Senators at odds over climate bill

A Toyota Prius hybrid car drives past downtown Los Angeles on the 10 freeway, January 27, 2009.

WASHINGTON (Reuters) - Two U.S. senators who have been part of negotiations on climate change legislation this year said on Wednesday they disagree with the carbon emissions reduction approach being developed in a compromise bill.

Democratic Senator Maria Cantwell and Republican Senator Susan Collins late last year offered a streamlined "cap and dividend" bill to reduce U.S. greenhouse gas emissions blamed for global warming.

It is competing against a more complex "cap and trade" bill passed by the House of Representatives last June and a more limited cap and trade compromise being worked on by a bipartisan group of senators.

"We probably still have a difference of opinion on creation of trading platforms," Cantwell told reporters. "There are some who believe that you actually have to have trading to have liquidity," she added. "I think a clear price market signal without volatility will unleash the investment."

But Senator Lindsey Graham, a South Carolina Republican working on the cap and trade bill, expressed strong opposition to the Cantwell-Collins approach for pricing carbon.

"If you're a southeastern state or a midwestern state where you're coal heavy, their approach basically collects money from your constituents and sends it to hydropower states and other states. It's sort of a redistribution of wealth I don't think people in my part of the world would accept," Graham said.

If the standoff continues it could further delay the climate bill. Democratic Senator John Kerry, the leading proponent of the compromise legislation, needs every vote he can get amid concerns from lawmakers from states whose economies are heavily reliant on fossil fuels.

PERMIT TRADING

Alaska Democrat Mark Begich, during a break in a closed meeting on the climate bill, told reporters that a provision to expand offshore oil drilling "absolutely needed" to include revenue sharing for states in that measure and "at this point that's in there."

U.S. Chamber of Commerce President Thomas Donohue, during a visit to Capitol Hill, said his business group was "positively and happily engaged in the discussion" on a compromise climate bill, but added that he didn't know whether Congress would be able to pass a bill.

The chamber, the American Petroleum Institute and other industry groups are expected to meet again with Kerry on Thursday.

Under cap and dividend, coal and oil companies, including importers of those carbon-polluting fossil fuels, would have to buy permits to cover emissions. The number of permits would decline over many years. Trading of permits would be limited to emitters.

Also, consumers would receive checks each month to help cover the costs of more expensive alternative energy like wind and solar power used by utilities and factories.

But cap and trade -- at least for the utility sector initially -- is favored by Kerry, Graham and independent Senator Joseph Lieberman, according to industry and environmental officials briefed about the bill that is still being molded.

Cap and trade would target pollution-reductions further downstream -- at utility, refinery and factory smokestacks. It could spark a global market for traded permits open to banks and brokers worth up to $2 trillion.

The Cantwell-Collins approach attempts to tap into lawmakers' skittishness over creating such a huge new market for Wall Street and its potential for abuses, especially on the heels of widespread financial industry misdeeds.

Financial players say keeping investors out of the market could be harmful.

"Everyone benefits by having a larger pool of liquidity," said Tom Lewis, chief executive of Green Exchange Holdings, LLC. "If emitters are the only players there may be even less transparency."

Collins, asked whether she could support a Kerry compromise that could pick up some ideas of her bill, said: "I certainly will take a look at the bill that is produced but I'm very happy with the approach that we have taken."

The Kerry-Graham-Lieberman bill being drafted, according to sources, would establish a 4 billion-ton reserve for pollution permits that could be released to counteract any carbon price volatility. The reserve would help enforce a $10-$30 per ton price range.

(Additional reporting by Timothy Gardner; Editing by Eric Beech)