Balance of Power

Kevin Book, managing director of research at ClearView Energy Partners, said tough times have transformed climate change from an environmental cause into an economic opportunity. He pegs the fate of any bill on senators from seven cash-strapped, mostly agricultural states whose farmers could profit from actions such as planting trees that offset carbon emissions also are having budget problems. The states are Arkansas, Idaho, Kansas, Missouri, Nebraska, South Dakota and Virginia.

"All other things being equal, we would suggest senators that senators from states with gaping budget hopes may be willing to consider (a climate change bill) if it appears likely to shore up fiscal shortfalls back home," Book writes in a new report.

Support from the midwest and farm-staters could offset defections from Democrats such as Michigan's Carl Levin and Debbie Stabenow and Ohio's Sherrod Brown, who fear that a cap on fossil fuel emissions could hurt their home state manufacturing industries.

The debate is shaping up against a grim economic backdrop. Forty-two states have already had to make mid-year budget cuts worth a combined $31.6 billion due to lower-than-anticipated tax collections, according to the National Governors' Association. The group says states are facing $183.3 billion in remaining budget gaps for fiscal 2009 to 2011. (Every state except Vermont has a balanced budget amendment requiring it to bring spending in line with projected revenues.)

States that run out of money wind up tapping their cash reserves to meet their obligations. When those stabilization funds dry up, officials must raise taxes, float bonds, cut social programs or turn to the federal government for help.

The Obama administration is likely to use the lure of federal dollars with few strings attached as it tries to round up votes for the climate change bill during the August recess.

If that carrot doesn't work, there's always a stick. The EPA is developing regulations that would cap carbon emissions under the Clean Air Act (PL 101-549). Regulating emissions under the current law could prove more cumbersome and expensive. For that reason, Congress is likely to feel compelled to put its own imprint on a cap-and-trade scheme and also look out for its favored industries.