The specter of the oil spill was raised two weeks ago when Interior Secretary Ken Salazar announced the department’s final reforms of its oil and gas leasing policies. Under the new guidelines, the Bureau of Land Management will develop “master leasing plans” in consultation with the public, allowing the agency to review other natural resource issues before deciding to lease lands for development.

“We must continue to move forward quickly and responsibly on our agenda to reform the management of our nation’s onshore and offshore energy resources and our oversight of the companies that develop them,” Salazar said in a statement. “The BLM reforms we are finalizing today establish a more orderly, open, and environmentally sound process for developing oil and gas resources on public lands. The BP oil spill is a stark reminder of how we must continue to push ahead with the reforms we have been working on and which we know are needed.”

Salazar started 2010 proposing these new restrictions on oil and gas leases and drilling permits, following up on his withdrawal one year earlier of nearly 2 million acres in three states that had been approved for development by the Bush administration.

Salazar took another step backward—at least in the view of energy producers—in March when he tightened limits on the use of “categorical exclusions” that had been authorized in the 2005 Energy Policy Act to streamline environmental reviews for new wells on public lands. The action, initially proposed in the changes announced in January, officially came in a settlement of a lawsuit over exemptions from environmental studies that had been granted for thousands of wells in the Rocky Mountain region from 2006 to 2008.

Two weeks ago, Salazar confirmed the agency’s new policy requiring a review of “extraordinary circumstances” before applying the “categorical exclusions” provision. A review would be triggered if the proposed actions were deemed to be of a degree or nature that they warranted environmental analysis.

Already, U.S. Sens. John Barrasso of Wyoming and Robert Bennett of Utah have sponsored legislation to block the reforms, responding to what they see as policies that exacerbate the already “uncertain business environment on public lands,” threatening jobs and communities throughout the West.

The pullback from drilling on federal lands in the West comes just as the need is growing to produce more energy from a region that has an estimated one-quarter of the gas reserves in the continental United States. Additionally, the Gulf spill triggered the recent Obama Administration announcement to freeze new deepwater drilling for six months as well as halted scheduled new exploration in Alaska waters and an upcoming lease sale off the Virginia coast.

Slowing offshore production would be a huge setback in efforts to increase domestic energy supplies, says Barry Russell, president and CEO of the Independent Petroleum Association of America. He cites estimates that there are 288 trillion cubic feet of natural gas and 59 billion barrels of oil still untapped in the Outer Continental Shelf off the U.S. coast, not counting Alaska.

More than half of all domestic supplies of natural gas come from federal lands, with roughly equal amounts produced onshore and offshore, according to the Interior Department.

The Gulf crisis has already made a bad situation worse in the western states, say independent oil and gas producers who do 90 percent of the drilling in the region, providing 236,000 jobs and nearly $6 billion in annual revenues for the federal government.

“It’s kind of hard to imagine it being any more difficult to operate on public lands in the West,” said Kathleen Sgamma, government affairs director for the Independent Petroleum Association of Mountain States, which represents more than 400 energy companies in the region. “Already this year we’ve seen $3.9 billion leave our region as a result of Interior policies that make it even more difficult to operate in our region.”

Now some members of Congress are having “knee-jerk reactions” to the Gulf spill, Sgamma said. “There are already several pieces of legislation that would make it even more difficult to operate onshore in the Rockies,” she said.

One is a bill introduced by Rep. Edward Markey, D-Mass., on the day after the oil rig exploded off the coast of Louisiana on April 20. The legislation would impose new fees on oil and gas leases on public lands that are inactive for more than 90 days per year. The bill is targeted at offshore leases that were exempted from making federal royalty payments under a 1990s law aimed at expanding domestic energy production. But Markey’s bill would apply to leases on both “onshore and offshore lands,” in effect assessing an added annual tax of $4 to $6 per acre for any leases not yet producing oil and gas in the West.

Western producers say Salazar put a chill on their industry as soon as he took office last year and halted leasing on 77 parcels near national parks in Utah that had been opened up by the Bush administration. A few weeks later, Salazar also rescinded lease offers and canceled a low royalty rate that had been granted for oil-shale development on 1.9 million acres in Colorado, Utah and Wyoming.

Last September, Salazar responded to an earlier scandal in the department’s Minerals Management Service (MMS) by eliminating the ability of producers on federal lands to fulfill royalty obligations with oil and gas in lieu of making cash payments. MMS officials were accused several years ago of using the royalty-in-kind program to solicit gifts and personal favors from the industry.

Then Salazar capped a year of new restrictions on western development by announcing regulatory reforms in January 2010 requiring extensive scrutiny of every proposed lease, including “public participation, an interdisciplinary review of available information, confirmation of Resource Management Plan (RMP) conformance, and national, state, and local guidance.”

Salazar also took a swipe at the Bush administration when he announced the changes, saying, “Under the previous administration, the oil and gas companies were kings of the world, with Interior their handmaiden.”

The energy industry responded that such claims are based on misconceptions, when in reality the Bush administration put more than 2 million acres off limits to drilling, designated 750,000 acres as “Areas of Critical Environmental Concern,” and increased the stipulations added to lease agreements.

Oil and gas production did increase on federal lands during the previous administration, the drillers acknowledge, but it has dropped precipitously under President Obama. There were 1,934 fewer leases and 1.1 million fewer acres open to development in 2009 than there were in the first year of the Clinton administration, according to statistics compiled by the Independent Petroleum Association of Mountain States.

Even some Democrats are upset about the trend. “To stifle the growth of this industry in the midst of record-setting national deficit and unemployment levels is not only outrageous but irresponsible,” said Rep. Dan Boren, D-Okla.

Perhaps adding insult to injury, Interior announced in April that it would launch a study of how other countries collect royalties on oil and natural gas as part of an effort to increase the return on development of energy resources on public lands.

U.S. royalty rates are currently 12.5 percent of the value of oil and gas produced from onshore leases and up to 18.75 percent for offshore leases, but a recent study by the Government Accountability Office found that U.S. revenues are well below the royalties received in other countries from oil and gas leases.

Despite the Administration’s claims of support for new domestic oil production, its recent actions both before and after the Gulf spill undermine the important goal of U.S. energy security—and at a significant cost to jobs and local economies.

The wrenching news and photos of the oil spill in the Gulf of Mexico have emboldened opponents of domestic oil and gas development, leaving supporters of this key industry to silently wait their turn until the next oil shortage or spike in gas prices.

