Details of new Senate climate bill emerge

WASHINGTON--Sen. John Kerry (D-Mass.) and Sen. Joseph Lieberman (I-Conn.) are scheduled to formally unveil on Wednesday a compromise U.S. climate change bill they want passed this year.

Besides bringing down emissions of carbon dioxide and other gases blamed for global warming, it would expand offshore oil drilling and nuclear-power production in a move to appeal to a broader number of senators.

Here are highlights of the bill, called the "American Power Act," according to a summary of the legislation being circulated to senators and obtained by Reuters:

Carbon emissions reductions
By 2020, carbon pollution would be cut by 17 percent from 2005 levels. By 2050, a reduction of more than 80 percent would be achieved. These are the same goals included in the climate bill passed by the House of Representatives in June. The short-term goal is slightly less than the 20 percent cut approved in November by the Senate Environment and Public Works Committee.

The summary did not specify, but sources have said the carbon-reduction requirements on utilities would begin in 2013.

Carbon price collar
Carbon prices would rise at a fixed rate over inflation. Initially, floor and ceiling prices for carbon pollution permits required of electric utilities would be set at $12-$25. The floor would increase at 3 percent annually over inflation and the ceiling at 5 percent annually over inflation.

In the event of unusually high carbon prices, a strategic reserve would ensure the availability of "price-certain allowances."

Backers aren't calling it "cap and trade," but in practice, that is what it appears to be.

Market participants
According to the summary, "Participation in the auction and primary cash markets is restricted to entities with a compliance obligation and a limited number of 'market makers.'"

"Participation in the secondary market will be open to all participants, but it will only exist on a cash-cleared basis. It will be highly regulated, exchange-traded and transparent."

Offshore oil drilling
Expanded drilling off the coasts of mid-Atlantic states would be encouraged. But following the huge April 20 oil spill in the Gulf of Mexico, the bill will allow states to opt-out of drilling up to 75 miles from their shores. States also could veto drilling plans off their coasts; states that participate would get 37.5 percent of revenues from the oil production to protect coastlines.

Factory emissions
Manufacturers would not have to begin cutting their carbon pollution until 2016 to give them more time to adjust. Starting in 2016, energy-intensive industries, like steel, paper, and chemical factories, would get some free pollution permits to offset their compliance costs.

If no global deal on reducing emissions is reached, a border tax would be imposed on goods from countries without pollution-reduction programs.

A clean energy manufacturing tax credit would be increased by $5 billion.

Big polluters only
Only large sources of carbon pollution will be required to cut emissions: those that emit more than 25,000 tons of carbon annually, or 7,500 factories and power plants.

Consumer protections
Energy bill discounts and direct rebates would go to consumers to protect them from price hikes as the U.S. moves away from cheap, dirty fossil fuels and toward clean, but more expensive, energy sources, like solar and wind power. Lower-income families would get additional assistance.

State pre-emption
States would have to abandon cap-and-trade programs they operate in favor of a national program that uses different pollution-control approaches for different industries.

'Clean coal'
Washington would spend $2 billion per year to help develop carbon capture and sequestration methods and devices for coal. The summary didn't specify how long the money would flow.

Nuclear power
Increased generation in this sector, which emits almost no carbon, would be fostered through $54 billion in new loan guarantees that President Barack Obama already has requested. The Kerry-Lieberman bill also would allow accelerated depreciation for nuclear-power plants, a manufacturing tax credit to spur production of parts and to speed up licensing. Research dollars also would be dedicated to developing small, modular reactors.

Oil industry requirements
The transportation sector, like utilities and factories, will be included in the national carbon pollution cap. But unlike the latter two sectors, it will not participate in the carbon market.

Instead, domestic producers and importers of refined petroleum products would have to buy "allowances," which will be linked to the price of carbon established by auctions that start with the utility sector and then expand to manufacturers in 2016.

Improved transportation
$7 billion annually would be used to improve mass transit and highways. New government investments in batteries and other clean vehicles would be provided.

Natural gas incentives
Tax incentives would encourage heavy-duty trucks to convert from petroleum to using cleaner natural gas as a fuel. Disincentives for natural-gas generation at merchant power plants would be removed.

Agriculture sector
Farmers would be exempt from carbon pollution requirements. But they would be encouraged to cut their emissions, which come from fertilizers, heavy farm equipment and other sources, through a domestic offset program overseen by USDA.