Obama's Green Bargain

Last year, around this time, the U.S. president was extolling the virtues of solar power. Now, he's talking about coal and nuclear plants. What happened?

One year ago, Barack Obama came into office promising a "green jobs" revolution. In a coup for environmentalists, the new U.S. president laid out a vision for weaning the United States off fossil fuels and ushering in a cleaner, more prosperous future. "We know the country that harnesses the power of clean, renewable energy will lead the 21st century," he said to a February joint session of Congress. "We invented solar technology, but we've fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea." He vowed to combat pollution, announced a massive investment in ecofriendly technologies, and asked Congress to send him a bill to regulate greenhouse gas emissions.

But on Wednesday night, during Obama's State of the Union address, environmentalists cringed. Instead of touting, say, solar panels and wind turbines, Obama spoke about nuclear power, oil, gas, coal, and biofuels -- all of which have significant environmental drawbacks. He barely mentioned renewable energy sources. The future, he said, in effect, would rely on many of the filthy energy sources of the past.

Some of Obama's environmental supporters issued statements praising the mere inclusion of climate and energy in the speech. But many were openly critical of the few, not-so-new, and not-so-clean types of energy he chose to support. For instance, Friends of the Earth, a global green advocacy group, called it a "kick in the gut to environmentalists."

What changed Obama's tune so dramatically? In short, political reality caught up with him. A year ago, Obama -- and the world -- believed Congress would pass a single, strong cap-and-trade bill. Now, it seems that won't happen. Thus, on Wednesday, Obama was speaking not to his core base of support for climate legislation, but to the few Republicans and several Democrats to whom he'll need to make concessions in what the White House has called the "Grand Bargain."

In his speech, Obama hinted at what this deal might entail. Creating new clean energy jobs, he said, "means building a new generation of safe, clean nuclear power plants in this country." It also means "making tough decisions about opening new offshore areas for oil and gas development," and investing in biofuels and "clean coal" technologies. His statement on a comprehensive energy and climate bill -- shorthand for legislation that includes a cap on carbon dioxide emissions -- came almost as an afterthought to the energy components.

For the past few months, several centrist Democrats have lobbied against putting forward a bill that caps carbon at all. These senators, including Mary Landrieu of Louisiana and Ben Nelson of Nebraska, favor instead a bipartisan energy bill (which Alaska Republican Lisa Murkowski helped write) that would open more areas to oil and gas drilling, expand investments in nuclear power, and put in place a modest renewable electricity standard, without capping carbon. These senators' protests have only grown louder since Republican Scott Brown won Democrat Ted Kennedy's Senate seat.

So far there is only one Republican publicly backing climate and energy efforts: Lindsey Graham of South Carolina. He is working with powerful senators John Kerry of Massachusetts and Joe Lieberman of Connecticut to draft legislation, though they have yet to disclose any specifics. But Graham has made it clear that he intends to push for a bill that includes major incentives for nuclear energy, expanded offshore drilling, and advanced coal technologies, which he thinks might bring along more Republicans. "What does offshore drilling do for you in terms of votes? I've got a pretty good idea it helps," Graham told reporters on Wednesday. "If we can make the energy piece attractive enough for Republicans, there's going to be more than a handful that would agree to emissions controls."

Graham, an ardent supporter of nuclear energy and offshore drilling, isn't the only one who sees trading investment in these environmentally unfriendly measures for a vote for capping carbon as the only way forward. Some of the more mainstream environmental groups, too, seem to be warming to the idea that if they want something done on climate, they're going to have to swallow less-than-ideal energy components.

"The Senate has a unique opportunity here for the grand bargain on energy that has eluded it to date," says Jeremy Symons, senior vice president for conservation and education at the National Wildlife Federation. By marrying efforts to cap pollution with expanded domestic energy initiatives, "measures that quite frankly the environmental groups won't be as happy with," they might actually get them passed.

Although, reading Obama's addresses to Congress from a year ago and this week, one might think Obama had flip-flopped on energy entirely, the truth is that the White House has had this shift in mind for months. Last May, for instance, a senior administration official floated the idea of linking cap and trade to "serious" and "short-term" increases in domestic oil production in an interview with the New Yorker.

Plus, the Obama administration has always been decidedly pro-nuclear -- a contentious energy solution among environmentalists, given that it produces no carbon emissions, but is costly and resource-intensive and creates radioactive waste. The Department of Energy has been speeding up and streamlining a loan-guarantee program for nuclear energy over the course of the past year.

And the "Grand Bargain" bill would arguably be better than nothing. For one, it would call Republicans' bluff on energy. Ever since the first climate legislation in 2003, every time a cap-and-trade measure was introduced, Republicans would revive a so-called plan that consists mostly of expanding the use of fossil fuels, with a few nods to renewables. Democrats would counter by saying their bills were also all-inclusive. Now, the Democrats' probable legislation really is that; the bill that seems likely to emerge in the Senate this year is much more fossil-fuel friendly than past ones.