An increase of only 10 percent in Russian oil production by 2030 represents a significant challenge to the Russian oil sector. Most of today’s oil production comes from West Siberian oil fields, fields that have been producing oil for decades. Many of these fields have been rehabilitated during the past 10 years and are largely responsible for the 50 percent increase in Russian oil production during the last decade. But many of these fields have been substantially depleted and are nearing the end of their useful lives. To reach the goal of 11 million barrels per day, the Russian oil industry will have to find large amounts of investments to keep Western Siberian fields producing while developing new production in East Siberia, Sakhalin, Caspian and the extreme Northern fields.

Attracting investment in Russia’s oil industry has been a challenge. In 2009, only 60 percent of planned investments were realized in the energy sector as a whole (both oil and gas). While the oil sector has experienced significant investments, it has not been sufficient to stem the high depletion rates of old West Siberian fields, which are about 80 percent depreciated. To meet the goals of the 2030 strategy, four questions must be answered: How much money is needed? Where will this money come from? How much oil does Russia have to meet its future goals? Where is the oil located?

According to the Russian energy strategy, $600 billion must be invested in the oil industry through 2030 (in 2007 dollars). To break down this enormous number, the strategy assumes that the exploration and production (E&P) sector will need $110 billion from today to 2016, an additional $110 billion will be necessary from 2016 to 2022, and, finally, another $275 billion from 2022 to 2030. The remaining $105 billion will be needed in refining, transportation and marketing. According to the strategy, most of the E&P investment (approximately 70 percent) will have to be made in East Siberia and Sakhalin due to the very high cost of development in those regions. To compare this government estimate with a private-sector forecast, Lukoil estimated that $1 trillion would be needed over the next 20 years just to maintain Russian production at the 10-million-barrels-per-day level.

Before answering the question of where the money will come from, the answer to the third question—is there enough oil to reach the 2030 goal—appears to be yes. There is plenty of oil still to be developed. The strategy suggests that 77 billion barrels of oil, a cumulative total, will have to be produced by 2030, requiring Russia to increase its production to 11 million barrels per day in the intervening years. Today, Russia has a productive capacity of about 30 billion barrels. According to the strategy, if $600 billion is invested in production, it will lead to an additional 91.5 billion barrels productive capacity through 2030. This new capacity will be brought on line in stages with most of the new productive capacity in West Siberia (45.4 billion barrels), East Siberia (18.8), European North (4.6), and other areas that include Sakhalin, Volga/Urals, and Caspian (22.7 billion barrels). All the investments are made according to the Russian energy strategy, Russian oil productive capacity will total more than 120 billion barrels (new plus existing capacity). This is more than enough to meet the goal of 77 billion barrels (11 million barrels per day by 2030), with some 40 billion barrels remaining that can be produced in the post 2030 period.

But this analysis assumes sufficient reserves and sufficient investment. Are there reserves to meet these goals? BP’s annual analysis of worldwide reserves indicates that Russia’s proved oil reserves amount to 79 billion barrels, although there are large areas of undeveloped reserves that are not included in this total. Other analysts say that with enough investment in higher-cost regions, Russia could meet its future needs.

This brings us back to the most important question: Where will the money come from to meet the investment needs of Russia’s long-term strategy? In resolving this question, Russia’s fiscal and tax policies play an important role. Since 2004, Russia has put in place an extremely high tax regime to meet its budgetary needs. For exported oil, Russia takes 90 percent of revenues in total taxes on the marginal barrel produced and exported.  For all oil on an average basis, Russia’s taxes take about 60 percent or more of revenues.  To further clarify this analysis, one recent analyst indicated that for the last eight years, Russia’s gross oil revenues were about $1 trillion. Of this, about $700 billion went directly to taxes and only about $150 billion could be considered net income. Out of the $150 billion, only $50-70 billion was reinvested in the domestic oil industry. Many of the large Russian oil companies moved their investments offshore rather than put their money back into Russia. Meanwhile, the state-controlled companies—Gazprom and Rosneft—are not putting sufficient amounts of their profits back into the domestic industry to meet future goals. Foreign investment in the Russian oil sector has been declining sharply due to Russia’s policies of renationalizing oil assets, limiting where investments can be made by declaring the most important oil fields “strategic” (a designation of “strategic” severely limits foreign participation in the deposit), and undermining the investment environment through a variety of hardball tactics, high levels of corruption and the weak rule of law. The level of risk is much too high for large foreign investors in Russia today. While Russia has provided some tax incentives for new fields in East Siberia, these incentives have been viewed as inadequate to draw the kind of investments from Russian and foreign companies necessary to sustain long-term production. Thus, it is questionable whether Russia will be able to attract the level of investment necessary to meet its long-term goals. If this is true, then Russia’s long-term energy strategy is in doubt.

The last question is where is the oil located that will be developed? Today, the Russian oil industry’s focus is East Siberia. Tax incentives, pipeline infrastructure and investments have been concentrated there, making East Siberia the future for Russian oil production. But some analysts do not think that is where Russia’s oil future lies. They believe that West Siberia, Timan Pechora (northern provinces of Russia) and the North Caspian are the regions with the most oil. These analysts estimate that East Siberia only has about 5 billion barrels of oil reserves, far less than estimated in the Russian energy strategy.

The future for the Russian oil industry rests on answering these four questions in a way that supports its strategy to 2030. The plan estimated that $600 billion is needed, while one private Russian company estimated that $1 trillion is necessary. In either case, the level of investment necessary is massive. The strategy indicated that in addition to the current productive capacity of 30 billion barrels, another 77 billion barrels would be needed to increase overall oil production to 11 million barrels per day. Most analysts conclude that Russia has more than enough oil resources (proved reserves and yet-to-be-developed oil) to meet its expectations. While today’s focus of development is on East Siberia, a region that must be developed to meet future needs, some think that more should be going into the traditional regions of Russia and especially West Siberia. Of the four questions raised in this article, the most vital of the outstanding issues is where Russia will find the money to meet its future production goals. Today, both domestic and foreign investments are inadequate. Russia will have to change its investment environment to provide the incentives and stability necessary to attract the level of investment that is essential to meet its future goals. Without sufficient changes in its policies, Russia’s ability to achieve its oil production goals by 2030 is in doubt.

Analysis by Contributing Editor Leonard Coburn

The effort comes at a particularly odd time in Washington given the amazingly bitter negotiations around health care legislation that have proved so contentious that they threaten the viability of the Democratic majorities in both the House and Senate this fall. Still, the administration continues to pursue seemingly incongruous dual track efforts. Legislative strategists are using the threat of carbon regulation by administrative fiat to spur congressional action. Meanwhile, environmental activists see this as an opportunity to bypass Congress and regulate carbon.

