This is a rush transcript of "Special Report With Brit Hume" from January 26, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT OBAMA: The days of Washington dragging its heels are over. My administration will not deny facts, we will be guided by them. We cannot afford to pass the buck or push the burden on to the states.

GOV. ARNOLD SCHWARZENEGGER, R-CALIF.: For too long Washington has been asleep at the wheel when it comes to the environment. Now California finally has a partner and an ally in Washington at the White House.

DAVE MCCURDY, AUTOMOBILE MANUFACTURERS' ALLIANCE: The challenge with a separate California approach would be that you would have conflicting standards between states and the movement of vehicles between states.

(END VIDEO CLIP)

BRET BAIER, HOST: There you see President Obama today, and reaction from California Governor Arnold Schwarzenegger, and the last person there you saw was a spokesperson for the Automobile Manufacturers' Alliance.

What they're talking about is President Obama instructing the EPA to reconsider some regulations as California and 13 other states to set their own strict guidelines for greenhouse gases different from the federal guidelines.

What about this, and what about the impact to the auto industry? Some analytical observations now from Bill Kristol, editor of The Weekly Standard, Juan Williams, senior correspondent of National Public Radio, and syndicated columnist Charles Krauthammer — FOX News contributors all.

Charles, the president said he wanted to make this move today. It is the EPA to reconsider the Bush administration's past rejection of this application to have the states — California, namely — the state's own guidelines. What about this?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It is going to happen. The EPA will do it. As the governor of Illinois would say, "The fix is in on this."

I think it is absolutely insane. On the one hand we have an auto industry in Detroit which is at edge of extinction, and we are keeping it alive with billions of your money and mine.

On the other hand, we are now adding on to it regulations that are going to be crushing.

Look, how did the auto industry get in trouble in the first place? Even in fat times, Detroit had trouble because the under regulations, the standards imposed on it, it had to produce small cars which nobody would buy in order to sell the big cars, which would sell and create a profit.

We had soviet-style production mandates required even in the absence of a market. This is going to add to this in this situation of crisis already happening in Detroit.

I mean, it's the government strangling the patient as it administers oxygen — expensive oxygen on our money.

BAIER: Juan?

JUAN WILLIAMS, SENIOR CORRESPONDENT, NATIONAL PUBLIC RADIO: I just have a very different point of view. I think this is an effort to comply with what the state wants.

I think I just saw a tape of Governor Schwarzenegger, a Republican from California, thanking this president for actually going along with what his state wants to do on its own.

So this is an effort that will lower America's dependence on foreign oil. To me, that's an admirable, laudable goal. As I understand it, we are going to use 50 billion gallons less by 2020. That's all good stuff.

In addition to which, when you think about the auto industry, the auto industry has been putting out these gargantuan, awful, big SUVs and trucks and things that have, in fact, escaped so many of the standards, and they have done it intentionally because though are the profit-driving engines for Detroit, because they say they don't make as much money by making small cars.

What president Obama and the Congress have said is "We'll give you some money, Detroit. We'll help to bail you out, but you've got to start making fuel-efficient cars, cars that are less polluting." And so this, to me, is part of that effort. Detroit has to retool and remake itself.

And, I might add, I think a lot of this innovation is going to require people to have more jobs. And creating jobs a definite add-on to whatever happens here.

BAIER: Bill?

BILL KRISTOL, EDITOR, THE WEEKLY STANDARD: The CAFE standards have been a disaster. It is an attempt for government to micromanage an industry. And, as Charles said, it has caused a lot of damage to the U.S. auto industry.

If you want to discourage driving or discourage imported oil, let's have the gas tax, which Charles has written at great length about. And then offset it with a cut in payroll taxes or other taxes.

What the Republicans should do - and it's not federalism, because if California imposes the standard, it is such a big state that basically the manufacturers have to make cars that meet these standard elsewhere. What Republicans should try to do in my view, next time any money comes up for the auto industry, is say we really do want to help the auto industry. Let's get rid of the cafe standards. It is ludicrous when we are in a deep recession and the American auto industry is teetering on brink, that we are imposing heavy environmental burdens on them for very negligible gains 10, 20, 30 years down the road, allegedly, in climate change. This is not pollution that's killing people today or tomorrow. This is not toxic waste going into our streams. This is a theoretical problem that might come due 20 or 30 years from now. And for that, we're heaping greater burdens on the auto industry.

BAIER: Speaking of climate change, today it was announced a special U.S. envoy on climate change. And as we look at the array of people that are dealing with this issue in the White House — you have Carol Browner, the White House energy czar, Nancy Sutlee, White House Counsel on Environmental Quality Chairwoman, Todd Stern, the new announcement, this envoy, Steven Chu, of course, the Secretary of Energy, and also Lisa Jackson, EPA administrator. Charles, a lot of people.

KRAUTHAMMER: Built-in dysfunction when you have this many people, where the lines of authority are unclear.

You have the two cabinets, energy and transportation. You have an agency, EPA. And then you have special assistants in the White House, Browner, and one in State Department on an issue which, as Bill has indicated, is really scientifically still up in the air, acting as if it is already a fact.

