After the Republican win in Massachusetts, the odds of climate change legislation fall: That's not good news for company profits

01/21/2010 1:39 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

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.

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