CLIMATE:

Kerry looking to strike deal with utilities on carbon cap

Senate Democrats are searching for a way to entice the utility sector to sign on to an industrywide emissions cap in a final bid to salvage President Obama's goal of pricing carbon this year.

Sen. John Kerry (D-Mass.) told reporters yesterday that conversations between Democrats and utilities are ongoing and that he remained optimistic that they could strike a deal. Convincing the electric power industry to back a scaled-down carbon cap as part of a utility-only proposal is widely seen as the Senate's best shot at directly limiting greenhouse gas emissions this year.

"I think one could work out some formula that appeals to industry," said Kerry, who is the co-author of a sweeping cap-and-trade bill that prices carbon emissions across multiple sectors of the economy, including utilities.

"I think there's something hopefully we'll be able to do that moves in the right direction," Kerry said of efforts to include carbon-pricing language in the broad energy and climate package Democrats hope to bring to the floor in the coming weeks. "I can't tell you what it is yet."

Kerry and other senators are hoping to convince Senate Majority Leader Harry Reid (D-Nev.) to include a carbon pricing mechanism in the final energy package that Reid is planning to send to the floor this month. Kerry has been working with Sens. Joe Lieberman (I-Conn.) and Olympia Snowe (R-Maine) on climate language to be added to an energy bill, according to a Senate aide familiar with the discussions. That could take the form of a cap on only electric utilities, the aide said.

"There is a lot of work going on with Harry Reid and his staff, and a lot of intervention with a lot of different offices, and there are a bunch of meetings in the next few days," Kerry said. "So hopefully, you know, a piece of legislation comes together. I'm very optimistic that we can pass something here that deals with energy and gets us started in the right direction. If it's the best we can do, it's the best we can do."

Reid will meet with Democratic committee leaders this week to review options for the energy package and hopes to announce a decision by the end of this week, Reid spokesman Jim Manley said.

Reid and other top Senate Democrats will meet with President Obama today to discuss the administration's legislative priorities during the four or five weeks before the August recess. In addition to an energy debate, the president wants the Senate to take up financial regulatory reform, a tax extenders bill, a small business lending package, an arms control agreement and Elena Kagan's Supreme Court nomination, White House press secretary Robert Gibbs said yesterday.

Utilities have been mixed in their reactions to the power plant-first approach. The Edison Electric Institute -- a trade group whose members represent about 70 percent of the U.S. electric power industry -- has not taken a public position on a utility-only emission cap. White House officials met last week to discuss energy and climate legislation with Senate staffers and representatives of EEI, according to a White House aide.

Several utilities, including Duke Energy Corp., have said the plan would offer regulatory certainty as companies look to make significant new investments over the next several decades. Still, broad industry buy-in is seen as critical to moving the legislation.

Kerry said that several concessions could be used to get the industry on board, including pre-empting U.S. EPA climate regulations. The Kerry-Lieberman bill would have blocked EPA from regulating stationary sources under several major Clean Air Act programs.

"You'd have to work on some of the pre-emption pieces," Kerry said. "You'd have to do some pieces, you'd have to make sure it's scaled correctly."

Industry officials are concerned that EPA climate rules for stationary sources, which are expected to kick in next January, will have damaging economic consequences and could be thrown out in court, creating regulatory uncertainty. Environmentalists have indicated a willingness to support pre-emption of some Clean Air Act provisions for sectors given carbon caps capped by Congress but have indicated staunch opposition to pre-empting EPA rules for industries outside of such a cap.

Sen. George Voinovich (R-Ohio) said yesterday that EPA pre-emption would be necessary to win utilities' support to become the first capped sector.

"Utility companies have made it very clear to me that they want as complete a pre-emption as they possibly can get if they're going to buy any kind of their sector-only legislation," Voinovich said.

Still, other lawmakers are dubious about the prospects for any cap on carbon emissions clearing the Senate this year.

Sen. Richard Lugar (R-Ind.), whose energy efficiency bill is among the options the Senate is choosing from as it heads toward a floor debate, said an "energy only" bill that avoids carbon caps is the best way to reach the needed 60 votes. "If you can't get to 60 on that, I suspect you can't get to 60," Lugar said.

Sen. Lamar Alexander (R-Tenn.) said he does not think a measure capping carbon will pass the Senate.

"Someone might offer it as an amendment to an energy bill, but I don't think it will succeed this year, nor do I think it should," Alexander said. "This is not the year to pass an energy tax in the middle of a recession."

Instead, Alexander said, the Senate ought to focus on cleaning up the oil spill in the Gulf of Mexico and take up several energy policies that have bipartisan support, including promoting electric cars, nuclear power and energy research and development. Alexander also wants the Senate to move forward on a bill he is co-sponsoring with Sen. Tom Carper (D-Del.) to slash air pollution from power plants.

"That's a lot to talk about and it would be a substantial achievement this year," Alexander said. "But cap and trade won't work this year."