We're going to get policies which we saw today which will be destructive and dysfunctional.

BAIER: And the clean break they're trying to get from the Bush administration, that's what the message is, Juan?

WILLIAMS: In fact, Charles and I were talking a moment ago — look, the Bush administration wanted to do something in terms of trying to lower emissions, they just hadn't enacted it. Here is President Obama saying "Let's get it going," which is what Schwarzenegger wanted.

KRISTOL: The carbon footprint of all these special assistants and their special assistants is going to be greater than any reduction that they could possibly bring about.

BAIER: Final word on this topic.

One senator, when we come back, wants to take Senate appointments out of the hands of governors. And one governor who allegedly tried to sell a Senate appointment is all over the media. We'll talk about it next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. ROD BLAGOJEVICH, D-ILL.: I'm here in New York because I can't get a fair hearing in Illinois, in the state Senate in Illinois. They've decided with rules that are fixed. And they've decided, essentially, to do a hanging without even a fair trial. The media and everyone else seems to just rush to judgment, and have denied me the presumption of innocence.

BARBARA WALTERS: For the sake of your state, for your own dignity, wouldn't it be better if you resigned?

BLAGOJEVICH: No, that would be the worst thing I could do, because I am an innocent man who has not done anything wrong.

QUESTION: Were you trying to get money for that office?

BLAGOJEVICH: Absolutely not. Absolutely not.

(END VIDEO CLIP)

BAIER: Illinois Governor Rod Blagojevich making his defense, not in Springfield at his impeachment trial, but in the media today. He also said the day he was arrested he thought of his children, his wife, and also Mandela, Dr. King, and Gandhi.

We are back with the panel. First we're going to talk about this — Juan?

WILLIAMS: I just think it's so ridiculous. This thing's been going on — first he comes out and he goes running in those crazy shorts. And then he says that Roland Burris is the number one best guy and he really had intended to put Roland Burris in.

And everyone in this town gets all confused about the law, and you have to admit Roland Burris. So he gets by with that one.

And now he's on "The View." He's talking about that he is the likes of Jimmy Stewart or Gary Cooper or Nelson Mandela. Oh, my gosh! How can people — it's so stunning to me, so outrageous. And yet in America, somehow the circus goes on.

This guy is simply trying to taint a jury pool in anticipation of his case, the prosecution, the indictment coming from Patrick Fitzgerald in the northern district of Illinois. That's all that's going on here. Of course he should be impeached.

And, of course — I think his behavior — I don't even know what word to use. It leaves me flabbergasted that so many people buy into him as to having some reality as to what he's doing.

He talks about witnesses. It's the law of the state Senate in Illinois that no witnesses are presented.

KRISTOL: I don't think anyone is really buying his story, Juan. You can calm down about that. He has a seven percent approval rating in Illinois.

Some of us like the circus. You know, it's a tough time. There are a lot of serious challenges facing us. It's good to have a governor like that prancing around for a few days. He is going to be removed from office in about a week.

And then I noticed that President Obama has kept the commerce secretary job open. Bill Richardson originally was proposed for that, and then he had to withdraw.

And, look, Blagojevich is a good salesman, wouldn't you say? You could see him traveling abroad, making the case — buy American! Rod Blagojevich here.

KRAUTHAMMER: And beyond that, he is not just entertaining, he is educational. Where else are you going to hear Tennyson and Kipling?

I think the real issue here is when he gets tossed out of office at the end of the week, who is he going to quote? Wordsworth? I think it will be Keats, because he died young. And in his own words, "Where youth grows specter thin and pale and dies.

He is the guy who brings classical education to America. And, in this, our winter of discontent, we need a guy like this.

BAIER: In one of the interviews today, the governor said he considered Oprah Winfrey for the vacated U.S. Senate seat, at which point Oprah said if she had been on the treadmill working out, she would have fallen off.

KRISTOL: She is perfectly well qualified. She is better qualified than Caroline Kennedy was, if I can be honest here, for a U.S. senate seat.

BAIER: Senator Russ Feingold, Democrat from Wisconsin, wants to take this decision out of the hands of governors and make it a constitutional amendment that it has to be a special election — Juan?

WILLIAMS: That's probably the right choice. I mean, what we've seen in New York, what we've seen in Illinois demonstrates that this is just too much power in one person's hand, and, as a result, it leads to either stupid actions or corrupt actions.

And I think this would be the will of the people. Let's have an election.

BAIER: Charles?

KRAUTHAMMER: The will of the people is to let every state decide. We're a federal system. I don't see why we have to mandate from on high that every state has to do it. What we learned is that if you give the choice to four Democratic governors, as happened this time around, at least two of them will produce Shakespearean comedy.

New York, as we saw, with the Hamlet on the Hudson and the governor who took long enough to choose a senator. He could have written the special theory of relativity in that time. And, of course, Illinois, which is a continuing comedy.

If I could use just say — I rarely use my psychiatric credentials, but Blagojevich is just this side of batty. That's my diagnosis.

WILLIAMS: Is that difference than crazy?

KRAUTHAMMER: Slightly — it's more humorous and less dangerous.

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