House Panel Clears Plan to Cut Greenhouse Gases

U.S. Bill Moves a Step Closer, but a Global Deal on Climate Change Presents a Bigger Challenge for Obama Administration

By IAN TALLEY and STEPHEN POWER
WASHINGTON -- A landmark proposal to curb U.S. greenhouse-gas emissions cleared a key congressional panel, bolstering prospects that the government will put a price on carbon for the first time and portending a major shift in how the U.S. uses energy.
At the same time, China's government asserted a new, tougher stance in the face of pressure to cut its emissions, underscoring the challenge that the Obama administration will face in trying to forge a global deal to combat climate change.
The U.S. proposal -- which aims to cut emissions roughly 17% below 2005 levels by 2020, and roughly 80% by midcentury -- won approval from the House Energy and Commerce Committee on a vote of 33-25 that fell largely along partisan lines. It followed weeks of negotiations between liberal and moderate Democrats over how to soften the measure's impact on consumers and various sectors of the economy. If enacted, it could transform the way the U.S. manufactures a range of products, heats offices and builds homes.
"We are now one step closer to delivering on the promise of a new clean energy economy that will make America less dependent on foreign oil, crack down on polluters, and create millions of new jobs all across America," President Barack Obama said in a statement within minutes of the vote.

The measure, sponsored by Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.), still faces significant hurdles, particularly in the Senate, where a similar proposal failed last year. But the committee's action gives the measure a major boost in both chambers of Congress, because the panel is among the largest and most ideologically and geographically diverse in Congress, with members from Rust Belt, oil patch, farm and coastal states.
The bill proposes a cap-and-trade system, in which the government would set caps on emissions, issue permits allowing companies to pollute consistent with those limits, and let companies trade the permits among themselves. Initially, 85% of permits would be given away free, with the bulk of them going to utilities, auto makers, oil refiners, and trade-sensitive industries. The rest would be auctioned off, at a minimum initial price of $10 per ton of emissions.
The measure also contains a mechanism aimed at holding down the maximum price of permits, by allowing the government to issue a limited number of additional permits once the price hits $28 in the first year of the program.
The legislation also would require utilities to obtain a chunk of their electricity from renewable sources -- 6% by 2012 and 20% by 2020, though utilities could claim credit for energy efficiency to offset part of that requirement.
Republicans and some business groups, such as the U.S. Chamber of Commerce, have assailed the bill as a measure that would cripple the U.S. economy and impose costly mandates on a range of products, including hot tubs. As evidence that the bill would cause job losses, they highlighted a provision in the measure that would entitle any worker "adversely affected" by the legislation to a "climate change adjustment allowance." They also offered amendments that would have canceled the cap-and-trade program if power prices doubled, gas prices hit $5 a gallon or thousands of mining or steel jobs were lost as a result of the climate program.
But the Republicans' proposals failed, as Democrats trumpeted a list of companies that they said have expressed support for carbon caps, including Duke Energy Corp., Royal Dutch Shell PLC, Alcoa Inc., U.S. Steel Corp., Dow Chemical Co., Deere & Co. and Exelon Corp. Many companies say they now see carbon controls as inevitable and would like regulatory certainty.
The Chinese proposal, which asks for much deeper cuts than the Waxman-Markey bill is proposing, highlights one of the challenges facing the Obama administration and other supporters of more aggressive U.S. action to reduce greenhouse gases. Many U.S. lawmakers worry that U.S. businesses could suffer if they are subject to carbon caps that add costs to their operations and their Chinese rivals aren't. In response, some have proposed imposing tariffs on goods imported from countries that don't have strong greenhouse-gas controls. China has resisted any mandatory quotas on carbon emissions, and has said that such tariffs would violate international trade law.
Write to Ian Talley at ian.talley@dowjones.com and Stephen Power at stephen.power@wsj.com