In the next few weeks, the Environmental Protection Agency (EPA) is expected to issue new rules for limiting carbon-dioxide emissions from motor vehicles, and it could start laying the groundwork for regulating stationary sources by spelling out which facilities will need emission permits under the Clean Air Act.

EPA Administrator Lisa Jackson has pledged that the permitting process won’t begin until next year, and CO2 limits won’t be set for large emitters such as coal-fired power plants until late 2011 at the earliest. Jackson also committed to keeping the threshold for regulating emissions to well above 25,000 metric tons per year, which would exclude thousands of smaller plants and businesses, at least in the short term. But EPA’s plans have coal-state senators and others pushing hard to block or delay regulations while they continue working on climate and energy legislation.

Sen. Jay Rockefeller, D-W.Va., is drafting a proposal to postpone regulations for up to a year beyond EPA’s timetable, so Congress would have more time to develop an alternative to using the Clean Air Act to address climate change. Sen. Lisa Murkowski, R-Alaska, also has a resolution to block EPA action that has some Democratic support, reflecting the consensus in both parties that new legislation is preferable to administrative action using existing authorities.

“Congress is the appropriate body to address climate policy,” Murkowski said. “Until the specter of command-and-control regulations goes away, it will remain a counterproductive threat hanging over the work that must be done to find common ground.

“EPA regulation of greenhouse gases will increase consumer energy prices, add greatly to administrative costs for businesses, and create massive new layers of government bureaucracy. Such regulation, even slightly delayed, will endanger job creation, economic growth, and America’s competitiveness,” she added.

The bids to delay EPA regulations have taken on more urgency as Senate negotiations on climate legislation have bogged down. A bipartisan trio of Sens. John Kerry, D-Mass.; Joe Lieberman, I-Conn.; and Lindsey Graham, R-S.C., has been leading the effort to craft a climate bill that could get the 60 votes needed to break a likely filibuster. But Graham is threatening to drop out of the group if Democrats use budget reconciliation to enact health care legislation, a move he says would be “catastrophic.”

Graham’s withdrawal would put climate legislation on its deathbed, with no Republicans on board. Regardless, the chance of action on such a sweeping program is already growing slimmer as the midterm elections draw nearer.

Backers of energy and climate legislation haven’t given up yet, though. President Obama has stepped up pressure in recent weeks, telling 100 corporate leaders on Feb. 24, “we need to put a price on carbon pollution.” The administration also unveiled new incentives for nuclear power, carbon-sequestration technologies and solar energy last month.

Obama met on March 9 with key senators involved in the legislative effort, including a handful of Republicans, and asked for more details on a proposal by Sens. Maria Cantwell, D-Wash., and Susan Collins, R-Maine, to establish a “cap-and-dividend” program, in which most revenues from carbon permits sold to fossil fuel producers would be returned directly to U.S. consumers.

There is general agreement on one thing from all sides in the debate:  The cap-and-trade plan approved by the House last year is a non-starter in the Senate.

While the debate goes on, the administration is pushing ahead with its regulatory scheme, arguing it was forced to act after the U.S. Supreme Court ruled in 2007 that greenhouse gases are covered by the Clean Air Act if it is shown they threaten public health. The EPA issued an endangerment finding last year that went on the books in January, and the stage was set for rules limiting CO2 emissions from vehicles and other sources.

“They are definitely on a glide path toward regulation,” said Roger W. Patrick, an environmental attorney at Mayer Brown LLP.  “There is a school of thought that it’s a mechanism to put pressure on Congress, but these things tend to take on a life of their own. Once they start down that path it’s pretty hard to put the stopper back in the bottle.”

Overall, the Obama administration is seeking $1.1 billion for EPA’s clean air and global climate change program in its FY11 budget proposal, with $169 million for reducing greenhouse gases.  It proposed substantial increases in several programs, including $4.1 million more for administering its GHG reporting rule (which would bring the program to $20.8 million), $7 million to develop New Source Performance Standards to control GHG emissions from major stationary sources, $6 million to develop regulations for mobile sources, and $5 million to develop guidance for Best Available Control Technologies to control GHGs.

The administration is also moving to require agencies to include climate impacts in all environmental reviews of federal projects, and it seeks $171 million for adaptation initiatives at the Interior Department, an increase of more than $35 million from 2010 levels.

Other agencies are also getting into the act. The Securities and Exchange Commission voted 3-2 in January to provide guidelines for public companies to evaluate the impact of climate-change laws and regulations when assessing what information to disclose to investors.

The pace of the administration’s initiatives has raised concerns, even within the government. The Small Business Administration’s Office of Advocacy wrote the EPA late last year complaining that it failed to conduct a Small Business Advocacy Review for its proposed GHG regulations. “Instead, EPA certified under the Regulatory Flexibility Act (RFA) that each rule would not have a significant economic impact on a substantial number of small entities,” since small emitters would not be regulated for at least six years, wrote the office’s assistant chief counsel, Keith Holman.

“Advocacy believes that EPA’s RFA certifications are improper because they lack a factual basis,” Holman said. “More than 6 million small businesses will be regulated by GHG permitting requirements after the six-year deferral ends, while at least 1,200 small businesses will immediately become subject to GHG permitting. The economic impact on each small entity can be significant, including permitting application costs, delay costs, and consultant’s and attorney’s fees.”

Energy companies are clearly worried about the cost impacts as well, with some already saying the threat of regulations has created enormous investment uncertainty. Karen St. John, director of regulatory affairs for BP America, recently told an environmental conference that permitting requirements could delay many natural gas and refinery projects, or even lead to some new construction being scrapped.

Other delays will be caused by litigation that is certain to follow every EPA action. The Competitive Enterprise Institute (CEI) and several other groups are already challenging the GHG endangerment finding in federal court, and the CEI, a free-market think tank, has raised questions about EPA’s ability to change the threshold level for regulating gases considered harmful under the Clean Air Act.

The National Cattlemen’s Beef Association also filed a petition in the U.S. Circuit Court in December, arguing that EPA climate regulations would hurt large farms. And in February, the state of Texas joined a coalition of groups asking the federal appeals court to review EPA’s endangerment finding, calling it scientifically invalid. “Texas is aggressively seeking its future in alternative energy through incentives and innovation, not mandates and overreaching regulation,” said Gov. Rick Perry, a Republican. “The EPA’s misguided plan paints a big target on the backs of Texas agriculture and energy producers and the hundreds of thousands of Texans they employ.”

