CLIMATE:

Senate talks intensify with new carbon pricing draft expected this week

The Senate trio at the center of talks on a comprehensive climate and energy bill will present a draft proposal this week to their fence-sitting colleagues and high-profile interest groups amid warnings from Democratic leadership that the window for action is closing.

"It's time," said a Senate aide close to the process. "Game on."

Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) have been working for months behind closed doors on a plan that promotes domestic energy production while putting a first-ever price on greenhouse gas emissions. Aides say they have settled on a relatively short but detailed list of ideas that are ready to be turned into formal bill language, but first they want to get feedback from key blocs of Democratic and GOP senators with a stake in everything from coal to natural gas, manufacturing and transportation.

Kerry this week is scheduled to have at least eight climate-related meetings with senators and other interest groups. Graham and Lieberman have talks lined up with critical voices from both parties in the debate, including Sens. Sherrod Brown (D-Ohio), Scott Brown (R-Mass.), Mary Landrieu (D-La.), Carl Levin (D-Mich.) and Judd Gregg (R-N.H.).

The overall goal, Kerry's spokeswoman Jodi Seth said, is to jump-start talks that can help pave the way toward 60 votes.

"Dozens of meetings and scores of decisions and negotiations still have to happen before anyone knows what a bill would look like, but every day we are making progress," Seth said.

The Kerry-Graham-Lieberman draft to be circulated this week starts with an overall goal of reducing U.S. greenhouse gases by 2020 in the range of 17 percent below 2005 levels.

To get there, they will propose a significant redesign of the carbon pricing mechanisms of the House-passed climate bill, H.R. 2454, and a Senate counterpart authored by Kerry and Sen. Barbara Boxer (D-Calif.), S. 1733. Rather than include all major industrial sources of greenhouse gases in one broad economywide cap-and-trade system, the Senate trio will propose different types of limits for different sectors of the economy, beginning with electric utilities and then turning later to manufacturers such as chemical plants and pulp and paper mills.

"The bottom line with utilities is they'll assume a compliance obligation from day one of the program," the Senate staffer said, adding that no decisions have been made on how to allocate valuable emission allowances to the power companies except to incorporate an industry recommendation to shuttle revenue toward consumers to help pay for higher energy bills.

Transportation fuels can expect a carbon tax that rises based on the compliance costs faced by the other major emitters. Several major oil companies, including Shell Oil Co., ConocoPhillips and BP America, floated the original idea on Capitol Hill, and the Senate trio has evolved their plan by funneling revenue toward transportation projects, reducing fuel consumption and lowering domestic reliance on foreign oil. The Highway Trust Fund is also a potential recipient of the carbon tax revenue, Senate aides said.

Manufacturers would face a series of greenhouse gas limits after power plants, but talks are still ongoing over when the phase-in begins and what specific industries fall into the suite of restrictions.

The senators plan to present several other energy-related proposals to their colleagues, including ideas to promote the development of nuclear power and carbon capture and sequestration at coal-fired power plants. Agreements are also in sight on how to incorporate agriculture and forestry offsets into the mix, as well as other cost-containment mechanisms to brace industry and consumers from higher prices.

Provisions on domestic oil and gas drilling could come later depending on the status of talks with key senators, including Energy and Natural Resources Committee ranking member Lisa Murkowski (R-Alaska).

Senate Majority Leader Harry Reid (D-Nev.) urged Kerry last week to get a bill into the hands of senators as soon as possible if the legislation is going to have any chance of hitting the floor this year (Greenwire, Feb. 25).

'Different from anything that's been put on the table'

As they make their case for the legislation, the three senators plan to tout their effort to incorporate energy and climate proposals into one overall package. And they will highlight the shift on carbon pricing away from cap and trade.

"It will be different from anything that's been put on the table in the House or Senate to date," Kerry said last week. "It'll be comprehensive. And I hope it'll change the debate."

Republican opponents have tarred the concept in the House bill as "cap and tax" and threaten to use it as a political weapon against Democrats during this November's elections.

"Cap and trade as we know it is dead, but the issue of cleaning up the air and energy independence should not die -- and you will never have energy independence without pricing carbon," Graham said in yesterday's New York Times. "The technology doesn't make sense until you price carbon. Nuclear power is a bet on cleaner air. Wind and solar is a bet on cleaner air. You make those bets assuming that cleaning the air will become more profitable than leaving the air dirty, and the only way it will be so is if the government puts some sticks on the table -- not just carrots."

Climate bill supporters said the shift in legislative approaches could offer a chance for success even amid in the current political climate on Capitol Hill.

"A simplified cap on just the power sector is a logical fallback," said Jason Grumet, president of the Bipartisan Policy Center. "Combined with efficiency standards on vehicles, buildings and appliances, this hybrid approach can achieve domestic reductions similar to those under an economywide approach. Combining approaches that Congress has supported in the past seems like a good way to reset the debate."

Dan Weiss, a senior fellow at the liberal Center for American Progress, said "the most important element" of the upcoming Senate plan involved a carbon price capable of curbing emissions by at least 17 percent by 2020.

"The method in the bill to achieve that goal -- whether it's cap and trade, cap and dividend, carbon tax, or a hybrid system -- is much less important as long as it can meet the goal while attracting 60 senators' votes," Weiss said.

Jeremy Symons, vice president for policy at the National Wildlife Federation, urged caution against jumping to any conclusions about the Kerry-led effort until more details start to emerge. "This is the time when those who are determined to kill any idea that looks like it has traction will reveal themselves," Symons said. "For those who see this purely as a political opportunity to pummel any reform plan as government excess, then they will attack more fiercely the closer a bill gets to the political middle where it may actually pass."

John Coequyt of the Sierra Club said the idea of simplifying the emission reduction plans could work by separating the politics of each individual industry. "By separating them, it gives you an opportunity to treat those industries in a way that makes them happier," he said. But without all the details, he questioned whether Kerry, Graham and Lieberman had done enough to ensure the bill actually accomplishes what it needs to in the way of curbing greenhouse gases.

"I don't know if you can do that and have a system that gives you a guaranteed reduction target," Coequyt said. "I think that's the challenge."

Industry attorney Scott Segal, who represents electric utilities, petroleum refiners and other major emitters, said he would be on the lookout for language that removes any regulatory overlap for his clients. For example, refiners placed under an emissions cap should not also be required to meet a low carbon fuel standard. Power companies also need guarantees on cost containment and that the emission limits do not outpace technological assumptions.

Overall, Segal said he would welcome the latest round of ideas. But he doubted whether it could break the ice when so many moderate senators have been reluctant to engage on the issue.

"New drafts are steps in the right direction," Segal said. "They stimulate debate on the topic. However, I do not detect a significant change in appetite among U.S. senators to pick up and pass a large scale climate bill before the mid-term elections."

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