It's not entirely clear, though, whether there are many votes to mine on the Republican side. "My impression is that right now Mitch McConnell's strategy is to oppose everything," says Dan Lashof, director of the climate center at the Natural Resources Defense Council, of the Senate minority leader. But Republicans who seem like potential votes for a bill -- Maine's Olympia Snowe and Susan Collins, and John McCain of Arizona among them -- have supported cap-and-trade bills in the past without the major handout to fossil-fuel interests.

The "Grand Bargain" is a major gamble, as it could mean swallowing a lot of bad energy policy in return for few votes, while at the same time alienating the relatively small base of devoted supporters Obama has on this issue. It certainly will not please the United States' international partners, many of whom have already committed to much stronger carbon-capping and clean-energy measures. But it might be the only way forward.

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A World Without Bernanke

If Big Ben doesn't chair the Fed, then who?

On Thursday, the U.S. Senate expects to vote on whether to approve Ben Bernanke for a second term as chairman of the Federal Reserve. President Barack Obama strongly backs the Bush appointee, the architect of the Fed's dramatic trillion-dollar expansion in the wake of the financial crisis. But some members of Congress haven't been so supportive. A strange-bedfellows coalition of senators -- everyone from social democrat Bernie Sanders to archconservative Jim DeMint, with heavyweights Barbara Boxer and John McCain in between -- has said no to Ben. At last count, not enough senators had agreed to vote for Bernanke, raising the question: If not him, then who?

With Bernanke's term rapidly drawing to a close and the U.S. economy still fragile, his supporters warn that failing to re-up the chairman would be a disaster. Treasury Secretary Timothy Geithner predicted Wall Street would "view [the failure to reconfirm] as a very troubling thing to the economy as a whole."

But plausible replacements do exist. Tim Duy, a University of Oregon economist and specialist on Fed policy, notes, "You're dragging old names out of the hat," predicting the White House would likely choose a familiar and safe candidate to avoid a long nomination battle and placate markets spooked by the Bernanke fracas.

Two economists often mentioned for the top Fed gig are members of the administration: Larry Summers, director of Obama's National Economic Council, and Christina Romer, chair of the Council of Economic Advisers (CEA). Romer is a scholar of the Great Depression, like Bernanke, and a longtime academic at the University of California, Berkeley. Summers, a former Harvard University president and treasury secretary, has guided the president's economic recovery plans.

The nomination of either seems remote. Summers, who was famously ousted by Harvard's faculty after musing that women are inferior at science, took a multimillion-dollar paycheck from the hedge fund D.E. Shaw before joining the administration, making him too tainted by Wall Street to put before a confirmation hearing, particularly with Congress on an anti-bank bent. Plus, many view Romer and Summers as too tied to the politics of the Oval Office at this time.

From the ivory tower, frontrunners include David Romer, the CEA chair's husband and a fellow Berkeley-ite, and Alan Blinder, a Princeton University academic and former Fed vice chair. Both are lauded economists with experience working in and advising Washington. Romer is a "new Keynesian" who has written extensively on the Fed and its ability to aid the economy -- including a paper, co-written with his wife, on how to pick a good Fed chair. (Both Romers say Bernanke was a perfect selection.) Blinder also writes extensively on central banking; Paul Krugman, the Nobel laureate and influential economic commentator for the New York Times, cited him in a recent column as a likely candidate. Romer and Blinder are considered the most probable appointments to the two open seats on the Fed board, and thus to the powerful Federal Open Market Committee, which sets the Fed's interest-rate policies.

Many also look within the Fed itself for alternatives. Janet Yellen, a former academic and the president of the San Francisco Federal Reserve Bank, is tipped as the most likely to become Fed chair should Bernanke withdraw or fail to win confirmation. Yellen is considered the most dovish of the governors -- i.e., more focused on the near-term problem of double-digit unemployment than she is on the longer-term problem of inflation.

Yellen, unlike some other possible candidates, wins plaudits from economic commentators on the left and the right. Dean Baker, who co-directs the influential liberal think tank the Center for Economic and Policy Research, names Yellen as his first choice should Bernanke fail. Kevin Hassett, director of economic policy studies at the conservative American Enterprise Institute and a former Fed economist, also sings her praises. "She's very popular, very brilliant, and often thought of" as a potential Fed leader, he says.

Another possibility is Donald Kohn, the Fed's current vice chairman. The Obama administration probably wouldn't nominate Kohn, who has worked for the Federal Reserve since 1970, for Bernanke's job. But the Fed veteran is likely to become chair on an ad hoc basis should the confirmation drag on. (The regulations on Fed succession aren't perfectly clear, but Sen. Christopher Dodd, who chairs the Senate Banking Committee, has said he supports making Kohn acting head.)

And drag on it might: Bernanke might be filibustered tomorrow, Democrats might not be able to scare up enough votes to shut off debate, and the White House might decide against spending any political capital on his nomination, no matter how much Wall Street and market experts might protest. But Fed watchers note that his ouster would be backward-facing, punishment for missing the housing bubble rather than a statement of concern over the Fed policies he has said he will pursue in the next months, including unwinding emergency measures and leaving interest rates near zero. Those are policies all of the candidates mentioned have supported -- and policies it seems likely that, after dodging a few more javelins on Capitol Hill, Bernanke will be the man to carry on.

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