Other states have joined the chorus against federal regulations. The Louisiana Department of Environmental Quality wrote EPA in December that efforts to mandate GHG reductions would have a ‘‘devastating economic impact.’’ And Arizona’s Republican Gov. Jan Brewer recently pulled the state out of a regional cap-and-trade market that was organized by California and is scheduled to open in 2012.  Brewer said the program would raise costs for consumers and slow the state’s economic recovery.

Both sides in the climate debate argue that we are entering a period of peak uncertainty which is having a dampening effect on business investment and job creation.

The Heritage Foundation’s Patrick Tyrrell makes this point in The Foundry blog.  “Businesses have to deal with nearly unprecedented levels of uncertainty due to Washington’s inability to give them a clear roadmap of what policy changes lay ahead. A large part of this uncertainty is about the level of future taxes and increased regulations. Businesses are reluctant to hire when they could be facing additional labor costs due to government policies.  This, at a particularly vulnerable time due to the credit crunch and financial crisis, spells a death sentence for many small businesses, and stunts the growth of others.”

Michael Tubman of the Pew Center on Global Climate Change argues in his blog post on the Alaskan natural gas pipeline that the lack of a carbon policy is hindering growth.  “Backers of the gas pipeline are excited about its prospects to bring about a new round of growth in the local and national economies.  Yet the project needs regulatory certainty to move forward, and national climate legislation this year is an important step in that direction.  It should be no surprise that major companies involved in discussions over a gas pipeline, including USCAP members BP and ConocoPhillips, are, for a variety of reasons, looking for certainty in climate regulation; without this certainty, investment will almost certainly be stalled.  Congress needs to act this year in order for business to move forward with new projects, innovate, and grow our economy.”

For our part, we continue to believe that climate change legislation is highly unlikely this year, and surely dead if Republicans take control of either chamber in the November election.  We have made this prediction several times in the Report but it has become increasingly clear in recent weeks, even proponents of climate change.

While administrative action might provide some certainty, the EPA has started down the road of no return on carbon regulation.  What started as a strategic tactic to spur Congress to take action on climate change may have turned into its own Don Quixote-like crusade, despite the widespread opposition from Democrats and Republicans in Congress and the statehouses. Given the current melee over health care legislation and lack of legislative success on climate change, the real concern is that the Obama administration’s approach will harden and it will seek to enact its carbon policy through regulation only. Unfortunately, the period of peak uncertainty is here to stay.

In just the first three weeks of the year, one of the key players on energy policy, Sen. Byron Dorgan, D-N.D., has announced his retirement and the special election to replace the late Sen. Edward Kennedy, D-Mass., has sent shock waves through the Democratic Party.

Republican state Sen. Scott Brown’s stunning victory over Democrat Martha Coakley not only takes away the Democrats’ 60-vote majority in the Senate, it puts a chill on major initiatives in this Congress. The unexpected result in the bluest of blue states sent a strong message against the current direction in Washington and is likely to make Democrats very nervous about enacting any new big government programs like a cap-and-trade law.

The retirement announcements by Dorgan, chairman of the Senate Appropriations Subcommittee on Energy and Water Development; Sen. Christopher Dodd, chairman of the Senate Banking Committee; and a half dozen Democrats in the House, including Science and Technology Committee Chairman Bart Gordon, D-Tenn., and Rep. Brian Baird, D-Wash., chairman of the Science and Technology Subcommittee on Energy and Environment, have added to a sense of turmoil in the Democrat majority.

Dorgan’s decision not to seek a fourth term in the Senate this year is especially unsettling for energy policy. Dorgan, a House member for 12 years and a senator for 18, was among the top candidates for Energy Secretary at the start of the Obama administration. In his retirement announcement, Dorgan said that after Congress he would “like to work on energy policy in the private sector.” The odds are it would be for the coal industry, since North Dakota is a major coal state.  That makes it even more likely Dorgan will oppose a cap-and-trade system to control greenhouse gas emissions, which would be costly for coal-fired power plants.

Dorgan has already come out against an emission-trading system run by the financial markets.  “I want to find ways to protect our environment and I support reducing carbon,” he said in a recent op-ed for North Dakota newspapers. “But it makes no sense to me to hand Wall Street a new trillion-dollar carbon securities market so they can engage in the kind of speculation that steered our economy into the ditch.”

Opposition from key Democrats like Dorgan makes one thing crystal clear: Climate-and-energy legislation passed by the House last summer is a non-starter in the Senate.  Even some House Democrats who voted for the bill, including Agriculture Committee Chairman Collin Peterson, D-Minn., now say they would oppose the measure if it comes back for final action.

Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M., has acknowledged there is little chance of the Senate approving the kind of cap-and-trade program included in the House bill.  “I do think opponents of cap-and-trade legislation have done a pretty effective job of portraying the proposal as a tax on energy use,” Bingaman told New Mexico reporters on Jan. 11.

“My own sense is at this time that we have strong support in the Senate to do something significant to move toward more use of renewable energy and more efficient use of energy,” Bingaman said.  “I don’t know that we have the votes for any cap-and-trade proposal that I have seen floated here in the Senate.”

Bingaman and Dorgan want the Senate to at least move forward on the bill approved by the Energy and Natural Resources Committee last June, with provisions for more alternative energy, grid development, carbon-storage technology and conservation. Dorgan also added a section to expand drilling in the eastern Gulf of Mexico, which geologists say includes at least 21 trillion cubic feet of natural gas and 3.7 billion barrels of oil.

Of course, many Democrats are still advocating for a broader approach that includes some effort to tackle climate change. Sen. John Kerry, D-Mass., a chief sponsor of the bill approved in November without Republican participation by the Senate Environment and Public Works Committee, acknowledges it will be difficult to move the measure, largely modeled after the House-passed bill.  But Kerry argues that the pressure for an international agreement on climate change—even the minimal goals outlined in Copenhagen in December—“can be a catalyzing moment” for the Senate.

Environmentalists like Daniel Weiss, a former Sierra Club lobbyist now with the Center for American Progress, note that China and India made their first real commitments in Copenhagen to reduce rates of pollution growth relative to their economies, which should help convince skeptics that the United States needs to show leadership, too. Weiss also said on the environmental news Web site Grist that with the EPA poised to act on greenhouse gases if Congress does not, there is a “sword of Damocles hanging over the Senate should it fail to act.”

Sen. Lisa Murkowski, R-Alaska, the ranking member of the Energy and Natural Resources Committee, has pledged to bring a bill to the Senate floor soon aimed at blocking EPA regulation of greenhouse gases for at least a year. Murkowski appears to have some support from Democrats who prefer that Congress act first, but even if her measure passes it would be difficult for both the House and Senate to muster the two-thirds majority needed to overcome a certain veto by President Obama.

