The cap-and-trade bill introduced by House Democrats Waxman and Markey, formally known as "The American Clean Energy and Security Act", passed the House last Friday by a 219-212 vote. The bill, a priority for President Obama, faced many hurdles from both the Democrats and Republicans and will face greater scrutiny in the Senate. If the Senate rejects the bill, it will not bode well for the upcoming Kyoto talks in Copenhagen.

The bill is being hailed as "an extraordinary first step" towards curbing greenhouse-gas emissions as it aims at creating a system that lets companies buy and sell pollution permits, cutting emissions by 17% from 2005 levels by 2020 (WSJ).  The bill "would affect the way electricity is generated, how homes and offices are designed, how foreign trade is conducted and how much Americans pay to drive cars or to heat their homes."  It stands to raise energy prices and create a parallel financial system with a carbon-based currency. But it will also "make possible the creation of millions of new jobs".

In spite of a strong Democrat majority in the House, the bill has come on the heels of an aggressive health-care plan from the president, making it a tougher sell to some conservative districts. According to the Miami Herald, "the climate legislation pitted Democrats who represent East Coast states that have been cleaning up their act against Democrats in the Midwest and other places that rely heavily on coal and industry." Concessions were won by groups from coal-producing and agriculture districts; Agriculture Committee Chairman Collin Peterson (D., Minn.) negotiated to have the Agriculture Department run a key program for farmers as opposed to the less agribusiness-friendly Environmental Protection Agency. American farms, which daily face the harsh effects of climate change, will not be required to buy carbon emissions permits or allowances, but "the effect of the caps and pollution permits will be to raise the price of their fuel, fertilizer and electricity."

Internationally, the bill has consequences as well. As lawmakers in the Rust Belt are particularly fearful of job losses in heavy industry, the House bill "requires the president, starting in 2020, to impose a ‘border adjustment' - or tariff - on certain goods from countries that do not act to limit their global warming emissions. The president can waive the tariffs only if he receives explicit permission from Congress." (NY Times)  The tariffs, "border tax adjustment provisions", could spark trade wars especially between the U.S. and developing nations like China and India.  According to the New York Times, "Mr. Obama has sometimes sent mixed signals about his attitude toward free trade. In the Democratic presidential primary, he was fiercely critical of several free trade agreements with China, Caribbean countries and Mexico for failing to include strict enough environmental standards. He argued that the United States should threaten to pull out of the North American Free Trade Agreement to renegotiate protections for the environment as well as workers' rights."

The tariffs on manufactured goods from abroad could end up haunting Canada. Furthermore, hydro-electric power -of which Canada is a major producer, is not considered a renewable energy resource in the bill. "While it would have been difficult to find allies in Congress, fighting to have hydro exports from Canada considered a renewable source of energy it would have caused a bonanza in hydro producing provinces. Grid improvements to allow larger scale exports would have created hundreds of jobs while the exports themselves, already worth several billion dollars, would increase exponentially." (Embassy)

In Mexico, authorities are divided between clean air and cheap food to feed the country's poor. The government has committed to the use of renewable fuels and the fight against climate change, but increased production for biofuels displaces productions of basic grains and maize. With the added challenge of meeting carbon emissions standards in manufacturing set by the U.S., the struggle and divisions are likely to increase in the future.

Related:

• In the Classroom: Trade and Environment in North America
• Opinion: We are increasingly under America's thumb
• Past Feature: Combating Climate Change through Energy Exploration and Cap-and-Trade
• Resources from CFR: Expert Brief: Trade and Climate Change; Backgrounder: The Debate over Greenhouse Gas Cap-and-Trade
• Watch: Christopher Sands on the Cap and Trade bill

(Image credit: Flickr user PNNL-Pacific Northwest National Laboratory)