Those are the words of John Hofmeister, president of ROYAL DUTCH SHELL (NYSE: RDS/A) in a recent presentation at the National Press Club in Washington, DC. And he’s not alone in his views in the energy industry. Even EXXONMOBIL (NYSE: XOM)--long the highest-profile critic of greenhouse gas theory--is now bankrolling efforts to store carbon dioxide in natural gas fields.

There are still many who disagree, of course. TXU CORP (NYSE: TXU), for example, still has plans in place to build 11 new major coal fired power plants in Texas at a total cost of $10 billion. If it’s able to follow through on those development plans, the company’s carbon dioxide (CO2) emissions will grow from 55 million tons a year to some 133 million tons.

The Bush administration remains at least publicly opposed to any regulation of carbon emissions and continues to debate the science behind it. And it still has allies in Congress, including Senator James Inhofe (R-OK), who was the chairman of the Senate Environment and Public Works Committee in the outgoing Congress.

Democrats’ victory in Congressional midterm elections, however, has sharply accelerated the momentum for CO2 regulation. In fact, it may now be irresistible.

As I’ve reported, California has already passed its own plan to curb greenhouse gases. The deal between Republican Governor Arnold Schwarzenegger--re-elected by a landslide in an otherwise very Democratic year--and the Democrat-led state legislature is essentially a cap-and-trade system, which allows companies that exceed CO2 quotas to buy credits from companies that don’t.

That’s the same model that has dramatically reduced emissions of the gases that cause acid rain, namely sulphur oxide (SOX) and nitrogen oxide (NOX), under the Clean Air Act of 1990. Ironically, the first President Bush championed that cap-and-trade system, though it’s been scorned to date by the current president.

Many in the power and energy sectors favor cap-and-trade, as it provides companies flexibility to meet tighter standards without bankrupting themselves. That’s especially critical when it comes to producing and distributing energy, where additional costs or supply shortages can have a real impact on the overall economy.

Cap-and-trade may not have the votes to override a presidential veto in the upcoming Congress. But it will definitely see the light of day, as Senator Barbara Boxer (D-CA) takes over for Inhofe at Environment and Public Works. Boxer has called global warming the greatest challenge of our generation. In addition, there’s a rumor that Senator John Warner (R-VA)--also an advocate of taking action--may be challenging Inhofe as ranking Republican of that committee. That would rob Inhofe of even the minority’s advocacy tools.

In any case, it’s likely we’ll see a serious effort to pass a bill sometime in the coming year to enact a nationwide cap-and-trade system to regulate CO2. The usual suspects will be there in force.

The Sierra Club, for example, was a huge financial contributor to the Democratic victory and is now on the ascendancy on K Street, where Democrats are shoving out Republicans in large numbers.

The most ardent proponents of cap-and-trade will almost certainly come from the ranks of industry. Mainly, energy companies on the whole now recognize CO2 regulation is inevitable. What’s important now is shaping the legislation so it will be good--or at least not horribly damaging--for doing business.

With California implementing its new law and seven other states studying similar action, there’s a real possibility companies will have to comply with a patchwork quilt of legislation, rather than a single, national law. In addition, the US Supreme Court this week will hear arguments over whether the US Environmental Protection Agency (EPA) is required by law to regulate CO2. That’s the final stage of a Clinton era case, in which EPA produced a legal opinion concluding CO2 could be regulated if it were determined to have adverse effects on public health, welfare and the environment.

The EPA ruling was immediately challenged by then-Representative Tom DeLay (R-TX) and President Bush ultimately rejected the petition as he shelved US participation in the Kyoto Treaty. But environmental groups have continued to push it through the court system and have been joined by others who’ve filed “friend of the court” briefs.

The Court is expected to issue a final ruling in the case in June.

Heading off an unfavorable ruling is another reason why industry will push the new Congress to act. And with DeLay gone, and Bush now very much in need of some kind of victory, their lobbying will be in overdrive.

As long as CO2 regulation comes up as cap-and-trade, it will be a burden on some energy companies, but not on most. In fact, there are likely to be some major winners.

First are the nuclear power producers. The last time Democrats were in power, nuclear had a very bad name and many crusaded to shut down operating plants. This time around, however, the nation’s nuclear plants are in the hands of a relatively small group of giants, all of which have proven capable of running them safely and efficiently.

Perhaps more important, there’s recognition that nuclear energy is the only way to mass produce electricity without also spewing out a lot of CO2. There are some in Congress who want to reduce funding for nuclear power, or at least funnel some of it away to more popular sources like wind and solar. But there’s also a realism that these renewables simply aren’t capable of making a large enough dent in CO2 emissions, particularly with the world’s appetite for electricity continuing to mushroom.