But the biggest obstacle to climate legislation is probably the struggling economy. After the wrenching and divisive debate on health care, it is unlikely many Democrats have the stomach for another bruising battle in which they would be accused of killing jobs and hindering economic growth.

The anxiety will only intensify in the buildup to the November elections. Democrats know that the party in the White House historically loses congressional seats in midterm elections, and political analyst Charlie Cook says Democrats hold 40 of the 50 most competitive House districts at the start of the 2010 campaign season.

In the Senate, Majority Leader Harry Reid is well down in the polls as he seeks a fifth term in Nevada.  And several strong GOP candidates—former Hewlett Packard CEO Carly Fiorina, state Sen. Chuck DeVore and former U.S. Rep. Tom Campbell—are vying to take on Sen. Barbara Boxer, D-Calif., leader of the Environment and Public Works Committee.

While Republicans have worries of their own in the Senate with six announced retirements, none of them are game-changers on the climate change legislation. The six retirements are Sens. George LeMieux of Florida, Sam Brownback of Kansas, Jim Bunning of Kentucky, Kit Bond of Missouri, Judd Gregg of New Hampshire and George Voinovich of Ohio.

What spells more trouble for climate change proponents are recent and continuing developments at the state level. The election of Republican Gov. Bob McDonnell in Virginia signals the kind of changes that may be in store for the states, as well. McDonnell pledged in his Jan. 16, 2010, inaugural speech to open more offshore areas to drilling in his administration.

And California Gov. Arnold Schwarzenegger, a Republican who has made action on climate change a hallmark of his administration, is on his way out this year after opting not to seek another term. He won a special recall election in 2003 and a full term in 2006. During his tenure Schwarzenegger pushed through a law capping the state’s greenhouse gas emissions at 1990 levels by 2020, with a goal of cutting emissions to 80 percent below 1990 levels in 2050.

Critics say the climate effort is one reason California has an unemployment rate over 12 percent, but it remains to be seen whether state leaders will try to backtrack on climate regulations once Schwarzenegger leaves office.

With an uncertain electoral future ahead, Democrat leaders are still clinging to the notion that a climate bill can be passed by this spring. The Abraham Energy Report believes it is unlikely as the election heats up in states that have been hit hard by the economic crisis and that are still powered by heavy industry.

The more likely scenario is that the renewable and other clean energy provisions pushed through Bingaman’s Senate Energy and Natural Resources Committee will pass as a stand-alone bill or be attached to the Senate “jobs” stimulus bill, which is currently being assembled by Majority Whip Dick Durbin and Dorgan.  Without such an innovative compromise, energy legislation—and most certainly a climate bill—will be on hold until 2011 at the earliest.

The Soviet Union changed the region’s political dynamic, especially around energy, when it brought the five “stans” and the Caucasus within its sphere.  Under Soviet rule, the energy trade developed in a north-south pattern, with all pipelines moving north into Russia and avoiding the traditional east-west paths of the Silk Road.

Since the demise of the Soviet Union in 1991, many cracks developed in Russia’s energy hegemony over Central Asia and the Caucasus.  Diversification of oil routes occurred first, starting in the mid-1990s and continuing to the present.  Diversification of gas routes occurred much later and is only now resulting in multiple gas export routes.

Today, the players in the region are numerous: Russia, which is attempting to maintain its political and economic hegemony over the region; China, which is entering into long-term relationships to sustain economic growth and energy security; the European Union, which is developing new sources of gas to meet future demand and to enhance its energy security; the United States, which is seeking to augment its influence to counterbalance Russia and China; and the nation’s that make up the region are attempting to forge a delicate balance among these competing interests.

The international effort to break the Russian monopoly on transport routes is at the forefront of the new energy politics in the region. In this heightened political atmosphere, the oil and gas pipelines crisscrossing the area have become, in effect, the modern version of the Silk Road.

OIL PIPELINES

In the post Soviet era many cracks developed in the Russian oil pipeline monopoly.  The United States, with European backing, supported this diversity with its multiple pipeline strategy.  Today, route diversity and competition undermine Russia’s former monopoly.

The first crack developed in Azerbaijan in the 1990s with pipeline and rail routes starting in Baku, Azerbaijan and transiting Georgia carrying oil to the Black Sea ports of Supsa and Batumi.  The second crack, the Caspian Pipeline Consortium (CPC) pipeline, opened in October 2001 carrying oil from Kazakhstan’s Tengiz oil field to the Black Sea via Russia. CPC was the first and remains the only oil pipeline within Russia not controlled by state-owned Transneft, Russia’s oil pipeline monopoly.  The third crack, the Baku-Tblisi-Ceyhan (BTC) pipeline open in July 2006, from Baku to Ceyhan, Turkey, a deepwater port on the Mediterranean.

The next crack was the completion of the Kazakhstan to China oil pipeline in July 2006, now extended across Kazakhstan to Atyrau to link up with its western oil fields.  Finally, Kazakhstan developed a trans-Caspian barge system shipping oil from the port of Aktau via barge to the BTC pipeline.

GAS PIPELINES

In Soviet times, all gas pipelines went north and connected with the Russian gas system. The emergence of Gazprom in the 1990s as Russia’s state controlled gas monopoly continued Russia’s domination of Central Asian gas transportation. The Central Asia Center Pipeline (CAC) connected Kazakhstan, Turkmenistan, and Uzbekistan for distribution of gas within the region and export to Russia. Gazprom contracted with the three countries to buy all the available capacity in the CAC system maintaining Russia’s dominance.

Alternatives are dissipating Russia’s gas monopoly.  Azerbaijan’s Shah Deniz Caspian gas field development led to the South Caucasus Pipeline (SCP) that carries gas from Baku through Tbilisi, Georgia to Erzurum, Turkey (or BTE pipeline), connecting to the Turkish gas pipeline network.  SCP began gas exports in 2007, marking the change of Azerbaijan from a net importer of Russian gas to a net exporter of its own gas.

In June 2009, Azerbaijan’s President Aliyev signed an agreement with Russia’s President Medvedev for Azerbaijan gas exports to Russia.  An implementing agreement was signed in October 2009 running from 2010 to 2014 for the sale of 500 million cubic meters per year.

