Industries Push for Free Pollution Credits

By STEPHEN POWER

WASHINGTON -- A growing number of industries are lobbying for free pollution permits under legislation capping greenhouse-gas emissions, in a potential threat to the funding for President Barack Obama's proposed middle-class tax cut.
A range of industries, including electric utilities, auto makers, and oil and natural gas refineries, are making their case to lawmakers ahead of a vote on proposed climate legislation expected this week by the House Subcommittee on Energy and the Environment. The jockeying has intensified in recent days after a push by electric utilities to secure up to 40% of the emissions permits for free, an amount that would be proportionate to their share of U.S. carbon-dioxide emissions.
The measure by Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.) calls for reducing U.S. greenhouse-gas emissions roughly 20% below 2005 levels by 2020 and 83% below 2005 levels by mid-century. It is largely silent on how much companies would have to pay for pollution permits under a proposed cap-and-trade system that would allow companies to buy and sell such permits.
Mr. Obama has called for auctioning off 100% of the emission allowances and using the bulk of the revenue to fund tax credits for the middle class. His 2010 budget blueprint projects raising $645 billion from the auction of emissions permits between 2012, when the system kicks in, and 2019. A smaller portion would be devoted to research and development of low-carbon technologies. But Mr. Obama and some of his aides have signaled they are willing to compromise on giving away the pollution permits.
The bill's fate could hinge on how willing Messrs. Waxman and Markey are to give in to the demands of about a dozen Democratic committee members who want to soften the impact on their districts, which depend on coal, manufacturing, or oil and natural gas for jobs.
"There are a lot of things in the bill I need to have changed," said Rep. Gene Green (D., Texas). Mr. Green, whose district is home to the largest petrochemical complex in the world, wants Mr. Waxman to give some pollution permits to oil refiners for free. "If that's not in the bill, I can't vote for it," he said.
Refiners are lobbying to get for free 30% of the pollution permits, an amount that corresponds roughly to the share of U.S. greenhouse-gas emissions produced by transportation fuel. Without such allowances, the industry says, it will lose out to refineries in India and the Middle East that ship their product to the U.S. and don't operate under carbon caps at home.
"The electric utilities want 40%, and if they're getting 40%, the refiners say 'Why shouldn't we get 30%?"' Mr. Green said. Mr. Green said he has asked Mr. Waxman to give the refining industry a smaller share of the allowances -- roughly 5%.
Messrs. Waxman and Markey have said they intend to work out a distribution of the allowances after consulting with their colleagues, but haven't indicated specifically how the matter will be resolved. A spokeswoman for Mr. Waxman said, "We are encouraged by the progress that we are making, and the committee will continue meeting with members to discuss the legislation."
Economists say generally that consumer prices will rise regardless of whether permits are given away for free, and that giving them away for free will divert money from other purposes in the public interest, such as tax cuts for consumers. But "the politics of passing [climate legislation] in the committee are tough; it's hard to be a purist," said Chad Stone, chief economist of the Washington-based Center on Budget and Policy Priorities.
The issue is particularly thorny for the auto industry. The Obama administration has billions of public dollars at stake in turnaround efforts at Chrysler LLC and General Motors Corp. At the same time, Mr. Obama has vowed to promulgate more aggressive fuel-economy standards for vehicles, which won't be cheap. Last summer, the Transportation Department estimated that its proposal to require auto makers to achieve fuel efficiency of 31.6 miles per gallon by 2015 would cost auto makers $46.7 billion, which the agency said would make it among the most expensive rule makings in U.S. history.
"There are a lot of interests competing for the pot of money, but I think there's a general recognition that some of the revenue…should be used to push advanced, low-carbon technologies because that's how we're going to drive the emissions reductions we need," said Alan Reuther, legislative director of the United Auto Workers.
The union, along with the Alliance of Automobile Manufacturers, is lobbying Mr. Waxman to direct that a portion of the revenue raised from the auction of carbon allowances go toward helping the industry develop more fuel-efficient vehicles to meet a federal mandate to improve new-vehicle fuel economy at least 40% by 2020.
Mr. Reuther's concerns have been echoed by Rep. John Dingell (D., Mich.), another swing vote on the panel who is leaning on Mr. Waxman to devote a portion of permit revenue to an Energy Department program that awards low-interest loans to car makers to develop advanced vehicles.—Ian Talley contributed to this article.
Write to Stephen Power at stephen.power@wsj.com