And what about climate change legislation in the U.S. Senate?
You’d think that after State Senator Scott Brown’s victory over State Attorney General Martha Coakley in the race to fill Ted Kennedy’s Senate seat in Massachusetts climate change legislation was dead as a door nail in the Senate.
But maybe not. The Obama administration has a big club on climate change legislation that it didn’t have on health care.
It’s called the EPA (Environmental Protection Agency). The EPA has already announced plans to regulate carbon dioxide and other green house gases as pollutants. And the Supreme Court has already ruled that the agency has the power to do that.
Any regulatory approach will be far more painful and expensive to industry than a subsidy-laden bill passed by Congress. Now it remains to be seen if industry hates the idea of EPA regulation enough and still carries enough clout with Republicans to make some Senate Republicans willing to give up the strategic political gains that come with opposing any legislation on the topic.
Brown’s victory gives Republicans in the Senate 41 votes. If the Republican minority sticks to together in opposition, as it has in the votes on health care legislation, that’s enough, given the Senate’s arcane procedural rules, to prevent any piece of major non-budget legislation from passing in the Senate.
Any piece of major non-budget legislation. If the Republican minority sticks together.
That certainly includes health care reform.
Global climate change. Quite probably, but not certainly.
The House narrowly passed its version of a climate change bill in June and in November the Kerry-Boxer bill passed committee. But that bill was voted out of committee without a single Republican vote and faced even tougher going in the full Senate where it faced opposition from Republicans and energy-state Democrats. (A familiar Democratic troika of Senators Blanche Lincoln (Arkansas), Ben Nelson (Nebraska), and Mary Landrieu (Louisiana) have, for example, signed on to a Republic-led effort to block the EPA from regulating green house gases.) An effort by Senators John Kerry (D), Joseph Lieberman (I) and Lindsey Graham (R) to put together a bill that could pull enough votes from those groups to pass the Senate still hasn’t produced a draft.
Speculation on Capitol Hill is that to make such a bill palatable to energy state Democrats and even a handful of Republicans it would have to be loaded with subsidies to nuclear power, ease regulations on off-shore oil and gas drilling, and include a cap and trade plan that gives a truckload of free but very valuable pollution credits to utilities, oil refiners, chemical producers, farmers, and pretty much any other industry group that can catch the ear of a Senator and demands to be bought off. (Those credits would then generate profits for the original holders when they sold them to companies who needed to offset their production of greenhouse gases.) Legislation would also almost certainly include a provision stopping the EPA from regulating green house gases.
A regulatory approach from the EPA wouldn’t include these goodies. It would be rely on penalties and require expensive capital spending to reduce greenhouse emissions.
Gee, I can’t imagine which one I’d prefer if I were a CEO.
Before Tuesday’s vote I had concluded that the threat of an EPA regulation heavy on penalties and the promise of a subsidy-laden bi-partisan piece of legislation would result in some kind of climate change bill passing the Senate, squeaking through the House (with the addition of yet more subsidies) and winding up on President Obama’s desk sometime in 2010.
Even after Tuesday’s election results I think that’s still the most likely outcome.
But the Republican victory in Massachusetts does indeed lower the odds considerably. Republicans smell blood and I don’t think they want to give an embattled administration anything it can spin as a victory.
And Scott Brown’s victory also further erodes the tradition clout of industry in the Republican Party. The money for that victory and the energy came from conservative voters who gave the campaign $12 million in online donations and a flood of money from conservative political action groups such as the American Future Fund.
The Supreme Court played the wild card in the game of figuring out how much clout industry still has with Republicans. Today, January 21, in Citizens United v. Federal Election Commission, by a 5 to 4 vote the court struck down most federal limits (and as I read it state and local limits too) on how much corporations can give in a political campaign. I’m sure lobbyists won’t be slow to mention that to any politician of either party who is facing reelection.
The way I calculate them, the odds still favor climate change legislation that passes out truckloads of taxpayer cash to favored industries.
But the odds aren’t as good as they were before the Republicans won in Massachusetts on Tuesday.
In fact I’m not sure that the odds are good enough to invest in.
The same companies that would get an extra dollop of profit from legislation are by and large the same ones that will get hit with a big bill in any EPA regulatory formula.
There’s always a delay in passing on costs. There’s always the risk that your competitors won’t follow suit and will steal market share. And finally, in a global economy if one country adds costs and the other doesn’t it becomes hard to pass on costs. The big point, however, is that cap and trade was going to be a money maker for lots of companies who got big alloments of free polluting rights to sell. That’s how it has worked out in Europe. (And as a consequence of all these rights, the price of polluting in Europe is still set so low that it doesn’t pay to do much of anything about your greenhouse emissions.)
I read an interesting article several months back suggesting that congress may let the EPA put a noose around the administration and its own neck before passing legislation that would be sure to get a few congressmen and women unelected by not voting on the bill. Of course the administration would then have to make a decision about whether it wants to make the sole decision on climate change legislation that most voters don’t want and will not like once the bills start coming due.
If you have a good relationship with your customers you usually can past those costs on immediately, especially if they are cost that everybody in the industry is experiencing. If you only differentiate yourself by price, your going to hurting. Those customer that leave you will be back when your competitor’s prices go up. Assuming your service is better. Otherwise you are going to drive yourself into the ground.
Scottc2000,
Businesses delay passing along costs until they absolutely have to. Usually when it starts effecting their profits. For businesses to stay in business they cannot simply raise prices because they feel like it. There is always a competitor willing to charge less if they see an opportunity. Inflation to the consumer is the end of the line of price increases.
If a manufacturer gets a price increase from a vendor, they will absorb the cost as long as they can, usually by using up existing inventory (pre price increase.) When that inventory is gone, they have to use the new higher cost inventory. They will usually delay the price increase to the consumer because of fear that they will lose customers. When they get their next quarters income statement and gross margins are down is when the inevitable price increase occurs.
These price increases, wages, raw materials, energy all add up and lead to inflation which can take 6 months from the time it hits the manufacturers to when you see the price increase. It won’t happen overnight, but when it does happen, competitors usually follow suit so as to not be the first one to raise prices.
As a manufacturer I witness this cycle first hand. There is an art to it. Should I raise prices? Should I wait? What if raw materials drop after I raise prices. You look really bad if your competitors drop when you raise. Last year was the first time I ever really witnessed some deflation. Most businesses look long term and not short term like you are suggesting. With so much uncertainty with the economy, health care costs, energy costs, taxes, businesses like mine are in a holding pattern in regards to hiring, investment in equipment, until we see some “real” green shoots from increased business and feedback from customers. Not just because we are told that things are better and improving.
I left out 4th generation NUCLEAR power plants, also known as liquid metal fast reactors.
Global warming is real and is being caused by CO2. Cap & Trade is a joke. Fee and Dividend will work. Tax coal & oil heavily (fee), and then distribute the revenue to all U.S. citizens (dividend). This will force the price of gas and coal fired electricity up, but citizens will get the dividend to pay for the increase. Only solution is to start building 4th generation electric power plants. Oil and coal cos. are fighting this hard.
Jim:
How is this going to effect JCI and AEP? I remember both got some kind of government money to develop green tech.
Ed,
I never understand this phrase “pass along costs”. I thought businesses charge based on demand, so they can make as much $$$ as they can, to make owners/shareholders happy. If they could just pass along costs by charging more, why don’t they charge more right now and increase profits?
Jim,
You know as well as I do, the businesses affected will just pass along their costs to the consumers. In addition, the EPA regulation will provide them yet another layer of regulation which will serve to further insulate them from smaller competitors. Welcome to the crony capitalist state!