Developing nations like China have massive plans for producing more nuclear power. US incentives passed with last summer’s energy legislation have already sparked plans for several major reactors.

And with Jeff Bingaman (D-NM) slated to take over the Senate Energy and Natural Resources Committee from fellow nuclear fan Pete Domenici (R-NM), any effort to go no nukes is doomed to fail.

Cap-and-trade presents these companies with a double profit play.

First, dealing with CO2 emissions for the first time makes fossil fuel power--particularly coal--that much more expensive relative to nuclear, which has no emissions problem. Second, nuclear companies will have credits to sell polluters for profits.

As for wind power companies, AES CORP (NYSE: AES) and FPL have the biggest fleets. FPL’s triggered a huge profit burst in the third quarter, offsetting more sluggish growth at its regulated Florida utility system.

Wind power will, of course, become more cost competitive with coal and natural gas as CO2 emissions are factored in. And wind companies will be able to generate credits for sale by expanding their fleets, as well as selling what they already have for hefty gains. But they also stand to gain from further incentives and subsidies that the Democratic Congress is likely to pass, and the president will be hard-pressed not to sign.

The list of companies that would be hurt by cap-and-trade may not be as long as some believe. First of all, with Super Oils like Royal Dutch Shell and even ExxonMobil now apparently backing some variety of regulation rather than fighting everything, they’re likely to have a great deal of influence over what does eventually get passed.

That dramatically increases the odds that whatever does get passed won’t be overly harmful and may actually wind up benefiting them.

With more than half of the nation’s power supply coming from coal, we’ve heard numerous horror stories about the shortages CO2 regulation would cause. That, however, is pretty much what we heard in the late 1980s in the lead-up to the passage of the 1990 Clean Air Act. The law didn’t even bankrupt the worst polluters like AMERICAN ELECTRIC POWER (NYSE: AEP) and Southern Company, which fought the legislation tooth and nail and issued quite a few doomsday proclamations.

The key was cap-and-trade on acid rain did enable companies to make adjustments and to use new technology to curb emissions. And they were able to do so without either enormous hardship to utilities, or massive rate increases for consumers.

This time around, there are definite technological challenges to be hurdled. But there’s no reason why CO2 cap-and-trade can’t eventually work the same magic. In fact, there’s one major difference between now and 1990 that could work in utilities’ favor.

In the late ’80s, many companies had just completed major construction projects. Some were weakened greatly by having to write off a good portion of the cost in punitive rate cases. At the same time, rates had risen dramatically, and customers were ill disposed toward allowing recovery of expenses to clean up environmental problems.

This time around, we’re still in the early stages of a new capital spending boom in the utility sector, and regulators are still very accommodating about allowing expenditures into rate base. In other words, utilities are likely to be allowed to earn a return on prudent expenditures, just as they are for any construction project.

Southern Company, for example, has some $6 billion in environmental capital expenditures (CAPEX) on tap in its service territory over the next 10 years or so that should boost its bottom line, assuming its engineers perform.

The only companies that could be in for a shellacking are those with big CO2 problems and which operate in more difficult states, where regulators may not be inclined to pass along costs. One of these, ironically, could be TXU in Texas.

Under Republican control for more than a decade and with a mostly deregulated electricity market, the Lone Star State has largely allowed TXU to make as much money as it can. This it did in the third quarter, boosting earnings 83 percent. The reason: Rising gas prices last year increased the price of power in Texas and the company didn’t lower it this year as gas prices fell. The result was unprecedented profit margins as the state’s rates rose to among the highest in the union.

If anything could stir up indignation in this reddest of red states, it’s been these high rates, coupled with TXU’s plans to build a fleet of major coal plants. Republican Gov. Rick Perry was re-elected this month, but with less than 40 percent of the vote.

And utility matters are high up on the priority list for a suddenly feisty legislature.

TXU has many friends and it’s extremely aggressive, but it’s also in a lot of people’s sights. And the combination of angry customers and high rates has never been a good one for utilities. Moreover, the stock is a Wall Street favorite with a huge valuation; it won’t take much disappointment to shoot it earthward.

The bottom line is CO2 regulation is almost surely coming. We don’t know for certain what form it will take, but cap-and-trade is by far the most likely. As long as that’s the case, most companies won’t be overly affected in a negative way. Moreover, there’s plenty of time to get out of the way of the fallout and well as load up on some winners.