U.S. budget update stands pat on CO2 permit auction

WASHINGTON (Reuters) - The White House budget update released on Tuesday still reflects a controversial Obama administration plan to combat global warming by auctioning all permits to emit greenhouse gases even though Congress has said it will give away a substantial portion to industry.

The mid-session budget review from the Office of Management and Budget estimates the government will raise $627 billion in revenue between 2012 and 2019 from a so-called cap-and-trade system requiring companies to buy permits for the carbon gases they spew into the atmosphere.

However, analysts say it is unlikely lawmakers will approve any climate control system that would force polluters to initially pay for the majority of carbon permits.

The administration’s budget estimates “represent an ideal, but they don’t appear to be real,” said Kevin Book, an energy analyst for ClearView Energy Partners.

Lawmakers on both sides of the aisle have balked at President Barack Obama’s campaign pledge to support climate legislation that would auction 100 percent of carbon permits.

Moderate Democrats from heavy industrial states have raised concerns that such a system would unreasonably burden utilities and major emitters.

The House of Representatives passed cap and trade legislation in June that would initially give about 85 percent of permits away for free, providing industries time to transition to the carbon restraints.

The Senate bill expected to be unveiled in September will likely follow the same course.

Book said the White House may be sending a signal to Congress by maintaining its climate revenue projections.

“The White House is negotiating with Congress,” he said. “They are making very clear where their initial stance is going to be, just as the Hill has made clear what their initial stance is going to be.”

An OMB official said the budget review essentially assumes the full implementation of Obama’s campaign promise. “To the extent that Congress enacts a different proposal, we’ll adjust the budget accordingly at that time,” the official said.

In the current budget, the proceeds from cap and trade are set to pay for $15 billion annually in clean energy technology investments and billions of dollars in tax breaks for U.S. workers to offset higher energy costs.

The lack of Congressional support for auctioning all permits puts these proposals in jeopardy, analysts have said.

“The biggest implication isn’t for global warming. The biggest implication is how they’re going to pay for their (tax cuts),” said Dan Weiss, an energy expert at the Center for American Progress think-tank.

Reporting by Ayesha Rascoe