Climate Effort Could Be Stalled by Credit Crisis

Costs of Curbing Global-Warming Emissions Are a Tough Sell in U.S., Europe Amid Economic Disruption and Financial Uncertainty
By STEPHEN POWER in Washington and LEILA ABBOUD in Paris

The global financial crisis is threatening efforts in the U.S. and Europe to fight climate change.
In Europe, industries and some national governments are pushing back against the European Union's goal of cutting greenhouse-gas emissions 20% by 2020, arguing that the midst of an economic crisis isn't the time for costly new taxes on fossil-fuel consumption.
"Does it make sense to ask companies for such a large sacrifice, and risk hitting citizens' pockets at such a delicate moment, all for environmental policy whose efficacy is questionable?" Italian Environment Minister Stefania Prestigiacomo said through a spokesperson.

In the U.S., both major-party presidential candidates and Democratic congressional leaders have promised to pursue climate-change legislation as a top priority next year.
But within the Democratic Party, which is expected to gain congressional seats in the Nov. 4 election, splits are emerging between lawmakers from coastal states and those from Rust Belt and coal-friendly regions. They differ over how much time companies should be given to slash emissions and what authority states should have to set their own limits on greenhouse gases, so named because they trap the sun's heat in the earth's atmosphere.
"In times of economic downturns, members [of Congress] are extremely reluctant to add burdens to the economy, and we're going to confront that problem," says Rep. John Dingell, chairman of the House Energy and Commerce Committee. The Michigan Democrat recently introduced a proposal to cut U.S. greenhouse-gas emissions 6% by 2020. Environmental groups want cuts of 20%-25% during that period.
A bill to establish an economywide cap-and-trade system for the U.S. aimed at cutting greenhouse-gas emissions roughly 66% by 2050 failed in the Senate this year. Though oil prices have fallen 40% since the Senate debate, energy costs continue to rank high among voters' concerns. Last week, the U.S. government's top energy forecaster said Americans can expect to pay as much as 15% more to heat their homes this winter.
The financial crisis could also upset international negotiations on a successor to the Kyoto Protocol, the treaty that requires many industrialized nations to reduce their greenhouse-gas emissions.
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"If industry is in a difficult pass, most sensible governments will be reluctant to impose new costs on them in the form of carbon-emissions caps," said Yvo de Boer, director of the United Nations Framework Convention on Climate Change. The final shot at getting a deal will come in 2009.
Business groups on both continents are pouncing on the economic turmoil as they lobby against planned new regulations. Airlines, citing slow growth rates and high fuel costs, are seeking to soften some aspects of Europe's plan to require air carriers to join its cap-and-trade system for carbon-dioxide emissions after 2012.
Europe's auto makers are seeking to delay by three years the continent's planned introduction of mandatory carbon-dioxide emissions controls on new cars.
"The pushback is stronger than before," said John Ashton, the U.K.'s special representative for climate change. Europe will still be able to hammer out an agreement, Mr. Ashton said. "We'll have to fight harder to keep it together."
Estimates of the cost of economywide caps on greenhouse-gas emissions vary. An analysis by the U.S. Environmental Protection Agency of the leading Senate proposal to cut emissions found that gross domestic product would grow 80% from 2010 to 2030 if the bill became law, only one percentage point less than its growth in the absence of the bill. But the EPA also projected electricity prices could increase 44% by 2030 under the proposal. Supporters of carbon caps say inaction will impose costs in the form of coastal flooding and other damage.
Major U.S. power companies in coal-abundant states are warning of higher electricity prices if they are forced to cut emissions before perfecting technology to capture and store their plants' carbon emissions.
"We know something needs to be done [to cut emissions], but we've got to get the economy on its feet before we do something economically irrational," said Mike Morris, chief executive of American Electric Power Co. of Columbus, Ohio. Mr. Morris and other executives fear lawmakers will use revenue from pollution permits to pay down the federal deficit.
"The likelihood that they would try to take these revenues for other purposes, particularly in an economic downturn, is great," says James Rogers, chief executive of North Carolina-based Duke Energy Corp.
Write to Stephen Power at stephen.power@wsj.com and Leila Abboud at leila.abboud@wsj.com