Sen. Byron Dorgan, a 18-year veteran Democrat, dropped a late-day bombshell, announcing he will retire when his term ends this year. Dorgan’s announcement represents an opportunity for Republicans: North Dakota is a Republican-leaning state, where President Obama got just 45 percent of the vote last year.

What’s bad news for the Dems in the longer term could be good news for the climate bill in the short term. Nate Silver had given Dorgan a “Probability of Yes” vote of 22 percent.  He was certainly going to be among the 5 toughest Dem votes to get.

But now he doesn’t face a tough reelection, and the Senator from the state he himself calls “the Saudi Arabia of wind” is free to vote his conscience. Indeed, all things being equal, I think he’d like to vote ‘yes’ — see post “When Sen. Dorgan finds out what’s in the climate bill — hint, hint, White House — he might just support it,” which I’ll excerpt and update here:

In July, Dorgan published an op-ed in The Bismarck Tribune with contents that mostly suggests he might actually be a real fence-sitter and filibuster buster if somebody actually explained the bill to him and worked to address his concerns — and if he didn’t have to worry about reelection.

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Indeed, the sole objections he raises to the bill — the potential for Wall Street to engage in questionable derivatives tradings and speculative bubbles that might drive the price of CO2 soaring — are actually addressed in Waxman-Markey by multiple provisions. As an important aside, it would be almost impossible to write a bill reducing CO2 emissions that would not lead to “derivatives,” which, after all, include futures contracts and options.

If you are going to create a CO2 price — really the only way of reducing CO2 other than mandatory, command-and-control, sector-based emissions regulations (which it is impossible to believe Dorgan supports) — then Wall Street is going to create futures and options to allow companies to mitigate risk. And that’s a very good thing, as even conservative economists will tell you.

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The only question is whether you design a system with checks and balances against fraudulent derivatives and speculation, which the House bill does and which the Senate bill will no doubt improve.

Now, you might say that Dorgan isn’t interested in a real bill, that he is just positioning himself for a “no” vote.  Well, if so, he has written a very strange op-ed. Let me excise all the “railing against Wall Street” stuff, and see for yourself:

I’m in favor of taking action to reduce CO2 emissions and to protect our environment …

I support capping carbon emissions. But it has to be done the right way, with targets and timelines that allow us to accomplish our goals without driving the cost of energy for homeowners and businesses out of sight …

I’m willing to cap carbon to address the threat to our environment. But it has to be done right. I will support a plan that establishes workable caps, invests in technology to decarbonize fossil fuels, and sends the majority of the revenue raised to consumers to offset increases in the price of electricity resulting from the caps.

Energy is an important part of our lives. We need to work to decarbonize the use of coal so that we can use our most abundant fossil energy resource. We have to maximize the development of renewable energy. Green, renewable energy protects our environment and it also makes us less dependent on foreign oil (70 percent of our oil comes from other countries).

Here’s what we need to do to protect our environment and make us less dependent on foreign oil:

1. Establish caps on carbon that are accompanied by both adequate research and development funding and reasonable timelines for implementation to develop and commercialize technologies that will greatly reduce the CO2 emissions from the burning of fossil fuels.

Well, that’s certainly Waxman-Markey.  You can’t argue the targets are too tough or that the bill doesn’t spend tens of billions of dollars on technology development or deployment. In fact, as Waxman’s summary explains, the bill “Invest[s] in new clean energy technologies and energy efficiency, including energy efficiency and renewable energy ($90 billion in new investments by 2025), carbon capture and sequestration ($60 billion), electric and other advanced technology vehicles ($20 billion), and basic scientific research and development ($20 billion)” — see “A useful summary of Waxman-Markey.”

2. Use the majority of the revenue from a plan that caps CO2 to provide refund payments to those who would otherwise experience increased energy costs.

Again, that’s Waxman-Markey (see Robert Stavins: “The appropriate characterization of the Waxman-Markey allocation is that more than 80 percent of the value of allowances go to consumers and public purposes, and less than 20 percent to private industry.” and UPDATED exclusive report: Preventing windfalls for polluters but preserving prices — Waxman-Markey gets it right with its allocations to regulated utilities).

3. Even as we continue to decarbonize the use of fossil energy, we should maximize the production of renewable energy from wind, solar, geothermal, biomass, and more.

4. Set an ambitious renewable electricity standard (RES) along with longer-term tax incentives for the wind, solar, biomass, and other renewable energy.

