Oil Report

UPDATE 2-US Senator Graham calls cap-and-trade plan dead

(For full coverage of climate change, click [nUSCLIMATE])

* Concept of cap-and-trade “going to be replaced” - Graham

* Energy Secretary Chu says chance still for cap-and-trade

* Kerry hopes for compromise climate bill this month

* Speculation on new carbon-pricing mechanism on utilities (New throughout, adds byline)

By Richard Cowan and Thomas Ferraro

WASHINGTON, March 2 (Reuters) - The idea of imposing a broad cap-and-trade system to cut America’s greenhouse gas emissions is dead and will be replaced with a new approach, an influential Republican senator said on Tuesday.

Lindsey Graham, one of three senators working against daunting odds to produce a compromise climate bill, has recently turned against imposing the kind of cap-and-trade system used in Europe, which involves companies buying and selling pollution permits.

Graham did not specify whether another mechanism or some sort of cap-and-trade would be used more narrowly, such as to control emissions in the power utility sector.

“The cap-and-trade bills in the House and Senate are dead. The concept of cap-and-trade is going to be replaced,” Graham said.

Cap-and-trade would involve cutting U.S. greenhouse gas emissions between 2012 and 2050 by establishing a regulated financial market where a wide range of companies would buy and trade a shrinking number of permits to pollute, which critics say would raise costs for consumers and companies.

International climate change negotiations hinge in part on the ability of the largest carbon polluter in the developed world -- the United States -- enacting a pollution-control law.

Democratic Senator Evan Bayh cautioned that the future of a climate change bill may be closely linked to how Congress gets through a rancorous debate in this election year over healthcare reform.

“Let’s get through healthcare because the world might look a lot different depending on how that’s handled,” Bayh told Reuters when asked about a climate bill.

Both issues are high priorities of President Barack Obama.

The controversial environmental bill pits various regional and energy interests against each other.

A group of 13 Democratic senators from the east and west coasts wrote to Senate Majority Leader Harry Reid on Tuesday urging that any climate bill require coal-fired power plants to meet modern pollution standards.

The senators complained that a bill passed by the House of Representatives “rolled back” Clean Air Act requirements for existing coal plants, many of which are old and high-polluting.

But Midwestern states rely heavily on energy from those coal-fired plants and lawmakers fear their constituents will be jolted by higher costs if the plants must be revamped.

U.S. Energy Secretary Steven Chu said there was still a chance the Senate would pass a climate bill this year with a cap-and-trade program.

“It is not dead,” Chu told Bloomberg TV, referring to the cap-and-trade approach. “We need a comprehensive bill. We would very much want and need it this year.”


Democratic Senator John Kerry told reporters he hoped a compromise climate control bill could be put together this month, although many meetings still must be held. Graham told reporters it will be “weeks” before a bill is ready.

But Senator Joseph Lieberman, an independent working with Graham and Kerry, said a detailed outline of a bill could come within days and that it will have to include a ceiling on greenhouse gas emissions that drops in future years.

Last June, the House narrowly passed a climate change bill with cap-and-trade as its centerpiece and a carbon-reduction target of 17 percent by 2020, from 2005 levels.

But the initiative has stalled in the Senate, despite Senate Environment and Public Works Committee approval of a similar bill.

But, as a result of work in the past few months, Kerry said he was feeling “more confident” that a climate change bill could be presented to the Senate for passage this year.

“We’re looking at a new way of coming at this that we think can attract greater support,” Kerry said.

Environmentalists have speculated the bill the senators will produce could take a “sectoral approach” by imposing a new carbon-pricing mechanism on utilities, which account for about 40 percent of the emissions blamed for global warming.

Sources also have said there is talk of a transportation tax. Pollution controls on manufacturers could be put off for a few years to give time for more affordable alternative energy sources to come on line, they have said.

Kerry said it was “not necessarily accurate” that there will be such a sectoral approach.

Asked about taxes being inserted into a climate bill, Lieberman would only say: “Nothing frozen yet, so I have to be evasive about that.”

“I’m saying what we do may be economy-wide,” Kerry said. “But we’re not going to do it in the same way everybody has talked about doing it.” (Additional reporting by Tom Doggett; Editing by Russell Blinch and John O’Callaghan)