Senate climate bill to include free permits

WASHINGTON (Reuters) - A climate control bill that Democratic leaders hope to move through the U.S. Senate will seek to give companies a substantial number of pollution permits, potentially worth billions of dollars, rather than sell them, an aide to a key Democratic senator said on Friday.

There will be a "significant role" for allocations -- or free permits -- in the Senate bill, similar to the approach taken by the global warming legislation recently passed by the U.S. House of Representatives, the aide said.

The free permits are designed to help companies during a transition period. Besides helping build business support for the legislation in Congress, it also is seen as a way of helping shield consumers from bigger price increases for energy and other goods over the next few decades.

Under the House-passed bill, about 85 percent of pollution permits that companies would be required to obtain to emit carbon dioxide and other greenhouse gases initially would be given to companies.

Shortly after Congress returns from a month-long break on September 8, Senate Democrats are expected to introduce their version of a sweeping bill to control carbon emissions from utilities and manufacturers. Those emissions have been linked to global warming.

The aide, who asked not to be identified, said that when the bill is introduced, it will not lay out the specific formula for dispensing the pollution permits, which would diminish over time as companies are allowed to emit fewer and fewer greenhouse gases.

The formula will be worked out when the Senate Environment and Public Works Committee meets in September to put finishing touches on the bill, the aide added.

The pollution permits, which companies will be allowed to trade to each other, could be worth billions of dollars.

The committee, along with other Senate panels, also have to work out many other thorny issues, including possible trade protections for some domestic energy-intensive industries, such as steel, cement and paper.

Senators also might push changes to the House's overall targets for cutting carbon emissions. The House bill calls for emissions cuts from 2005 levels of 17 percent by 2020 and 83 percent by 2050. There are pressures to both reduce or increase those targets in the Senate.

President Barack Obama, who has made a high priority of enacting climate control legislation, initially proposed the government sale of all of the permits. But the House did not follow that path and Obama has shown flexibility, praising the House-passed bill but leaving the door open to change.

It is not clear whether the full Senate will pass a bill this year, although Democratic leaders say they will try in October.

Obama wants as much progress on climate change legislation as possible by December, when a United Nations meeting in Copenhagen will discuss new global efforts to tackle the environmental problem.

(Editing by David Alexander and Eric Beech)