Senators to propose abandoning cap-and-trade climate approach

WASHINGTON - Three key senators are engaged in a radical behind-the-scenes overhaul of climate legislation, preparing to jettison the broad "cap-and-trade" approach that has defined the legislative debate for close to a decade.

The sharp change of direction demonstrates the extent to which the cap-and-trade strategy - allowing facilities to buy and sell pollution credits in order to meet a national limit on greenhouse gas emissions - has become political poison. In a private meeting with several environmental leaders on Wednesday, according to participants, Sen. Lindsey Graham, R-S.C., declared, "Cap-and-trade is dead."

Graham and Sens. John Kerry, D-Mass., and Joseph Lieberman, I-Conn. have worked for months to develop an alternative to cap-and-trade, which the House approved eight months ago. They plan to introduce legislation next month that would apply different carbon controls to individual sectors of the economy, instead of setting a national target.

According to several sources familiar with the process, the lawmakers are looking at cutting the nation's greenhouse gas output by targeting, in separate ways, three major sources of emissions - electric utilities, transport and industry.

Power plants would face an overall cap on emissions that would become more stringent over time. Motor fuel may be subject to a carbon tax whose proceeds could help electrify the U.S. transportation sector. Industrial facilities would be exempted from a cap on emissions for several years before it is phased in. The legislation would also expand domestic oil and gas drilling offshore and would provide federal assistance for constructing nuclear power plants and carbon sequestration and storage projects at coal-fired utilities.

"This is a different bill," Lieberman said in an interview. "We haven't abandoned the market-based idea, but we're willing to negotiate with colleagues who have different ideas."

Many lawmakers and lobbyists say even a radically different climate bill would face big hurdles to passage, given conflicting corporate and consumer interests, regional divides and a crowded Senate calendar. Energy industry lobbyists have turned much of their attention to proposing numerous variations of more narrow energy legislation.

But President Barack Obama has continued to push for broad legislation that he says would make the U.S. economy more efficient, slow climate change and fulfill U.S. pledges in international climate talks in December to cut the country's emissions by 17 percent by 2020. A U.S. failure to fulfill that commitment could undercut the determination of other nations to live up to their pledges.

Opponents of cap-and-trade, including GOP congressional leaders and some energy companies, have portrayed the House-passed bill as an energy tax in disguise that would hurt U.S. consumers and create a financial commodity that could be subject to manipulation. The measure also came under criticism because it gave away a large number of free allowances to coal users.

Environmental advocates, anxious to pass comprehensive climate and energy legislation before the November midterm elections, said the shift in strategy represents the best shot at getting something done this year.

"The Senate is understanding this is not a simple problem - it's multiple problems, and it requires multiple solutions," said Carl Pope, executive director of the Sierra Club.

Powerful business leaders have their own priorities. Michael Morris, chief executive of American Electric Power, a heavily coal-based utility, said one much-discussed proposal for a cap-and-trade plan limited to utilities was "ridiculous" because it would place an unfair burden on coal-based utilities. He added that "cap-and-dividend would be equally inappropriate." He said it would take money from "Mom in the Midwest and dividend it to Paris Hilton."

The American Petroleum Institute has been running television ads during the Winter Olympics saying "Americans Say 'No' to Raising Energy Taxes."

Even some relatively moderate Republicans, seen as possible supporters of a new climate bill, remain opposed to the idea of putting a price on carbon, which Lieberman still calls an essential ingredient of any such bill. Andy Fisher, a spokesman for Sen. Richard Lugar, R-Ind., said the senator, who has opposed cap-and-trade and carbon taxes, could support pricing carbon "potentially at some point, but not at the moment."

Senate Majority Leader Harry Reid, D-Nev., told Kerry this week that he and his colleagues need to produce a bill as soon as possible to have any chance of passage in 2010. Kerry said that although the package the three senators will unveil will not have 60 votes when it becomes public, he is confident it will win over skeptical lawmakers.

"What people need to understand about this bill is this really is a jobs bill, an economic transformation for America, an energy independence bill and a health/pollution-reduction bill that has enormous benefits for the country," Kerry said.