Tuesday, March 2, 2010

SCENARIOS-US climate change bill options for senators


By Richard Cowan

WASHINGTON, March 1 (Reuters) - A new U.S. climate change bill could make its debut in the Senate soon in what likely would be the last big effort by Democrats to enact major environmental reforms this year.

The House of Representatives narrowly passed a "cap and trade" bill in June to bring down U.S. emissions of carbon dioxide and other greenhouse gases blamed for global warming.

But that bill, and a similar one approved by the Senate Environment and Public Works Committee in November, did not gain broad enough support to win passage in the Senate.

As a result, Democratic Senator John Kerry has been trying to come up with a compromise that could pass in this congressional election year. He's been working with Republican Senator Lindsey Graham and Independent Senator Joseph Lieberman.

Here are possible scenarios for how they might force significant reductions in carbon pollution and increase the use of cleaner alternative fuels. If they can attract at least 60 votes, a bill could be on the Senate floor by June:


Senators have been looking for ways other than cap and trade to increase the price of fossil fuels and thus encourage industry to use cleaner alternative power sources.

The House bill would have imposed a cap and trade program on utilities, oil refineries and large manufacturers. The government would require companies to hold permits for every ton of carbon pollution they emit. Fewer and fewer permits would be available between 2012-2050 and those permits could be traded in a new, regulated financial market. The bill aims to reduce US emissions 17 percent by 2020, from 2005 levels.

Instead, senators are weighing several alternatives listed below. According to environmental groups, one option is to impose one of those carbon-pricing schemes for utilities and a separate fee for the transportation sector, such as an oil industry tax. The third main sector -- manufacturing -- might be spared from new pollution controls for several years.


Senators had been looking at initially using cap and trade just for the utilities, which produces about 40 percent of carbon emissions. Several industry and environmental groups support the cap and trade route, but many senators are loathe to vote for a new trading scheme at a time when poor regulation has been blamed for one of the worst recessions in decades.


It's been called "training wheels" for cap and trade. Supporters say "Safe Markets" combines the emissions certainty of cap and trade with the price certainty of a carbon tax. Between 2012-2020, government would impose caps on pollution emissions and companies would have to hold permits to emit carbon dioxide. But a board would set permit prices and decide how many permits to issue each year to maintain the target prices.

"Businesses get the price predictability they need and we still meet emissions goals," said Marty Spitzer of the Center for Clean Air Policy. Under the plan, some emissions trading would be allowed, but in a very narrow price range. In 2020 the system would move to a full-blown cap and trade.


Being sold as a much simpler alternative to cap and trade, the proposal by Senators Maria Cantwell, a Democrat, and Susan Collins, a Republican, also aims to pare carbon emissions. But instead of focusing on the plants that spew pollution, it would focus the emissions cap upstream -- on coal and oil companies and importers that would have to hold the pollution permits.

The dividend part is the checks consumers would receive each month to help ease the cost of higher energy prices.

The Edison Electric Institute, representing utilities, hates the idea, claiming it would bring big price increases. It also fears consumers might not make the connection that the dividend check they receive is to help cover higher costs, thus possibly undercutting support for rate increases.

Critics say Midwestern consumers would have to pay higher energy prices because of their reliance on coal, but consumers everywhere would get the same government compensation. Energy prices also could end up being higher than with cap and trade.


Republican Senator Lisa Murkowski is looking at a tax on carbon-intensive fuels and levying it "as far upstream as possible," such as on oil company exploration and production.

But environmental groups have also heard talk of a gasoline tax with the revenues being used to help development of electric vehicles or to replenish highway maintenance funds.


Environmentalists also have said the Kerry-Graham-Lieberman bill could hold off on mandating emissions reductions for factories, including carbon-intensive manufacturers of paper, glass, chemicals and steel.


To attract support from Republicans and fence-sitting Democrats, the bill is certain to have funds to develop clean coal technologies; additional loan guarantees and tax breaks to help the nuclear power industry expand; and incentives for more domestic energy drilling, including offshore. (Reporting by Richard Cowan; Editing by Cynthia Osterman)

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