As oil prices and global temperatures both skyrocket, discussions about climate change solutions grow increasingly complex and increasingly tense. Important legislation designed to curb emissions is pending in Congress, but throw in a presidential election, a weakening dollar, and increasingly tight budgets into the mix, and the future of any such measures is decidedly uncertain.

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So where do we stand? What exactly does the legislation mandate? Is it at all feasible? How much would it cost you and your family? How are businesses reacting? We put these questions and others to Terry Tamminen, who has a very full environmental portfolio. He is former chief policy advisor for California Governor Arnold Schwarzenegger. He’s author of Lives Per Gallon: The True Cost of Our Oil Addiction. He’s Operating Advisor to Pegasus Capital Investors, which focuses on innovative clean-tech companies, and where he heads a team that helps states with the development and implementation of environmental policies. And on top of that, he’s also the Cullman Senior Fellow with the New America Foundation, where he spends his time advising world leaders on how to design and implement climate-change solutions. There’s been lot of talk about the climate-change legislation that’s pending in Congress. What exactly is this bill all about? The latest bill to tackle climate change is the Lieberman/Warner “America’s Climate Security Act” [also known as S. 2191]. It sets up a cap-and-trade system and other measures to reduce greenhouse gases as close to the sources as possible. Because of the more than 180 amendments to the bill that have been considered, many still unresolved, it’s uncertain exactly what S2191 would accomplish, but generally speaking, it would reduce U.S. greenhouse gas emissions to 1990 levels within 20 years or less, followed by more dramatic reductions comparable to those being attempted by the rest of the developed world under the United Nations’s Kyoto Accord. Aren’t some states already taking action along these lines? They are, and unlike its predecessors, S2191 recognizes that much of this work is already being done by states and regions. Over 30 states now have, or are developing, comprehensive climate action plans, which include participation in one of the three regional cap-and-trade markets that have been created by states. S2191 rewards these early-action states and sets minimum requirements for laggard states to get started.

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If it were to pass, what sort of ramifications would the bill (S 2191) have for American families and businesses? Climate legislation in the U.S., whether federal or state, will have interesting results for all of us. The use of market mechanisms, like cap-and-trade, will force industries that burn large volumes of the dirtiest fossil fuels to internalize the cost of pollution, which will likely cause price increases. But it will reward energy-efficiency and the use of renewables like solar and wind power. These costs may be passed on to consumers, but experience shows that it could actually lower costs in the long run. The legislation would make us less dependent on fuels like oil that is unpredictable in terms of both availability and price. Total costs will also be lower, because renewable energy (increased development of which is a likely outcome of this legislation) does not impose other costs on the taxpayer, such as defense costs, lung cancer, crop damage, and toxins in food (like mercury from coal-fired power plants). Can you give us an example of how costs are lowered in this way? California passed regulations over the past 30 years that incentivize energy-efficient appliances, buildings, renewable energy investments, and conservation. The result is that our average price per kilowatt of electricity is nearly the highest in the nation, but average bills are among the lowest. Californians consume 40 percent less electricity than average Americans — and we have plenty of flat panel TVs, hot tubs, and air conditioners in the desert — showing that energy prices are less relevant to consumers and businesses than how energy is generated and used. The same could be true for thoughtful pricing around greenhouse gases, whether imposed by strict regulation and fees or by cap-and-trade systems. When you say the “long-run” how long are we talking?

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The most rapid climate solutions are in energy efficiency, which can pay immediate dividends by lowering electricity and transportation fuel costs. For example, Wal-Mart estimates that if each of their 100 million customers bought just one compact fluorescent light bulb to replace an incandescent bulb, those customers would save a combined $3 billion in energy costs over the life of the bulbs (which can be as long as 20 years). In the longer term, someone who installs solar panels on their rooftop can pay for the investment in as little as 7 years, after which they are harvesting free electricity that is more reliable than the grid. Looking even longer term, when we retire coal-fired electricity generators and petroleum powered cars and trucks, we save money on the replacement fuels and even more on health care costs related to air pollution and the massive subsidies we now pay to the fossil fuel and nuclear industries. Isn’t seven years a long time for the average American who’s trying to put kids through school and food on the table? People save money on electric bills immediately by installing more efficient light bulbs; save money for families and businesses at the gas pump immediately by driving in more fuel-efficient ways (you’ll find tips here); and so on. Of course, investing in things like solar panels may take many years to pay back, but that investment not only saves money in the long run, it guarantees energy pricing and insulates consumers from blackouts and price spikes in the future. What about the impact of renewable energy on food prices? The price of oil and petroleum fuels, both shrinking resources under pressure from increased demand globally, are more responsible for rising prices of food (and everything else that families buy) than using corn for ethanol. That said, many of us have predicted the problem with using crops for fuels — my book talks about this — and don’t endorse that approach. What would it take for the bill to pass?