5. To move this new energy, we need to build a transmission system to allow us to produce renewable energy where we can, and move it to the load centers where it is needed.

Check, check, and check. Ironically, the Senate energy bill is weaker than the House on the RES, so presumably Dorgan will vote to strengthen it on the Floor. And yes, the House RES cannot be called “ambitious” anymore, but that’s in large part thanks to the huge push on renewable energy in the stimulus (see “EIA projects wind at 5 percent of U.S. electricity in 2012, all renewables at 14 percent, thanks to Obama stimulus! Now can we get a stronger renewable standard?“).

6. To reap the benefits of cleaner energy and reduced dependence on foreign oil, we need to move toward using electricity to fuel our transportation fleet.

That’s already in Waxman-Markey (and was in the stimulus). Love to do more, Senator.

North Dakota and the nation have a lot at stake in this debate. We are a major energy-producing state, with our ability to produce large quantities of oil and our large deposits of coal, which is our country’s most abundant form of energy. We have the greatest wind energy potential of any state, and we have the ability to produce a large quantity of biofuels.

It’s clear we are going to have to use energy differently in the future to protect our planet. And to do that I will support a plan that puts achievable caps on CO2 emissions – if it is done the right way.

If that were his entire op-ed, you’d say he was at least 50-50 for the bill and certainly would be a realistic possibility for voting against a filibuster, like Sherrod Brown (D-Ohio). But he rails at length against Wall Street speculators and derivatives. Yet, his  concerns about speculators and market fraud — which Mississippi Governor (and global warming denier/delayer) Haley Barbour has been playing up, along with James Hansen and Robert Shapiro — are ones that the authors of Waxman-Markey were quite aware of when they wrote the bill.

That’s why the bill has many provisions (and realities) that would stop “a financial meltdown from speculators trading frantically in the permits and their derivatives,” as Hansen put it, or someone cornering the market, as Barbour put it.

First off, the permit market is huge.  Even purchasing 2 percent of the permits in, say, 2015, would probably cost $1 billion. And speculators would have to purchase several times that to significantly run up the price.

Second, it will be so easy to meet the targets for at least the first decade (see here) that the “real” price of a permit will probably be slightly below the auction price (which has a floor). So it will be highly unprofitable to buy lots of permits, which would run up the price, in an effort to make money selling those permits sometime in the future. I can’t imagine a plausible scenario in which this would make economic sense for any entity even if they could get away with it, which they cannot.

Third, the bill requires EPA to promulgate regulations to cover the auction.  As CQ‘s summary of the bill explains:

  • Bidders must disclose all parties sponsoring their bids;
  • Individual bidders would be limited to purchasing up to 5 percent of allowances sold at any quarterly auction;
  • EPA would have to publish information about winning bidders

So it would be very difficult to do any major purchasing in secret and virtually impossible to acquire a large fraction of the permits.

Fourth, the bill has a whole section devoted to “Carbon Market Assurance.”  As the WRI summary describes it:

The Federal Energy Regulatory Commission is given regulatory authority over allowance and offset markets and allowance derivative markets (Sec. 761, pg. 449). The President is also delegated authority to instruct agencies to take on pieces of market regulation based on existing authority as long as regulations are consistent with this section. The draft makes it a federal crime to commit fraud or manipulate any carbon market. In addition, the regulations facilitate and maintain market oversight and transparency and require market monitoring to prevent fraud, manipulation and excessive speculation.

That section explicitly includes derivatives, with further oversight by the Commodity Futures Trading Commission.

Fifth, the bill has a Strategic Reserve (with tons originally skimmed off from each year’s total target) that an entity can purchase permits from if the price sees a short-term run up of about 60 percent. So again the bill will is designed to prevent someone from cornering the market or running up the price.

So these concerns, while potent from a populist perspective, are simply not a reason to oppose this bill if one supports the general goal of a shrinking cap that doesn’t force reductions down at an alarming pace, does mitigate most of the price risk to consumers, does spend many tens of billions of dollars on clean energy development, demonstration, and deployment, and promotes renewables (albeit not enough) and electrifying transportation system.

I expect the Senate bill will be even tougher in this arena — perhaps aided by a new financial services oversight bill — since that will be needed to get the vote of other senators with similar concerns (see “Cantwell, Collins join bipartisan call for market-based carbon pricing to achieve shrinking cap on carbon“).

So let’s say for now that Dorgan is 50-50 or better to vote for the final bill — and maybe higher for at least cloture. After all, what possible reason could he give to support a filibuster?