Russia thought it staged a coup by buying Azeri gas precluding Azerbaijan’s commitment to Nabucco.  Closer analysis revealed that Azerbaijan did better since it sold its surplus gas for a limited period of time at world prices, but retained the ability to commit gas in the future to Nabucco since Nabucco is not expected to begin operations until 2015, a year after the Russian contract expires.  Azerbaijan continues to seek gas export alternatives and is working with Bulgaria for pipeline and tanker movements of compressed natural gas for additional gas exports.

Turkmenistan is opening another wedge in Russia’s dominant gas position.  Gazprom turned to Turkmenistan when its own Russian production leveled off and found that it was cheaper to buy Turkmen gas than to develop its own Yamal gas fields.  Under President Niyazov, Turkmenistan sold its gas to Russia or Ukraine, while making overtures to the west about a trans-Caspian pipeline.  This situation continued until the death of Niyazov in December 2006.

Turkmen President Gurbanguly Berdymukhamedov was elected in February 2007.  Later in 2007, he signed an agreement with Russia to expand the Prikaspiiski pipeline system running along the eastern shore of the Caspian.  With Gazprom’s contracts for all the capacity of the CAC gas pipeline system and the expansion of the Prikaspiiski pipeline, it appeared that Russia re-asserted its hegemony over Central Asia gas.

This illusion did not last long.  Turkmenistan and China signed a gas export deal in December 2006 (weeks before Niyazov’s death) for the export of gas to the east.  Construction of the Turkmen section began in August 2007 and completed in November 2009.  The Uzbek section began construction in June 2008, while the Kazak section began construction in July 2008.  The Chinese National Petroleum Company (CNPC) is providing most of the financing for the pipeline.  China and Turkmenistan expect that gas will start flowing in the Turkmen section in December 2009 and small volumes of gas will reach China in early 2010. The initial agreement was for 30 billion cubic meters per year for 30 years, now increased to an additional 10 billion cubic meters per year.

In the meantime, negotiations with Gazprom over the expansion of the Prikaspiiski pipeline continued and still have not been completed primarily due to lack of agreement over price terms. A 600 km east-west spur line also was to be built and financed by Gazprom to connect central Turkmenistan gas fields with the expansion.  Rather than rely on Gazprom financing, Turkmenistan requested tenders from international companies for the pipeline’s construction. Turkmenistan now thinks that Gazprom lacks the financial capacity to complete the east-west spur.

The recession of 2008-2009 changed Gazprom’s situation. Gas demand from Europe, Gazprom’s prime export market, fell by 25-30% or more.  In 2009, Gazprom’s gas prices fell as its gas contracts are oil price linked following oil prices with a six to nine month lag.  With Gazprom paying “world prices” for Turkmen gas in Central Asia, Gazprom was losing significant amounts of money on every cubic meter of Turkmen gas it was selling in Europe or at home.  Gazprom needed relief from its Turkmen gas contracts.

On April 9, 2009, a blast occurred on the CAC-4 section of the Turkmen-Russian pipeline stopping all Turkmen gas shipments to Russia. Whatever the cause, no gas flowed from Turkmenistan to Russia since the explosion.  On April 24, 2009, at a two- day international energy conference in Ashgabat, President Berdymukhamedov declared Turkmenistan’s energy independence from Russia.  Berdymukhamedov’s statements have important implications for China, EU and the US.  He said, “Today we are looking for conditions to diversify energy routes and the inclusion of new countries and regions….Turkmenistan must create a new system of relations with Europe.  In the current situation, the diversification of energy routes could help to stabilize the global economy.”  He continued  that “it is normal and absolutely justified…for any energy producer country wishing to maintain its economic and energy security to assert its national interests….Energy security has been the cornerstone of the foreign economic strategy of Turkmenistan.”

Representatives from the United States in attendance at the conference expressed interest in having Turkmen gas committed to a trans-Caspian pipeline route.  European representatives also in attendance were seeking commitments to supply gas to Europe.

Turkmenistan is working with China to develop its South Yoloten gas field in eastern Turkmenistan.  Some estimates have placed the reserves in this field as high as 14 trillion cubic meters, which is about twice current total Turkmen reserves.  CNPC is the first foreign company to develop a major onshore field under license in Turkmenistan. China has provided a $4 billion line of credit for the development of South Yoloten. China also is financing a fertilizer plant that will export its output to China.  Additional incentives have been offered as well.

The EU is seeking commitments from Turkmenistan for its proposed Nabucco pipeline, from Azerbaijan through Turkey to Europe. President Berdymukhamedov indicated  recently that South Yoloten has enough gas to also supply Europe through Nabucco. On July 13, 2009, Nabucco and its partners signed transit agreements with Turkey and European countries (Bulgaria, Romania, Hungary, Austria) to permit Nabucco to carry gas across each country’s territory.  The EU is now more optimistic than at any other time that Nabucco will be built.

A relatively new pipeline proposal, White Stream, a private venture, may provide an opportunity to carry Azeri gas directly to Europe, bypassing Turkey.  The private companies would transport gas across Georgia (relying on a 100 mile pipeline from the South Caucasus Pipeline to Supsa), then under the Black Sea to the Romanian coast near Constanta and then using Romania’s gas transmission on to EU markets.

Since the demise of the Soviet Union in 1991, many cracks developed in Russia’s energy hegemony over Central Asia and the Caucasus.  Diversification of oil routes occurred first, starting in the mid-1990s and continuing to the present.  Diversification of gas routes occurred much later and is only now multiplying gas export routes.  All the countries of the region rely on pipelines for their energy trade, the modern day version of the old silk routes.

Analysis by Abraham Energy Report Contributing Editor Leonard L. Coburn

The “U.S.-China Joint Statement” highlighted a panoply of areas in which bilateral cooperation would be increased:  military, civilian aviation, space, health, agriculture, culture and education, legal, economic, trade and investment, counter-terrorism, nuclear non-proliferation and security.

But an entire section of the Statement was reserved for “Climate Change, Energy and Environment.”  This is hardly surprising, given the leading roles of the U.S. and China in the global climate change debate, particularly since the U.S. never joined the Kyoto Protocol and China, as a developing country, was not obliged to do so.

Yet, China is the world’s largest coal producer and consumer and the U.S. is second; combined, the two countries account for more than 60 percent of worldwide coal production and use.  China recently surpassed the U.S. as the largest source of greenhouse gas emissions.

