Obama budget sticks to auctioning all CO2 permits

WASHINGTON Thu May 7, 2009 6:17pm EDT

The Valero St. Charles oil refinery is seen during a tour of the refinery in Norco, Louisiana August 15, 2008. REUTERS/Shannon Stapleton

The Valero St. Charles oil refinery is seen during a tour of the refinery in Norco, Louisiana August 15, 2008.

Credit: Reuters/Shannon Stapleton

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WASHINGTON (Reuters) - President Barack Obama's $3.55 trillion budget, released on Thursday, retains his plan to cut climate-warming carbon dioxide emissions by auctioning off 100 percent of emission permits to industries.

That is at odds with some in Congress, including members of Obama's own Democratic Party, who are pushing for 50 percent or more of those emissions to be given away in the early stages of the plan to ease the transition to a lower-carbon economy.

Opponents fear that charging companies for the carbon they emit would put unnecessary pressure on an already struggling economy.

Selling all the emission permits is projected to bring $646 billion in revenue over the first years of the program, and White House budget director Peter Orszag said that would not change when more details about the administration's budget request are released next week.

"We're not going to provide the full details of what will be released on Monday, but I will say that you should anticipate no changes in our climate proposal," Orszag told reporters, when asked if the 100 percent figure would hold.

During last year's presidential campaign, Obama said he wanted all emissions permits to be sold, rather than given away, but has signaled there may be flexibility on that point.

Under the Obama plan, the amount of carbon dioxide emissions -- which come from coal-fired power plants, oil refineries, cars and other industrial and natural sources -- would be capped. Companies that emit more than the limit would have to buy emissions credits from companies that emit less.

Even as Obama's budget request was released on Thursday, the director of the nonpartisan Congressional Budget Office stressed the whole point of this kind of cap-and-trade system was to push companies to lower emissions.

GIVING IT AWAY

"Giving away allowances is effectively the same thing as selling them and giving the proceeds from the auction away," the CBO's David Elmendorf told the Senate Finance Committee.

Total revenue from auctioning emissions could amount to some $1.2 trillion over 10 years, Elmendorf said. That rise in costs for emitting companies will show up in higher prices. In Obama's budget, some revenues from the cap-and-trade plan are meant to be rebated to consumers to offset this price rise.

"The price increase will have to occur somewhere in order to induce the change in behavior," Elmendorf said. "You can move around where it happens, but you can't get away from it altogether."

A cap-and-trade bill is moving through Congress, sponsored by Representative Henry Waxman, a California Democrat who chairs the House of Representatives Energy and Commerce Committee.

Waxman wants the committee to pass the bill by the end of May, but a senior Republican suggested on Thursday that the bill could be set aside for a few months while the same committee works on healthcare reform.

A delay could give Democrats more time to build support for the climate change legislation, Representative Joe Barton, a Texas Republican, said in a Reuters interview.

Some Democrats on the panel, notably Mike Doyle of Pennsylvania, expect that most of the emission permits that industry would need under a cap-and-trade plan will initially be given away, not auctioned -- and that this would go on for the first 10 or 15 years of the program.

Obama has said he would prefer to limit carbon emissions through legislation but also has the option of using regulation to achieve the same thing. The U.S. Environmental Protection Agency said last month that greenhouse emissions were a danger to human health and therefore can be regulated as a pollutant.

(Additional reporting by Richard Cowan and Jeff Mason; Editing by Peter Cooney)

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