SCENARIOS: Possible alternatives if climate bill stumbles

(Reuters) - The U.S. Congress is having a difficult time passing legislation that would reduce industrial carbon dioxide emissions blamed for global warming.

A "cap-and-trade" bill narrowly passed the House of Representatives in June. A similar measure is struggling in the Senate. President Barack Obama's administration wanted progress on climate-change legislation by December when the global climate summit convenes in Copenhagen.

Under the Senate's cap and trade, the country would have to reduce carbon emissions 20 percent by 2020, from 2005 levels, 42 percent in 2030 and 83 percent by 2050.

Utilities, factories and refineries would be required to hold permits for each ton of carbon they emitted under the program and would be allowed to trade those permits on a new financial exchange that could generate hundreds of billions of dollars.

The plan is complicated and in the wake of recent financial industry scandals, some lawmakers are hesitant to make Wall Street the linchpin of major environmental policy.

It is a little late in the game to switch gears, but if Congress is unable to approve cap and trade this year or next, here are some alternatives that could emerge:

CAP AND TRADE PLUS

Talks already are under way in the Senate to meld some long-standing Republican initiatives to the cap-and-trade bill as a way of picking up enough votes for passage.

Democratic Senator John Kerry is working with Republican Senator Lindsey Graham. Talks center on fueling an expansion of the U.S. nuclear power industry with large new loan guarantees and other incentives, along with ways to expand domestic oil and gas production.

Democrats are likely to attach legislation already approved by the Senate Energy Committee requiring expanded use of alternative energy, such as solar and wind power.

More nuclear power and more offshore drilling could turn off some liberal Democrats who otherwise are willing to vote for cap and trade.

CAP AND DIVIDEND

More streamlined than cap and trade, this idea would have the government selling every new carbon pollution permit to industry, instead of giving most away. The permits and their sale prices would discourage industries from using fossil fuels and thus accomplish the overall carbon emission reductions. All government revenues from selling the permits would be rebated to citizens and others who are eligible, much like the checks Alaska residents get from fees on oil companies. The idea is to help consumers pay for higher energy prices resulting from a cap on carbon emissions. Supporters say those who use less energy would reap financial rewards.

Representative Chris Van Hollen, a member of the House Democratic leadership, introduced such a bill this year. Senator Maria Cantwell, also a Democrat, is writing her own version.

CARBON TAX

A tax on carbon emissions would be phased in over a number of years; or the tax could be targeted at companies that sell fossil fuels so that emissions from smokestacks would not have to be monitored. Representative John Larson, the fourth-ranking Democrat in the House, has sponsored a carbon tax bill that so far has gone nowhere. Other proponents have been former Vice President Al Gore and Robert Shapiro, an economist who served in the Clinton administration.

Supporters say it is simple and straightforward, giving clear signals about the rising price of carbon. Unlike cap and trade, they say, it does not create a complicated market system that some fear will bring big price fluctuations and become a breeding ground for manipulation.

But it comes with disadvantages: Above all, it's called a tax and U.S. politicians are generally terrified of voter backlash from any new tax. Some environmentalists complain that it doesn't actually put any limits on carbon emissions. But the tax could be adjusted over time if environmental goals were not being reached. Such adjustments could be a political nightmare, as members of Congress potentially would have to vote again and again to raise taxes.

EPA REGULATION

The Obama administration says it would much rather have Congress pass comprehensive climate legislation. But if it can't, it says the Environmental Protection Agency is prepared to begin regulating lower carbon emissions on large plants and utilities. The agency's jurisdiction under the Clean Air Act could be challenged in court, but some regulations could show up early next year.

CONGRESS DOES LITTLE OR NOTHING

Political gridlock prevents any comprehensive environment bill from being passed. Congress could try to do some bits and pieces, such as encouraging the use of more alternative fuels.

In this case, some East Coast states that have started regulating greenhouse gases and others that plan to cap greenhouse pollution, like California, could play a bigger role in coming years.

Or, U.S. lawmakers sit on their hands and hope an international climate deal can be worked out that the Senate could try to ratify. The difficulty is that Obama's climate negotiators at global talks need Congress to lay out a firm U.S. position before other countries will engage seriously.

(Editing by Peter Cooney)