as suggested by Sen. Byron Dorgan (D-ND)and Sen. Blanche Lincoln (D-AR). Sen. John Kerry has acknowledged that such a bill may be the only package the Senate can pass this year. Environmentalists and other Democrats, however, contend that a cap-and-trade bill is needed for U.S. with credibility during the December United Nations Climate Change Conference in Copenhagen.

At the same time, industry observes are hesitant to discount completely the possibility of the Senate passing cap-and-trade legislation, but with calendar space limited and multiple committees involved, it likely will fall to Majority Leader Harry Reid (D-NV) to combine the committee bills into a single package that can be moved to the Senate floor. With Reid focused on health care, however, he many not be able to devote the attention needed to climate negotiations. The difficulties of passing health care, however, may prompt President Obama and congressional Democrats to regroup by focusing on the energy bill as a way to secure a legislative victory.

If the Senate is unable to pass cap-and-trade legislation, the Obama administration may use the Environmental Protection Agency (EPA) to regulate greenhouse gases under the Clean Air Act The EPA reportedly is preparing to act if the legislative effort stalls in the Senate. The White House currently is reviewing an EPA rule that would establish a national reporting system for heat-trapping emissions and a registry of the data collected, leading some to argue this would be a step toward future regulation of carbon dioxide, including cap-and-trade style restrictions.

The House has already acted. In June, it passed, H.R. 2454, which would cap U.S. greenhouse gas emissions at 17 percent below 2005 levels by 2020 and 83 percent by 2050. The legislation would require power plants and other regulated entities to pollute less or buy and sell emissions allowances to meet the federal targets.

Written by: Darryl Drevna and Tovah LaDier, Bryan Cave LLP.