Recession may delay U.S. bill on emissions limits

WASHINGTON (Reuters) - U.S. lawmakers took a big step forward on climate change legislation this week, but the cratering economy makes it unlikely Congress will approve a controversial cap and trade system this year.

Any delays threaten the timely implementation of a key component of President Barack Obama's goal to create millions of jobs in industries linked to clean energy.

Democrats in the House of Representatives released a complex draft bill Tuesday that seeks cut carbon emissions 20 percent below 2005 levels by 2020 and require companies to acquire permits to release greenhouse gases.

Rep. Henry Waxman, chairman of the House Energy and Commerce Committee, hopes his panel approves a bill by the end of May. Legislation would have to pass through several other committees.

Senate Majority Leader Harry Reid has said he would like a vote on a cap and trade bill this summer. But experts doubt there are enough votes in the Senate given strong Republican opposition and some wavering Democrats.

The 800-pound gorilla that proponents have to deal with is the economy. Critics say Congress should not impose a program that would raise energy prices and burden businesses in a recession.

"We will have massive job loss, massive job dislocation," fumed Rep. John Shimkus, an Illinois Republican, at a hearing last month. "I challenge the Democrats to move this bill, because we will defeat them at the polls."

Chances of passing legislation this year are better than before, but it will mean tough compromises, said Tim Profeta, director of the Nicholas Institute at Duke University.

"I think there are some very hard issues to be resolved," Profeta said.

SOFTEN THE BLOW?

The House draft proposal aims to cut U.S. greenhouse gas emissions 20 percent below 2005 levels by 2020 and more than 80 percent by 2050. The plan does not detail how carbon permits will be allocated to polluters -- a key issue analysts say will make or break the legislation.

Democrats from industrial states worry companies will be forced to pay dearly and other critics warn that some companies may just move offshore.

In cap and trade, owners of power plants emitting carbon dioxide would need permits for every ton emitted, encouraging utilities to boost efficiency or use sources that emit less CO2 than burning coal.

Obama outlined his vision for the scheme in his budget. He would cushion higher energy costs by using much of the revenue from permit sales for tax cuts for the middle class. The rest of the money would be invested in clean-energy technology.

The White House expects to raise $646 billion from 2012 to 2019 under the plan. Moody's Investors Service said the United States generates about 6 billion tonnes of carbon dioxide every year, which could raise $120 billion of annual government revenues assuming a rate of $20 per ton of emissions.

Democrats hold the majority in Congress but getting the 60 votes necessary to overcome a Senate filibuster may prove tough this year, as the partisan divide has hardened.

John McMackin, a director of a glass container company and part of a lobby for energy-intensive firms, said he thinks only two Republican senators may vote for the bill.

"That means they really would have to hold every Democrat and that's hard for some of these industrial-state Democrats," McMackin said.

But lawmakers will feel some pressure to take action on climate change as the Environmental Protection Agency makes its own moves to regulate gases blamed for global warming.

The EPA sent its finding to the White House this month that greenhouse gases threaten human health and welfare, possibly paving the way to use the Clean Air Act to limit emissions.

"Right now people in the Congress can say, 'Should we regulate greenhouse gas emissions or not?'" said Eileen Claussen, president of the Pew Center on Global Climate Change. "In a very short time it will be, 'Should we regulate under Clean Air Act or pass a piece of legislation?'"

Business and trade groups have lobbied against allowing EPA to take the lead in regulating emissions. They argue the agency will be less responsive to regional and local interests. The White House has said it also prefers a legislative solution.

Any cap-and-trade bill faces a long road through Congress.

"I would never say it won't happen, but the odds are it might slip to 2010," Claussen said.

(Editing by Jeffrey Jones and David Gregorio)