The last best hope to get a climate-energy bill through Congress this year may be to drop long-held "cap-and-trade" plans for an economy-wide price on carbon emissions and instead target just the utility, transportation, and industry sectors of the economy.
That scenario, now emerging in the Senate, set energy industry officials and environmental groups scrambling to evaluate how to deal with new legislation that's being developed behind closed doors and whose details are still unknown.
Broad outlines of the legislation – including a pullback from cap and trade – were reported over the weekend by The Washington Post. Details were in short supply as trial balloons floated and popped at the Capitol.
But even lacking details, several analysts say that such a move would be a broadly significant and dramatic shift away from the nationwide cap-and-trade climate-energy bill passed by the House of Representatives last June but tarred by opponents as a "cap-and-tax" bill.
Architects of the new bipartisan bill are Sens. John Kerry (D) of Massachusetts, Joe Lieberman (I) of Conn., and Lindsey Graham (R) of South Carolina. The latter was quoted over the weekend as saying in a private meeting that "cap and trade is dead."
"Cap and trade may not be quite dead, but it's been dying for some time," says Kevin Book, a principal with ClearView Energy Partners, a Washington consulting firm. "For five years, Congress has been talking about carbon markets. Now they're saying to heck with that – we've got a problem to solve."
Acknowledging a lot of "wheel spinning" and a "lack of any real consensus," Frank Maisano, spokesman for Bracewell and Giuliani, a law firm specializing in energy issues, suggested on Monday in an e-mail that current rough outlines of the emerging bill appear to include:
1. A new cap just on utility emissions in the short run.
2. A cap for industrial sectors in the longer term.
3. A carbon fee on transportation fuels.
4. Expanded federal support for nuclear power
5. Expanded federal support for the oil and gas industry.
Reactions among environmentalists and industry representatives to the proposed new legislation ran the gamut from wary acknowledgment to cautious embrace to tentative hope.
"Any approach that looks only at a couple of sectors, even though large sectors, would fall well short of an economy-wide approach," said Jim Owen, a spokesman for the Edison Electric Institute, a trade association representing investor-owned utilities. "We have been strongly supportive of a well-designed, economy-wide approach. That's still our position."
Environmental groups have been split over the Waxman-Markey bill that emerged from the House of Representatives last spring. Some viewed it as a good first step that could be strengthened. Others saw it as a fatal compromise.
Something similar may play out over the Kerry, Lieberman, Graham climate-energy proposal, or KLG, as some now call it.
"We are encouraged by the important work being done by Senators Graham, Kerry, and Lieberman, and we look forward to working closely with them ... to pass a strong climate, jobs, and clean energy bill," David Hawkins, director of climate programs at the Natural Resources Defense Council, said in a statement.
The NRDC's support was qualified, however, by concerns about the bill becoming a "Christmas tree" for industry, including "mature technology" such as nuclear power plants, as well as oil and gas industry incentives.
Friends of the Earth has staked out a strong position against taxpayer subsidies for nuclear power and had opposed the Waxman-Markey bill.
"We're open to anything that moves us away from the Waxman-Markey bill," says Nick Berning, a Friends spokesman. "That said, we've been hearing a lot of talk about supporting oil drilling, nuclear reactors, and keeping business interests happy with this bill, too. So I think there's concern that what they produce might not be a solution either."
However, some groups say that the KLG approach does seem likely to put a price on carbon for several key sectors of the economy, perhaps using an approach the federal government already uses to regulate sulfur dioxide emissions.
"Both Senators Kerry and Graham have been clear that putting a price on carbon is essential to making a market-based system work for these new renewable-energy technologies," says Reid Detchon, executive director of the Energy Future Coalition of labor, business, and environmental groups. "We believe a bill can be put together and passed by the Senate that emphasizes those elements."