With so much at stake, the two sides reached agreement on cooperation in seven specific areas:

1. A U.S.-China Clean Energy Research Center.  The two presidents announced the establishment of the center to facilitate joint research and development of clean energy technologies, with public and private funding of at least $150 million over five years.  Initial research priorities will be energy efficiency in buildings, clean vehicles and clean coal technology, including carbon capture and storage.
2. A U.S.-China Electric Vehicles Initiative. The initiative will include demonstration projects in more than a dozen cities, joint standards development, technical road mapping and public education projects.
3. A U.S.-China Energy Efficiency Action Plan. Under the plan, the U.S. and China will work on improving the energy efficiency of buildings, industrial facilities and consumer appliances.  They will develop, with their business sectors, energy efficient building codes and rating systems, benchmark industrial efficiency, train building inspectors and industrial facility energy auditors, harmonize test procedures and performance metrics for consumer products and exchange best practices in energy efficiency labeling systems.  A new U.S.-China Energy Efficiency Forum will be held annually, rotating between the two countries.
4. A U.S.-China Renewable Energy Partnership. They will develop roadmaps for widespread renewable energy deployment in both countries, including support for state and regional efforts.  A new U.S.-China Renewable Energy Forum will be held annually, rotating between the two countries.
5. 21^st Century Coal. In addition to efforts under the Clean Energy Research Center, the two countries are actively engaging industry, academia, and civil society in advancing clean coal and CCS solutions.  The two presidents also welcomed a number of bilateral commercial clean coal technology efforts.
6. A Shale Gas Initiative. Both countries will use experience gained in the U.S. to assess China’s shale gas potential, promote environmentally sustainable development of shale gas, conduct joint technical studies, and promote shale gas investment in China through the U.S.-China Oil and Gas Industry forum and other venues.
7. A U.S.-China Energy Cooperation Program. The program will leverage private sector resources for project development work in China on renewable energy, smart grids, clean transportation, green buildings, clean coal, combined heat and power, and energy efficiency.  More than 20 companies are founding members of the program.

During the Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in Singapore,  President Obama joined in a statement that lowered expectations for Copenhagen.  The President expressed support for a proposal from Danish Prime Minister Lars Lokke Rasmussen to pursue a two-step process at the Copenhagen summit:  formulation of a nonbinding, but comprehensive and operational agreement by the 192 nations at the summit for reductions in greenhouse gas emissions and aid for developing nations to adapt to climate change, while also promising to work toward a binding global pact in 2010.  The binding pact would include firm emissions targets, enforcement mechanisms and specific pledges of aid to poorer nations.

A week after his return from Beijing, President Obama announced that he would attend the Copenhagen climate talks and pledge a provisional target for a reduction in U.S. greenhouse gas emissions.  According to Administration officials, the pledge would be to reduce GHG emissions 17 percent below 2005 levels by 2020 and 83 percent by 2050.

The day after the President’s announcement, China’s Foreign Ministry spokesman Qin Gang announced that Chinese Premier Wen Jiabao also would attend the Copenhagen climate summit.  The same day, China’s State Council, its highest policy-making body, stated that China would reduce the intensity of carbon dioxide emissions per unit of GDP in 2020 by 40 to 45 percent compared with the 2005 level.  Since China’s economy is expected to continue its strong growth, the “carbon dioxide intensity” reduction does not imply any actual reduction in carbon dioxide emissions.  Perhaps China learned from the U.S.  Reducing carbon dioxide intensity, rather than carbon dioxide emissions, was an alternative solution that then President George W. Bush unveiled to skepticism in February 2002.  But unlike the Bush plan, the Chinese energy intensity proposal is receiving positive reviews.  The White House reportedly welcomed “China’s intention to cut the growth of their emissions” and noted “the international community will be closely analyzing this proposal.”

Connie Hedegaard, Danish minister for the UN Climate Change Conference in Copenhagen and, until Nov. 24, Danish climate and energy minister, observed that the “U.S. and China have come forward.   This is good news.  However, we must analyze more carefully what the new Chinese announcement translates to” compared to business as usual. On the U.S. targets, she commented that they “might not be what the world has been hoping for, but that the U.S. seems to know that the price for coming late is that the pathway for reductions after 2020 will be extra steep.”  Hedegaard has been named the next EU climate commissioner.

The President had to navigate treacherous waters between China and the U.S. Congress on climate change.  While the U.S. House of Representatives already has passed a climate change bill with cap-and-trade provisions and U.S. emissions targets, consideration of a bill by the U.S. Senate will not occur until next year.  China has made clear that developing nations, including China, should not be asked to take on binding targets before developed countries, including the U.S., who contributed most of the existing greenhouse gas concentrations do.  Congress, especially the Senate, has made it equally clear that the U.S. should not be expected to take on binding emissions targets—and the trade disadvantages that could ensue—without binding targets on the large developing countries—particularly coal-dependent China and India, both of which will account for the bulk of emissions growth.

Whatever the outcome at Copenhagen, both the U.S. and China, in their national stimulus programs and in the joint efforts announced during the President’s visit in Beijing, are committing their countries to lower-carbon futures. Those commitments have come in economic and policy incentives to become more energy efficient, to advance the penetration of renewable and nuclear energy, to foster alternative fueled vehicles, to use coal more cleanly, and to promote domestic production and use of natural gas.

The extensive effort put forward by the Administration on energy and environmental cooperation with China is unprecedented, and it opens up a realm of possibilities going forward for both nations in terms of their economic, energy and environmental futures.

Analysis by Abraham Energy Report Contributing Editor Robert Price

Even without a formal, legal agreement emerging from this month’s climate negotiations in Copenhagen, the historic gathering of 192 nations still could provide important signals of what a future international accord may look like.

Coal and oil will still be kings for at least a few more decades, to be sure. The International Energy Agency (IEA), in its annual World Energy Outlook report last month, estimated a 40 percent rise in energy demand by 2030, with 77 percent of the increase being met by fossil fuels.

The United Nations’ Intergovernmental Panel on Climate Change (IPCC) has urged developed nations to reduce emissions as much as 40 percent from 1990 levels by 2020 so that climate change can be stabilized, and in the long term, to reduce emissions at least 80 percent by 2050.  Advocates for action on global warming have long hoped that the talks in Copenhagen, being described as the largest environmental meeting in history, would result in a treaty that put the world on track to reach those goals.

However, all the goals set by industrialized nations heading into the conference fall short of the IPCC targets.  The Obama Administration recently pledged to cut U.S. emissions 17 percent below 2005 levels by 2020, which amounts to a 4 percent reduction from 1990 levels. China, which recently surpassed the United States as the biggest emitter of carbon dioxide, has pledged to reduce its “carbon intensity,” or the amount of CO2 released for each unit of GDP, by 40-45 percent from 2005 levels by 2020, but the result could be little actual reduction in emissions, considering the expected growth of China’s economy.  The European Union, the third-largest source of emissions, proposes cutting 20 percent below 1990 levels by 2020, and by 30 percent if other wealthy nations follow suit.

