WASHINGTON (Reuters) - U.S. power generating companies would get free pollution permits, at least initially, as part of a compromise climate change bill being written in the Senate that also would give the coal industry $10 billion to develop "clean" technology, sources said on Friday.

Democratic Senator John Kerry is trying to push a bill through a skeptical Senate this year that would address global warming by reducing the 6.4 billion tons of greenhouse gas emissions the U.S. puts into the atmosphere annually, mostly by burning fossil fuels.

While the bill is not yet ready to be introduced in the Senate, Kerry has held a series of briefings for lawmakers, industry groups and environmentalists to preview the proposal.

Power companies, which emit 40 percent of U.S. greenhouse gases, would be the first to face pollution limits. In return, the industry has demanded breaks claiming that otherwise it would have to shut down plants.

Those breaks include some free permits to pollute and "offsets" that give them the option to invest in clean energy projects that preserve lands and forests in the United States and abroad.

A coalition of 20 environmental groups on Friday praised Kerry's effort, saying the pollution-reduction goals provided "the leadership needed by the U.S. Senate to create jobs, increase energy security, reduce carbon pollution and protect public health."

Kerry, working with Republican Senator Lindsey Graham and independent Senator Joseph Lieberman, is weighing a climate change bill that would impose a cap-and-trade system in 2012 on electric utilities, many of which burn large amounts of coal, the fuel that emits the most greenhouse gas.

According to trade industry sources, the power companies would initially be given many of the required pollution permits for free, similar to the bill passed last June by the House of Representatives. But the House bill calls for an economy-wide cap-and-trade program starting in 2012, not just utilities.

When he ran for president in 2008, Barack Obama called for selling all of those permits to industry under cap-and-trade, in which carbon dioxide emissions fall as fewer and fewer permits are allowed over 40 years. Once companies obtain the permits, they could be traded on a regulated market.

The House's cap-and-trade provision has been reduced to apply only to utilities at first in the compromise bill. In 2016, factories would begin to be covered as well. Other elements likely to be in the bill, according to industry and environmental sources, are:

-- $1 billion a year over 10 years from the federal government to help the coal industry develop green technology such as "carbon capture and sequestration" of emissions. Such a provision could be crucial to West Virginia Senator John Rockefeller and others from states that mine and use coal.

-- A new carbon tax on oil, possibly at the refinery level, which would filter down to consumers. The taxes would be linked to the price of carbon stemming from the utility industry cap and trade program. The goal is to encourage consumers to buy more fuel- efficient cars. Some of the revenues could go back to consumers.

-- $54 billion in new loan guarantees to encourage an expansion of the domestic nuclear power industry, whose plants do not emit greenhouse gases, but face big problems with storage of waste and the cost of building new plants. There would be new tax breaks for the nuclear industry too. It's unclear how the bill would fix the nuclear waste problem or speed up regulatory review of new construction permits.

-- The establishment of a "clean energy standard" that would expand a Senate Energy Committee "renewable energy standard" to allow more fuels to participate, including nuclear. The committee plan focuses on wind, solar and other renewable sources. While it's nearly emissions-free, nuclear is technically not a renewable power source.

-- New incentives to encourage heavy-duty trucks to transition from diesel fuel to natural gas.

Other elements of the bill previously reported include:

-- A price collar to protect against fluctuations in the price of carbon traded under the power company cap-and-trade. It would keep prices in the range of $10-$30 per ton.

-- The legislation would aim to bring carbon emissions down by 17 percent by 2020, from 2005 levels.

-- Firms with smokestack emissions below 25,000 tons would not face new pollution restrictions.

-- Controls on smokestack emissions from factories, including steel, chemical, paper and cement, would be phased in beginning in 2016 under a cap and trade program.

-- The EPA would be prohibited from regulating factory greenhouse gas emissions.

-- A border tax to be triggered in future years to protect U.S. manufacturers from cheaper goods from countries that do not have as strict environmental controls in place. Ohio Democratic Senator Sherrod Brown has been insisting on this. It could offend some "free-trade" senators though.

-- New incentives for offshore oil drilling.

(By Richard Cowan and Timothy Gardner; Additional reporting by Thomas Ferraro, editing by Anthony Boadle)

© Thomson Reuters 2010 All rights reserved.

Source: Reuters

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