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Right now, it’s clear that no comprehensive climate legislation will pass this Congress, but every failed attempt has been a teachable moment. We have learned what will and what won’t work, from a policy and political standpoint, so going into 2009 with a new Congress and a new President gives me optimism that an effective bill can be crafted. I actually think the policies in S2191 were very close, but pork-barrel amendments were ultimately deal-killers. I think the biggest improvement needed to get this done will be a commitment by Congress to take up legislation on this defining issue of our time on its own merits, without the typical burdens imposed by largely unrelated add-ons. Is there a presidential candidate who would be more amenable to such legislation? Yes, but sadly he’s no longer in the race! (Hint: He’s the Governor of New Mexico). When I evaluated and graded each of the Presidential candidates during the primaries, Obama got a B and McCain scored only an F. Of course either will be far better on this subject than President Bush, but that’s not saying much. McCain scores so low because his solutions only tackle a portion of the problem, but to his credit, he has called on Congress to take meaningful action for years. Obama has more comprehensive policies and is the only candidate of either party to make a significant policy speech on this topic during the primaries, so I’m hopeful that he would make this a “First 100 days” priority. While the bill is unlikely to pass this year, aren’t some states rolling out similar measures on their own? In summary, 39 states have joined the Climate Registry to measure and register the greenhouse gases emitted in their state; 33 have climate action plans (or are just completing them) that reduce greenhouse gases equivalent to countries that signed the Kyoto accord; 30 states have “Renewable Portfolio Standards” that mandate certain percentages of wind, solar, and other clean renewable energy in their electricity fuel supplies; 20 states have joined regional cap-and-trade networks; 14 states have adopted California’s “clean car rule” for reducing emissions of greenhouse gases from cars and light trucks; 10 states have passed laws mandating these various activities.

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Our team has assisted most of these states with development and implementation of these policies and work to bring businesses and other stakeholders into the process of designing policies that are effective and cost-efficient. If you had to pick a model state for environmental policy, would it be California? They say, to a carpenter, everything looks like a nail. So I admit to being focused on my state, but the Golden State is indeed the gold standard when it comes to climate policy. We passed the standard for reducing greenhouse gases from cars, and 14 states have adopted it. We set the most aggressive goals for reducing greenhouse gases of any state or nation on earth (80 percent by 2050) and adopted a Climate Action Plan to achieve those goals, which more than two-dozen states have now copied. We passed our Global Warming Solutions Act and established a multi-state cap-and-trade network to harness market forces to slash carbon emissions. We also lead the nation in energy efficiency and in development of renewable energy (our Million Solar Roofs Initiative will deploy more than $3 billion of incentives to put megawatts of solar on California homes and businesses). We’ve done this because of great political and government leadership – – Governor Schwarzenegger set all of these policies in motion and our California Air Resources Board, led by Chair Mary Nichols, has long led the nation in clean air solutions. Bottom line: yes, California is the model! You mention your team has assisted most states with such policies. What exactly do you do? I wear two hats in the clean-tech revolution — government policy and clean/green products. It’s a great marriage of careers, because as a policy wonk, I can guide companies that are developing products that are both profitable and help to improve the environment. On the other hand, as an investor, I can help companies get a seat at the policy table when laws and regulations are being developed that will help spur this clean-tech revolution. Could you tell us about some of the more innovative companies or products you’ve worked with?

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I’d highlight Lighting Science Group from Florida. They’re making LED lights that will replace incandescent bulbs and are an improvement over compact fluorescents because they last longer and have no mercury in them. Another notable is Solar Integrated Technologies in Los Angeles. They replace large industrial rooftops with materials that include thin-film solar, making your roof an asset instead of a liability whenever you have to spend the capital to replace it. Finally iGPS, another Florida company that makes plastic shipping pallets, is worth mentioning. Wood pallets destroy forests and most of them end up in landfills after one or two trips. Plastic pallets weigh half as much, so you use less fuel and reduce greenhouse gases with each trip. Moreover, instead of ending their life in a landfill, the plastic pallet can be ground up and molded into another pallet — endlessly recycled.