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By Bloomberg

Republican governors who boycott the Obama administration’s new power-plant regulations may instead get an offer they can’t refuse: a cap-and-trade system many of them also opposed.

Five years after Republicans in Congress shot down President Barack Obama’s plan for carbon trading, Obama unveiled rules to combat climate change. They include a provision for carbon trading, which has been criticized as a government intrusion in the workings of the free market.

“It’s clear that what they’re trying to do -- without establishing a federal cap-and-trade program -- is set up a plan that has a very strong likelihood of becoming a de facto federal cap-and-trade program,” said Andre Templeman, managing director of the carbon-markets consultancy Alpha Inception LLC.

Business groups such as the U.S. Chamber of Commerce demonized the push for an economy-wide cap-and-trade program that was pushed by Obama and passed the Democratic-led House of Representatives in 2009. It died in the Senate the next year.

Now, while the Chamber said it opposes the new Environmental Protection Agency’s emissions regulations, many company representatives say they’re pleased that trading can be used to help them keep down the cost of cutting their use of coal under the EPA regulations.

“Trading is one of the most efficient ways to get the market to act,” said Arvin Ganesan, vice president at Advanced Energy Economy in Washington, which represents companies such as Johnson Controls Inc. and First Solar Inc. “It yields results and minimizes the cost on customers.”

Landmark Regulations

Obama unveiled the landmark regulations to reduce emissions from power plants Monday, a plan designed to bring about cuts in carbon dioxide from power plants of 32 percent by 2030. It is the centerpiece of Obama’s climate plan, which aims to cut U.S. greenhouse gas emissions and convince other nations to ink an accord to address global warming.

The Obama plan requires states and utilities to use less coal and more wind power, solar or natural gas. Each state must submit plans to the agency by 2018 on how it will achieve the EPA-mandated goal.

Some states, especially those economically reliant on coal, fought the draft rules in court and promised to do so again.

“This rule represents the most far-reaching energy regulation in this nation’s history, drawn up by radical bureaucrats,” West Virginia Attorney General Patrick Morrisey said in a statement. “We intend to challenge it in court vigorously.”

Don’t Comply

Senate Majority Leader Mitch McConnell has urged governors to reject the power-plant regulations and not submit the required plans to the EPA.

“If the final rule is not significantly improved, then Hoosiers can be assured that on behalf of families, businesses and other ratepayers, Indiana will not comply,” Republican Governor Mike Pence said in a statement.

But if state leaders refuse to work with EPA, as many are threatening, the agency announced on Monday that it would impose restrictions directly on their utilities. A cap would be imposed on carbon emissions from the power plants and credits could be bought and sold to keep costs down.

“The states that don’t want to do anything will default to a broader trading market,” said Tom Lawler, the Washington representative for the International Emissions Trading Association.

Utility Representatives

Janet McCabe, acting assistant administrator for EPA’s air and radiation office, told reporters that carbon trading can help states meet their targets without increasing consumers’ electricity bills. The rule provides states “lots of opportunities” to work together to get the cuts, she said.

Representatives for some utilities, clean-energy producers and manufacturers say carbon trading is a feature, not a glitch.

“It’s a really big leap forward,” said Bob Wyman, a lawyer representing companies such as Alstom SA, Calpine Corp. and Boeing Co. which support the EPA’s efforts and say they want them to work. The way EPA set it up, states can enter a trading system by default.

California and nine northeastern states of the Regional Greenhouse Gas Initiative already have a carbon trading program “and you’re going to see at least another 20 states come up with their own versions,” Templeman said.

“But because the states can interchange through this bank, it really is one federal program broken down into 40 little state programs.”