LEGISLATION:

Obama mounts a last-ditch attempt to pass a 'hybrid' climate and energy bill

The White House is mounting a last-ditch effort to piece together an energy and climate change bill that has enough incentives for nuclear power, natural gas and the coal industry to muster the votes needed to pass it this year.

As Democrats enter a turbulent and high-stakes political season, President Obama is striving for consensus on a path forward that can deliver substantial greenhouse gas emissions reductions and satisfy concerns in the Senate about energy security. In an address to the nation's top CEOs at a Business Roundtable meeting scheduled for Wednesday, Obama is expected to discuss his energy plans. According to several sources, one of the proposals under discussion is to find ways to incentivize coal-burning power plants to switch to cleaner-burning natural gas.

Fred Krupp, president of the Environmental Defense Fund, said the ongoing efforts are aimed at a bill that is a "hybrid of ideas" that would attract enough votes from fence-sitting Democrats whose states are heavily reliant on coal and from Republican ranks to secure passage through the Senate.

"I've never seen everyone so engaged in something that conventional wisdom thinks is dead," Krupp said, explaining that recent White House proposals providing more government support for nuclear power plants and incentives for the coal industry to adopt carbon capture and sequestration technology will probably be part of the evolving package.

He said both the White House and Sen. Lindsey Graham (R-S.C.), along with some industry and environmental groups, are moving with a "sense of urgency" toward a hybrid energy-climate bill because the time for passing legislation is already growing short in an election year. Graham has become the lead Republican deal-maker on such an approach. "Everyone realizes the window closes at some point," Krupp said. "I think the package has to gel in the next couple of months for something to happen."

The prospect of passing an economywide cap-and-trade climate bill in the Senate appears tenuous at best. A number of political and economic factors started eroding support almost as soon as the House passed its legislation in June. In addition, the election of Republican Sen. Scott Brown of Massachusetts in January reshuffled the deck by breaking the Democrats' filibuster-proof majority. Stubborn jobless numbers in a still-ailing economy and political tides suggesting Democrats could lose a slice of their big majority in Congress after midterm elections have pushed top administration officials to seek more consensus from traditional sectors of the energy industry and from coal-country senators.

White House moves to sweeten the pot

Obama continues to call for a broad approach that wraps together energy and climate provisions. In his latest public comments, which came in a town hall meeting in Nevada on Friday, Obama stuck to his guns in explaining the need for an eventual price on industrial carbon emissions, though he made no mention of the House's cap-and-trade legislation.

"That's the only idea that we're trying to talk about when it comes to these greenhouse gases causing global warming," he said, referring to the use of price signals as incentives for companies to transition to high-efficiency technology and cleaner fuels.

"The idea has been that if we put a price on these carbons," he told the audience, "then maybe that would be a way that companies would all respond and start inventing new things that would make our planet cleaner."

But Obama also pivoted toward traditional fuels. "It's going to take some time. We're still going to be getting our electricity from coal," he said, adding that utilities will also continue to rely on nuclear power and natural gas. Graham and his negotiating partners on climate, Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) have all said some form of hybrid energy-climate bill has the best chance of passing the Senate.

Obama is tethered to an accord reached at the U.N. summit in Copenhagen in December that has the United States cutting greenhouse gas emissions by 17 percent below 2005 levels by 2020. The goal is just that, a nonbinding statement of U.S. intentions, but sources said Obama faces sharp international criticism and environmental critics if U.S. energy initiatives appear too weak to meet the emissions target.

At the White House, sources say, the exact policy direction remains in flux. But this month the administration began sweetening the pot of policy pieces that could entice senators to support a broader bill. The administration in its 2011 budget request included $36 billion more for the nuclear loan guarantee program, and Obama charged an interagency task force with advancing five to 10 commercial demonstrations of carbon capture and sequestration (CCS) technology by 2016.

Where's the cap?

A source familiar with discussions on Capitol Hill and with ties to the White House said the administration and congressional leaders are at this point considering four basic policy options.

The most aggressive option would steer clear of an all-in-one economywide approach by adopting a strong clean energy bill and pared-down climate provisions that include a cap on electric utility emissions. If policymakers pursue that option, utilities would likely call for the proposal to include a phased-in cap on industrial emissions from other corners of the economy.

That option is a step removed from the economywide cap supported by the U.S. Climate Action Partnership, a coalition of major corporations and environmental groups, and the precariously balanced consensus among investor-owned utilities organized by the Edison Electric Institute. EEI spokesman Jim Owen last week said the group still supports legislation that would cap industrial emissions across the economy, reiterating comments made by the group's president, Tom Kuhn, to industry analysts earlier this month.

"We still believe that an economywide approach is the best way to go," he said. But Owen also said EEI doesn't intend to sit out discussions about different options. "There are still votes for that, but as other approaches come up and get discussed and debated, we're not going to be on the sidelines."

Krupp, in an interview, said a utility-only emissions cap is considered a non-starter by many involved in policy discussions. "Not only do you not get the emissions reductions that we need, but for many senators, energy security is of paramount concern," he said, "and utility-only doesn't even get close to dealing with that."

"Is there room to treat different sectors differently and still achieve economic efficiency and deliver substantial emissions reductions?" Krupp continued. "Yes, and that is what many people are working on right now."

A split among utilities

The second option is for the White House to get behind an aggressive clean energy bill that jettisons an emissions cap but includes clean energy standards. It would also lean heavily on energy efficiency measures.

A third option under consideration is to set aside the idea of pressing for passage of an energy bill this year. Under that political calculation, sources say the White House would continue pushing Republicans to engage the issue, but no bill would be introduced.

