Trade Penalties Weighed in Climate Bill

By STEPHEN POWER and GREG HITT
WASHINGTON -- House Democratic leaders Thursday weighed tough trade penalties on countries that don't cap so-called greenhouse-gas emissions, while President Barack Obama sought support from wavering lawmakers ahead of a vote on a climate bill.
The trade proposal is designed to protect a half dozen trade-sensitive U.S. industries, including steel, cement and chemical manufacturers, from competitors in countries that don't cap their output of greenhouse gases.

Top House Democrats and many members of the Ways and Means Committee, which has jurisdiction over trade policy, led the negotiations and effectively signed off on details of the plan late Thursday.
The measure -- expected to be folded into the 1,200-page proposal to curb U.S. greenhouse-gas emissions -- is tougher than a provision approved last month by the House Energy and Commerce Committee. It would impose the sanctions in 2020, five years before the earlier-approved version would, and give Congress authority to levy a border fee, if the president chooses not to act, that would raise the cost of imported goods.
The inclusion of the trade-related provisions is meant to appease lawmakers from heavy industry states like Pennsylvania, Ohio and Michigan who worry that limits on U.S. emissions would put domestic industries at a disadvantage to competitors in countries like China that don't limit emissions.
Rep. Sander Levin (D., Mich.) said the changes are "designed to do no more than is necessary to ensure that this important legislation is trade neutral for our energy intensive industries."
White House aides said Thursday they were still reviewing the language on imports and were not sure it would remain in the bill that comes to a vote Friday. They declined to state the president's position on the issue.
Still short of votes, the president made personal and public appeals to wavering Democrats, making a brief statement in the Rose Garden and calling lawmakers.
The proposed border-adjustment program also includes commitments to help downstream industries that make use of products that face global competition.
As proposed, the sanctions would not take effect if the U.S. enters into a global agreement to limit emissions. The legislation establishes a series of U.S. objectives for any global agreement, including a demand that any international pact include enforcement mechanisms to shield companies from unfair competition.
China's government and some major U.S. business groups, such as the Chamber of Commerce, have warned of a trade war if the U.S. imposes tariffs on carbon-intensive imports such as steel. In a letter to Congress dated Wednesday, the Chamber warned that the provisions being considered by Ways and Means "could spark a trade war" and make U.S. companies that rely on imports less competitive.
Democratic aides and lawmakers suggested the legislation was still short of the 218 votes needed to ensure passage. It was unclear by how much, but individuals familiar with the vote-counting suggested Democrats were lacking 15 to 20 votes and perhaps more.
The nonpartisan Congressional Budget Office has estimated that the legislation would have a fairly modest impact on the economy, with net annual economy-wide cost in 2020 of $22 billion -- or about $175 per household.
Republicans, and some major business groups have slammed the bill as an energy tax that would drive up the costs of goods and services and put the U.S. at a competitive disadvantage with countries that don't operate under such caps.
On Thursday, Republicans cited Bureau of Economic Analysis data showing the U.S. economy contracted at an annual rate of 5.5% in the first quarter of 2009 as further evidence for scrapping the legislation.
Speaker Nancy Pelosi met with a handful of lawmakers from timber-producing states pushing for wood byproducts to be treated as a renewable-energy source under the bill.
Democratic leaders were also looking for ways to address the concerns of a handful of lawmakers worried that a provision of the bill goes too far in toughening oversight of derivatives, congressional aides said.—Jonathan Weisman contributed to this article.
Write to Stephen Power at stephen.power@wsj.com and Greg Hitt at greg.hitt@wsj.com