By Richard Martin, Contributing Editor

In what will go down as one of the messier compromises in U.S. political history, the House of Representatives passed the  American Clean Energy and Security Act, better known as the Waxman-Markey Bill, on Friday. Designed to reduce emissions to 17 percent under 2005 levels by 2020, the legislation passed 219-212 – a tally far closer than the Obama Administration would have liked, and that included 44 “No” votes from Democrats including Rep. John Salazar of Colorado.

This baggy piece of back-room dealing unquestionably includes some flaws, like allowances for $2 billion in carbon offsets, plus provisions to mollify lawmakers from coal-producing states that, according to the EPA, will result in more coal being burned in 2020 than in 2005. What’s more, many experts believe that a straight carbon tax (a political non-starter) would be both more effective and more economically beneficial than the complicated cap-and-trade scheme provided for by Waxman-Markey.

“To oversimplify just a bit,” remarked political analyst Michael Barone of the Washington Examiner, “the one-third of the nation that doesn’t depend on coal for its electricity passed this over the less unanimous opposition of the two-thirds of the nation that does.”

Republicans, naturally, are claiming that the bill is a giant machine for eliminating American jobs, and one that will cost U.S. taxpayers thousands of dollars each. That claim became harder to support last week when the independent Congressional Budget Office produced a report saying that the bill, which will shift a huge proportion of U.S. energy production to renewable sources, will cost the average household just $175 annually  – and, for poorer households, will actually provide a net gain.

Republican opposition is to be expected; Salazar’s no vote is a bit harder to explain. By creating a market for carbon-emission permits, the bill will almost certainly favor states with large installed bases of renewable energy capacity – which Colorado, under Gov. Bill Ritter’s New Energy Economy program, will soon be.

Think of it this way: by forcing big emitters to obtain permits, a cap-and-trade system assigns value to every kilowatt of energy produced from renewable sources, a a cost to every kilowatt produced from carbon-based sources. As the caps become more stringent, the value of “replacement” energy from renewables increases. That means centers of renewable energy generation will benefit – and become more attractive to businesses and industries under the Waxman-Markey provisions.

According to the U.S. Energy Information Administration, in 2007 (the most recent year for which figures are available) Colorado ranked 13th in summer renewable generation capacity, and only 26th in total renewable capacity. That’s changing rapidly as new renewable capacity, particularly solar and wind, comes online in the state.

There’s another consideration: Waxman-Markey will create a financial market for carbon permits, along with, undoubtedly, derivatives based on those permits. Eyeing the financial meltdown of the last year, plenty of observers think that’s a really bad idea: “It’s not too hard to imagine that there are some Wall Street bankers already dreaming up some newfangled ‘green-friendly’ investment product that will capitalize on this trade, which can then be peddled to retail investors,” observed Reuters columnist Matthew Goldstein.

 Given what happened with the last flowering of exotic derivatives, that’s a scary prospect. In a strictly provincial sense, however, it’s likely to be a good thing for the financial capital of the Mountain West: Denver, Colorado.