Democrats Weigh Break for Utilities in Climate-Change Bill

By GREG HITT and STEPHEN POWER

WASHINGTON -- House Democrats are weighing a plan to give some of the nation's biggest polluters a 10-year cushion from the impact of greenhouse-gas regulations to get a cap-and-trade system in place now.
Under the proposal, electric utilities would get free permits to emit carbon dioxide and other greenhouse gases for as long as ten years, after which they would gradually begin paying. In exchange, utilities would be required to shield consumers and businesses from higher electricity rates during that time. They would also make investments in conservation and renewable energy to lessen the industry's reliance on coal.
"We're going to have some of the money allocated to ratepayers," said House Energy and Commerce Committee Chairman Henry Waxman (D., Calif.) "How much and what percentage, I don't know."
Under the proposal, which is still being negotiated, electric utilities would receive about 40% of the permits allotted under a cap-and-trade program designed to gradually cut carbon-dioxide emissions. That is roughly equivalent to the utility industry's share of such emissions.
Negotiations over free emissions permits reflect the pivotal role centrist business-minded Democrats are playing in the evolving legislation to combat climate change.
Republicans are attacking the House climate bill as a job-killing tax. In response, the bill's main sponsors, Mr. Waxman and Rep. Edward Markey (D., Mass.), are working to shore up support among committee Democrats from the South and industrial Midwest who are worried about hurting their states' economies.
To court the centrists, Mr. Waxman has already added a provision to commit $10 billion over ten years for development of technologies that would allow coal to be burned cleanly. That's important to Virginia Rep. Rick Boucher, a Democrat who represents a coal-producing region and now a key figure in the debate.
Mr. Waxman also agreed to protect such trade-sensitive industries as cement and steel by granting them some permits without cost, the better to compete with rivals in other countries with less stringent rules. The measure is a priority of Rep. Mike Doyle, a Pennsylvania Democrat.
By showing flexibility with House moderates, Mr. Waxman could make his bill more palatable in the Senate, where strong concerns also exist among Democratic centrists. Still, he has by no means locked down the votes of House moderates.
Some economists say giving away permits to electric utilities will artificially suppress price increases in electric bills and undercut incentives for consumers to reduce electricity.
The Waxman-Markey bill aims to cut U.S. greenhouse-gas emissions 20% below 2005 levels by 2020 and 80% by 2050. The proposal would put a cap on the total amount of greenhouse gases emitted by businesses across the economy and allow individual companies to buy and sell permits giving them the right to pollute.
Crucial questions remain, such as which industries will have to pay for pollution permits and how the revenue they generate will be distributed. The bill Mr. Waxman made public a few weeks ago is largely silent on these issues.
Top House Democrats are also considering a proposal to create a second consumer rebate to help lower- and middle-income families offset the higher energy costs of the cap-and-trade program.
"There should be no cost to the consumer," House Speaker Nancy Pelosi (D., Calif.) said Wednesday. She vowed the legislation would "make good on that" pledge.—Ian Talley contributed to this article.
Write to Greg Hitt at greg.hitt@wsj.com and Stephen Power at stephen.power@wsj.com