Carbon cap and trade is dead. Sen. Lindsey Graham, R-S.C., declared it so this March. And coming from him, it was tough to dispute: Graham is one of the only Republicans to consistently support federal action on climate change, and without his backing, a cap-and-trade bill wouldn't survive the Senate. The Obama administration took the hint. Interior Secretary Ken Salazar conceded a few weeks later that "the term 'cap and trade' is not in the lexicon anymore."
But toxic as the concept has become in Washington, D.C., hope remains for the Western Climate Initiative, a regional cap-and-trade system, thanks to two key votes on Nov. 2. Californians rejected Proposition 23, a ballot measure designed to indefinitely derail the state's ambitious climate change law, AB 32. Had it passed, it would have kept California from chipping in to the Western carbon market, and without the state's hefty emissions portfolio, regional carbon trading would be politically and economically unviable. And New Mexico approved what it calls the most comprehensive greenhouse gas regulations in the country.
By a 4-3 vote, the governor-appointed New Mexico Environmental Improvement Board signed off on the new rules, which require major polluters to reduce greenhouse gas emissions by 2 percent a year starting in 2012. The regulations also authorize New Mexico's participation in the Western Climate Initiative, which would establish emissions trading between a handful of Western states and four Canadian provinces to slash their collective carbon output 15 percent below 2005 levels by 2020.
Since the governors of California, Oregon, Washington, New Mexico and Arizona formed this partnership in 2007 -- Montana and Utah joined later -- plans to start trading emissions in 2012 have progressed mostly on schedule. With one major hiccup: So far, California and New Mexico are the only states that have mustered the political will to enact rules allowing them to participate.
In New Mexico, time nearly ran out. The same day the board OK'd the rules, Republican Susana Martinez, who is skeptical about man-made global warming and opposes cap and trade, was elected governor. The new board she picks "will be hostile -- almost certainly -- to climate regulation," says Bruce Frederick, a lawyer with the New Mexico Environmental Law Center.
State legislatures West-wide have been timid on the issue. A bill proposed in 2009 to allow New Mexico to trade carbon in the WCI died in a state House committee. Its odds were "slim and none," Benjamin Rodefer, the Democrat who introduced the legislation, told the Albuquerque Journal. "And slim just left town." Even in green-leaning Oregon and Washington, elected officials backed away from giving their states legal authority to join, despite strong Democratic majorities in the legislatures and firm gubernatorial support.
"Somewhere along the line, 'cap and trade' as a phrase became about as popular as bank bailouts," says Eric de Place, a senior researcher at the Seattle-based Sightline Institute. The business community in particular soured on the idea, and with state budgets in the toilet, passing cap-and-trade laws almost anywhere would have come down to tough votes. Ironically, Obama's election gave states an easy out. "(Legislatures figured) 'Let's just let the feds take care of it,' " de Place says. "In many ways it was an abdication of environmental leadership from the Northwest."
Now the feds have passed the buck back to the states. Federal climate legislation in any form looks impossible after the GOP's midterm surge. But with most states still in budget panics, there's little reason to think cap and trade will have momentum in 2011.
Nevertheless, the Western Climate Initiative intends to move forward with California, New Mexico and three of their Canadian partners. It's not ideal, because cap-and-trade markets are economies of scale. Increased participation means a greater reduction in overall emissions, and the larger the market, the more flexibility polluters have to decide when, where and how to make reductions. The key players in the West have been drafted, though; the two states and three provinces account for about 70 percent of emissions among the initiative's signatories.
Still, nothing's certain. New Mexico's rules have been fiercely opposed and will likely be challenged at the Legislature or in court. Activists have already crafted a backup plan, a state regulation to cap and reduce emissions from power plants, oil refineries, utilities and the like, which the board will vote on in early December. At only five pages, the regulation is simple by design. That way, says John Fogarty, president of New Energy Economy, the group proposing the rule, "it will face far fewer legal challenges."