Obama budget outlines CO2 market without revenues

The cover of U.S. President Barack Obama's 2011 Budget is seen as copies are unpacked for distribution to Senate staff on Capitol Hill in Washington February 1, 2010.

WASHINGTON (Reuters) - The White House called in its budget on Monday for Congress to endorse a "comprehensive market-based policy" to fight climate change while dropping projected revenues from a cap-and-trade system many lawmakers oppose.

Last year the Obama administration forecast revenues of $646 billion in the years 2012-2019 from an emissions trading program that formed the crux of its proposal to fight global warming.

But the legislation that contains that proposal is now stalled in the U.S. Senate and cap-and-trade, which sets limits on greenhouse gas emissions and allows companies to trade permits to pollute, may be cut from a final bill if one is passed.

"The $646 billion revenue projection is no longer in the budget," the administration official told Reuters.

"Unlike last year, we do not show an assumed amount of cap-and-trade revenue since the exact nature of the legislation remains in flux," the official said.

The trading system had been key to President Barack Obama's plan to reduce emissions blamed for global warming. He did not mention cap-and-trade last week in his State of the Union address, but did call for Congress to pass a comprehensive climate bill.

Some interpreted his omission of cap-and-trade as a signal that he would not actively pursue wide-ranging climate legislation this year.

The White House rejects that interpretation. The budget for the fiscal year to September 30, 2011 said the administration would push for a market-based mechanism to reduce U.S. greenhouse gas emissions roughly 17 percent in 2020 and more than 80 percent by 2080 compared to 2005 levels.

That is in line with targets Obama has pledged at an international level.

"I don't think you can read anything into the budget about the administration's wavering on a commitment on a comprehensive climate bill," said Evan Ard from Evolution Markets, a carbon and energy broker based in New York.

"The idea is to set a target for reducing emissions and setting up a program that hopefully allows you to do it at low cost, it's not about generating revenue."

The budget unveiled on Monday is subject to approval by the U.S. Congress.

FORGING AHEAD

White House aides are working to advance climate legislation among lawmakers and Obama has pledged to triple incentives for building new nuclear power plants to win over skeptical Republicans.

The official said the administration would insist any climate legislation be paid for without adding to the deficit. The deficit has become a major headache for the Obama administration as it seeks fiscal responsibility while still needing to tend a fragile economic recovery.

"We assume neither a specific spending and revenue level -- but stand by the same principle that the policy as a whole must be deficit-neutral," he said.

The $646 billion figure a year ago was based on a presumption that a U.S. law to limit emissions would be in place by 2012.

The House of Representatives passed a bill with a cap-and-trade component in 2009.

A Senate version still is in the works, but chances of passage may be hindered by the looming congressional election in November as lawmakers fear being punished for supporting a measure that some say would drive up energy costs for consumers.

The omission of the revenue figure in the latest budget also reflects the fact that the House bill whittled down the sale or auctioning of carbon credits to just 15 percent of permits, with the rest being given away to industry.

Obama pledged during his campaign to auction 100 percent of the credits in the early years of an emissions trading system, an assumption that was included in last year's budget.

A climate law is crucial to Obama's efforts to get international momentum behind efforts to fight global warming and craft a follow-up pact to the Kyoto Protocol.

The Obama administration formally embraced the Copenhagen Accord on global warming, which the president helped negotiate, last week.

The administration is also pushing the federal Environmental Protection Agency to move toward regulating greenhouse gases in an effort to push companies to support climate legislation.

The budget includes more than $6 billion in funding for clean energy technologies, aimed at helping cutting dangerous emissions. Most of that money is focused on research, development and demonstration projects, the White House said.

(Editing by Russell Blinch and Frances Kerry)