Climate-Bill Breaks Bode Ill for Deficit

By JONATHAN WEISMAN

WASHINGTON -- The Obama administration said Monday that it expected even wider deficits this year and next than previously forecast, and Congress could undermine the administration's push to narrow the gap by slashing the revenue generated by the president's plan to curb greenhouse gases.
On Monday, White House budget director Peter Orszag revised the fiscal 2009 deficit upward by $89 billion to $1.84 trillion, 12.9% of the economy. That is a level not seen since 1945. Next year's deficit forecast was raised $87 billion, to $1.26 trillion.

White House officials still say they are holding to a long-term goal of cutting the inherited budget deficit in half by 2013. But that effort is threatened by the weak economy and by congressional politics. White House economists didn't revise their expectation that the economy would be growing by 3.5% by the end of this year, despite the fact that some private economists have been lowering their forecasts.
Congress is debating proposals to give away to utilities and other businesses the pollution credits that would be created by a cap-and-trade system. Such a system is designed to reduce carbon-dioxide emissions by instituting caps, and requiring that businesses buy permits to pollute that they can trade like commodities.
Beginning in 2012, the White House budget had counted on the sale of greenhouse-gas emissions permits to bring in $77 billion to $79 billion a year through 2019. Of the $624 billion in revenue, the White House allocated $504 billion to a $800-per-family tax cut for households with incomes below $150,000, in part to offset the impact of the cap-and-trade system on electricity rates. An additional $15 billion a year was dedicated to developing and deploying renewable-energy efforts to replace the fossil fuels being hit by the pollution trading system.
If Congress decides to give away permits, that would mean less money for policy ideas such as the president's Making Work Pay tax cut and his push to wean the nation off fossil fuels, and less money for deficit reduction.
"At least half the revenue that the administration is expecting is just not going to materialize," said Daniel J. Weiss, director of Climate Strategy at the Center for American Progress, a liberal think tank closely allied with the Obama White House.

A White House official said Monday that the tax cut won't be extended beyond 2010 if the administration can't find a way to pay for it. The administration is still holding out hope that the sale of emissions permits will generate more than enough revenue to finance its alternative-energy plan.
Just how much money the administration might have to work with will become clearer when House Energy and Commerce Committee Chairman Henry Waxman (D., Calif.) unveils his full climate-change bill this week. He hopes to have a vote on the bill in his committee by Memorial Day.
Congressional aides and lobbyists familiar with the bill say as much as 75% of the emissions credits will be given away free in the first few years of the plan. Many of those free credits will go to coal-fired utilities that would struggle to cover the cost of permits for all the carbon they emit. Energy-intensive industries that face stiff global competition would get most of their emissions permits free in the first years of trading as well.
It may be 10 to 15 years until all the emissions permits will be sold, according to people familiar with the legislation.
Seeking to bolster public support for climate legislation, the Obama administration is consulting pollsters who advocate avoiding phrases such as "cap-and-trade" and "global warming." On Monday, the White House Council on Environmental Quality was scheduled to meet with Robert Perkowitz, president of ecoAmerica, a Washington-based nonprofit that uses "psychographic research" to "shift personal and civic choices of environmentally agnostic Americans," according to its Web site.
"We're trying to give them phrases that work," Mr. Perkowitz said in an interview. He said that in a survey of some 2,000 Americans conducted by his group in March and April, less than half of the respondents said they would support a "cap-and-trade" policy, and that only 24% said they knew what the phrase means. "If you call it 'clean energy dividend'...almost anything other than 'cap and trade,' you'll get people responding a lot more favorably," he said.—Stephen Power contributed to this article.
Write to Jonathan Weisman at jonathan.weisman@wsj.com