Ideas being debated for a U.S. climate bill

WASHINGTON (Reuters) - Senators are struggling to write a compromise U.S. climate control bill that would reduce the country's carbon dioxide emissions, while expanding domestic production of oil, natural gas and nuclear power and also boosting alternative energy.

It is unclear whether they will succeed in this election year. President Barack Obama, who has urged Congress to pass such legislation, has put a higher priority on enacting healthcare reform and short-term job-creation bills.

Some Democrats hope a compromise bill will be unveiled on April 22, the 40th anniversary of Earth Day, while others want a bill introduced by the end of this month.

Here are some of the ideas senators are debating in their uphill climb to find 60 votes of support in the 100-member U.S. Senate -- the minimum needed to beat procedural hurdles from opponents:

POWER COMPANIES

A cap-and-trade system could be applied to electric utilities, which contribute about 40 percent of the nation's carbon emissions linked to global warming -- especially from coal-fired plants.

A key U.S. senator told Reuters that a bill which might be unveiled soon would use cap and trade as the mechanism for pricing carbon.

Under that proposal, annual carbon emissions would have to decline over the years, and power companies would be required to obtain permits for each ton of carbon pollution they emit. Those permits could be traded on a regulated market.

Still unclear: How many permits initially would be allowed for various companies, and whether any or all of those would be given away to companies for free.

There is a fight over the allocation formula. Democratic Senator Carl Levin says it would be unfair to have a 50-50 formula based on emissions and sales. He says it would be better to base it solely on emissions.

MANUFACTURING

Senators from manufacturing states have two big concerns: They say factories, especially ones making energy-intensive goods such as steel, paper and chemicals, will need time before switching to more expensive clean-energy sources, such as solar and wind power, and away from less expensive but dirtier coal, oil and natural gas.

They also want protection from goods made in other countries that have less stringent environmental laws and thus could make their products using cheap, polluting energy.

Ohio Senator Sherrod Brown, who calls addressing global warming "the biggest moral issue of our generation," says a "border tariff will have to be in it (the bill) and it will be."

Levin, from Michigan, has called for a 10-year delay in regulating carbon emissions from factories. Others have said five years would be more like it.

TRANSPORTATION SECTOR/OIL COMPANIES

It is somewhat of a surprise, but senators, including Republicans, are kicking around the idea of a tax, which could be political poison in an election year. (The word "fee" is sometimes substituted by those who can't manage to utter the word "tax.")

Some Capitol Hill sources talk about a tax at the oil refinery level, others talk about one at the gasoline pump that consumers would pay, linked to the market price for carbon. Still others have said the tax should be upstream, like on oil company exploration and pumping.

Other unknown details: Would the revenues go into the highway trust fund to encourage green projects or would it be used to help pay for road and bridge repairs? Would consumers get any rebates?

The oil industry wants to avoid being held responsible for emissions from both refineries and tailpipes. If required to hold permits for every ton of pollution they emit, refiners want more of them for free than initial legislation had proposed. The American Petroleum Institute has said it has no opinion about fees on fuels linked to a carbon market because it has not seen details yet.

FARMERS

Farmers are influential in the Senate as every state has agricultural interests. They could see their emissions regulated by rules on fuels and in other ways. They want to be able to sell carbon "offsets" to polluters such as coal-fired power plants. In such a system farmers could sell permits representing emissions reductions from projects that burn the powerful greenhouse gas methane at manure pits, or that store carbon in soil or trees, rather than cut their own emissions.

INTERNATIONAL OFFSETS

International offsets could also play a big role. Big polluters like power plants want a range of options to cut their emissions including being able to invest in clean projects like small hydropower in developing countries. Banks with carbon trading teams are also anxious to build this market, which could result in permits representing billions of tons in emissions reductions. The General Accountability Office has criticized such a system, however, saying its effects on emissions are uncertain and its ability to boost green development has been limited.

(Reporting by Richard Cowan and Timothy Gardner; Editing by Xavier Briand)