A final option is that Congress decides to vote on a broad energy bill sponsored by Sen. Jeff Bingaman (D-N.M.) that passed the Senate Energy and Natural Resources Committee in June. That bill includes provisions requiring power companies to generate 15 percent of their electricity from renewable resources, allows more oil and natural gas leases in the eastern Gulf of Mexico, overhauls federal financing for clean energy projects, boosts energy efficiency programs and includes new federal authority to site major electric transmission lines.

That bill garnered bipartisan support, including yes votes from Republicans Lisa Murkowski of Alaska, Sam Brownback of Kansas, Jeff Sessions of Alabama and Bob Corker of Tennessee. The bill's supporters and its detractors, including Democratic Sen. Mary Landrieu of Louisiana, said they had hoped to boost the bill's incentives for nuclear power.

Graham also says a compromise he and other Republicans could support would include incentives to expand the nation's nuclear power fleet and put in place an aggressive program to commercialize technology to capture and store emissions from coal-burning power plants.

Almost any option policymakers pursue, said one former energy aide for a Senate Democrat, has to gain the support of EEI. Members of EEI reached a deal on the distribution of emissions allocations before the House passed its climate bill, but now it appears there is a split. Low-carbon utilities such as Chicago-based Exelon Corp. and relatively high-carbon utilities such as Atlanta-based Southern Co., both influential members of EEI, disagree on whether climate legislation can be crafted in a fair and equitable way for the power industry.

Graham, according to sources, warned the group at a meeting in Arizona in January that time is running out to reach consensus on a bill that could make it through the Senate.

"I still hear from Graham, Kerry and Lieberman that they want an economywide cap. I don't have any indication from those offices that they are splitting on that," said Chelsea Maxwell, a former climate adviser to retired Sen. John Warner (R-Va.) who now works for the Clark Group.

More White House incentives coming

This week, Obama is expected to float a couple more energy sweeteners for Congress during his talk with members of the Business Roundtable. This group includes chief executives from the nation's biggest companies. Its executive board includes Rex Tillerson of Exxon Mobil Corp., Michael Morris of American Electric Power, Jeffrey Immelt of General Electric Co., Michael Duke of Wal-Mart Stores and David Cote of Honeywell International.

Most of these executives have met with White House or Treasury Department officials in recent months to discuss energy policy, according to multiple sources and White House logs.

By late last week, White House officials had not decided whether Obama will speak publicly or privately to the group, according to a Business Roundtable spokesman. Obama is expected to propose financial incentives aimed at spurring the use of natural gas for power generation. Gas-burning electricity generators emit half as much carbon dioxide into the atmosphere as coal-burning power plants.

A policy decision to incentivize the use of natural gas would please large oil companies, including Exxon, that are pursuing domestic gas reserves. Independent gas producers through well-financed media campaigns have also pressed for broader public recognition that domestic gas is a rapidly expanding resource that is reliable enough to use as a transition fuel for power generators.

America's Natural Gas Alliance, a group of the independent gas producers formed last year to lead the charge in Washington for climate bill incentives for power generators to use more natural gas, called it "premature to get into a discussion of specific policy proposals."

"We are closely following all the proposals and believe that greater use of natural gas will be a key component of our nation's clean energy future," the group's vice president, Tom Amontree, said in an e-mail.

Exxon's decision in late December to spend more than $30 billion to buy XTO Energy, which has big holdings in unconventional gas fields, reset the discussion about gas's role as a potential short-term way to cut heat-trapping carbon dioxide emissions. Exxon's purchase has helped shift the industry's attention to exploiting vast U.S. shale gas formations, where smaller independent producers that pioneered state-of-the-art drilling technology paved the way, such as in the Barnett Shale in eastern Texas.

The fleet of oil and gas industry spokespersons and U.S. agencies estimate the domestic gas supply has doubled from a projected 50-year supply to at least a 100-year supply. Once the deal clears regulatory hurdles, as expected, Exxon will be America's largest natural gas producer as well as one of the biggest spenders on Washington lobbying.

Gas producers feel ignored

Bill Whitsitt, vice president for public affairs for Devon Energy, one of the largest U.S. gas producers, said that for power generators heavily reliant on coal to make a switch, natural gas has to be plentiful and cheap, but U.S. EPA also needs to shift its attitude about the fuel. He says EPA is reluctant to encourage utilities to install gas-fired power turbines rather than install expensive scrubbers in part because of a long-standing concern about supply. If Obama urged utilities to switch to gas, that could help shift the ingrained regulatory reluctance to push power generators to use the fuel.

"That would send a powerful message, and that doesn't require a very large incentive program," he said. "We are collectively as an industry scratching our heads, wondering how the president can talk about incentives for nuclear, coal, solar and wind, and natural gas is never mentioned."

Price volatility and supply uncertainty have also spooked many members of Congress. Ten years ago, the conventional wisdom was that conventional wells were running dry and an increasing amount of natural gas would need to be imported from the Middle East and Russia. Quietly, as Whitsitt and others in the gas industry tell it, smaller independent oil and gas producers started buying tracts in northern Texas, Louisiana, Arkansas, Oklahoma, western Pennsylvania and upstate New York.

"There is so much natural gas now that we've moved into the shale plays, the real challenge is, how do you use the available gas to meet near-term energy goals?" he said. "It takes the government to get out of the way and do the things it can do."

Obama this week is also expected to embrace ideas included in a House-passed bill and Senate proposals that call for the creation of multibillion-dollar funds to deploy CCS technology. Clean-coal proposals spearheaded by Rep. Rick Boucher (D-Va.) could become part of a White House attempt to get greater support from Democrats in coal-burning states in the upper Midwest and from senators in the Southeast concerned that any climate regime would saddle their constituents with high electricity prices.

Reporter Christa Marshall contributed.