Leaders of the Copenhagen summit have already conceded that a binding agreement will not be reached before the talks close Dec. 18. The head of the host country, Danish Prime Minister Lars Lokke Rasmussen, has proposed that participants instead negotiate a political deal, and then set a firm deadline for writing a formal treaty.  “We are not aiming to let anyone off the hook,” Rasmussen said when he unveiled his plan in mid-November.

In addition to developing a scheme for reducing emissions, negotiators need to address how mitigation efforts will be verified, how much money rich nations will provide poorer nations to deal with climate change, and how intellectual property rights will be protected in technology transfers.

Many climate advocates cite as a chief reason for the lowered expectations at Copenhagen as the failure of Congress to enact climate legislation, leaving U.S. negotiators with nothing to back up their verbal promises. President Obama plans to attend the start of the summit on his way to Oslo to pick up his Nobel Prize, but his presence alone cannot guarantee to other nations that U.S. action will follow.

“The administration has spent the last month or so really reducing the expectations for the conference,” says Bracewell & Giuliani partner Scott Segal, who represents energy companies on climate issues. “They are expecting limited results, and I am not sure the pieces are in place to change that.”

In fact, the U.S. pledge to cut its emissions by 17 percent below 2005 levels is merely a statement of the goal established in the climate bill that passed the House in May.  A 20 percent goal is outlined in legislation pending in the Senate, but the administration’s use of the House number in its announcement that Obama would go to Copenhagen implied a lack of confidence that the Senate will pass a stronger bill.

Some observers believe a dose of reality in the lead-up to Copenhagen is not all bad.  “A year or two ago, people expected Copenhagen to produce the equivalent of the Kyoto Protocol—a comprehensive climate roadmap for the next decade or more,” said Dan Farber, director of the Environmental Law Program at the University of California, Berkeley, on his blog.  “It seems unlikely that the Copenhagen meeting will live up to those expectations, although there’s always the chance of a last-minute surprise.”

At the same time, Congress is inching ahead on legislation, many states are adopting climate programs, the EPA is strengthening regulations, and major developing nations like China and India are showing signs of flexibility on mitigation efforts, Farber noted.  “So there is reason to be optimistic looking forward, even if nothing major comes out of Copenhagen,” he said. “One way or another, Copenhagen is just one stopping point on a long road.”

The big question is whether that road will lead to more of the same policies that doomed U.S. participation in the Kyoto agreement—caps on emissions for developed countries; no limits on emissions from developing nations like China and India—or whether a genuine transition from carbon-based energy to cleaner sources can be engineered.

Top U.S. climate negotiator Todd Stern has made clear that any framework based on Kyoto will be rejected again. “We have to send the message, in word and deed, that the effort to reach a new climate change agreement is not simply about putting a cap on emissions, it is about development—low-carbon development,” Stern told the House Foreign Affairs Committee in early November.

Numerous studies this year have argued for wholesale restructuring of the global energy economy. One by the office of former British Prime Minister Tony Blair and the London-based Climate Group said direct investment in clean-energy development on a worldwide collaborative basis would be less costly and more effective than capping emissions and spending on mitigation.

Another report in November by World Wildlife Fund International concluded: “Runaway climate change is almost inevitable without specific action to implement low-carbon re-industrialization over the next five years.”  The study conducted by Climate Risk Pty. Ltd. of Great Britain and Australia said achieving an 80 percent reduction in greenhouse gases by mid-century will require worldwide investment of $400 billion annually until 2025 in energy efficiency and clean generation technologies, low-carbon agriculture and sustainable forestry.

The IEA made a similar estimate in its World Energy Outlook 2009 report. The agency said “cumulative incremental investment of $10.5 trillion is needed” in low-carbon energy technologies and energy efficiency by 2030, but it said those costs would be mostly offset by $8.6 trillion in savings on energy costs in transportation, buildings and industry from 2010 to 2030.

None of this means investments in fossil fuels will decline in the coming decades as the oil, gas and coal industries scramble to meet energy demands that will begin rising quickly once the global recession ends.

The head of British Petroleum, Tony Hayward, projects that $1 trillion a year will be invested in energy development worldwide until 2030, with much of the money going for crude oil and other fossil fuels. “I don’t believe there’s a shortage of fossil fuels…We have around 40 years of oil and 60 years of gas at the current consumption rates,” Hayward told the Commonwealth Business Forum, a meeting of more than 50 countries, in late November.

Peter Voser, CEO of Royal Dutch Shell, made a similar forecast in an October speech to the World Business Forum in New York, saying that “even with rapid growth of renewable energy, fossil fuels and nuclear power will still supply at least 70 percent of the world’s energy in 2050.”

The transition to cleaner forms of energy will take decades, Voser said, noting that it typically takes 25 years for a new source to capture just 1 percent of the energy market.

China provides a perfect example of the problem. While the government’s goal in the world’s largest and fastest-growing nation is to have 20 percent of its energy come from renewable sources by 2020—and it has doubled the number of wind-energy plants in each of the last four years and committed to building 30 new emission-free nuclear power plants—China also has plans to build more than 550 new coal-fired power plants over the next eight years. As a result, some experts expect China to account for half the world’s growth in greenhouse gas emissions over the next 20 years.

To help address that dilemma, the IEA in a separate report this fall called for construction of 3,400 carbon-capture and storage projects by mid-century, mostly in developing nations that will account for 97 percent of the growth in emissions. The cost would be more than $5 trillion, with $275 billion needed in China and India just for construction of 62,000 miles of underground pipelines. Indeed, one of President Obama’s key achievements on his recent Bejing trip was the establishment of a robust new initiative with U.S. and China cooperation on clean coal research and development.  Norway has suggested a World Bank trust fund should finance CCS projects, as a way to meet the demands of developing nations and that the industrialized world bears the brunt of climate change mitigation costs.

Yvo de Boer, executive secretary of the United Nations Framework Convention on Climate Change, has called for global spending of $100 billion annually to help vulnerable nations adapt to climate change and $200 billion annually to develop clean energy sources.

Thanks largely to the recognition of de Boer and other negotiators that there is insufficient time and consensus among nations to craft a legally binding agreement, it seems more realistic to develop something akin to a political agreement—one where the President’s and China’s aspirational limits on carbon emissions can set the stage for longer-term negotiations.  In the meantime, the U.S. and global economies need time to recover.  Until the U.S. economy is growing again and the 2010 elections are completed, it is highly unlikely that Congress will take any action on climate legislation.