Panel Adds Free Permits To CO2 Bill

By IAN TALLEY

WASHINGTON -- The latest version of the House Democratic leadership's climate bill would give away for free up to 85% of the pollution permits created to launch a proposed system to cap greenhouse-gas emissions, according to details released Friday.
The permits are part of the multibillion-dollar price paid by California Democratic Rep. Henry Waxman, chairman of the House Energy and Commerce Committee, to win support from moderates in his own party for the sweeping bill.

The measure would force businesses to acquire permits to emit carbon dioxide and other greenhouse gases. Those permits, which could be sold, would have value because the overall quantity of industrial greenhouse-gas emissions would be capped.
The compromise would allow certain industries to avoid paying for greenhouse-gas permits over the next two decades. President Barack Obama and Mr. Waxman had originally pushed for all the emission permits to be auctioned, which would have generated $624 billion over 10 years, according to the administration's budget plan. That money was intended to fund Mr. Obama's middle-class tax cuts and research on clean-energy technology.
Some environmental groups said Friday they were concerned that the level of free credits would weaken industry incentives to cut emissions and reduce benefits to consumers to cushion energy and product-cost increases.
The oil industry, meanwhile, was concerned that only a fraction of the free allocations would go to the transportation sector, which accounts for about a third of total U.S. emissions.
In a statement Friday, the American Petroleum Institute said: "Those who drive, fly or take the bus or train to work will shoulder a disproportionate burden and this must be rectified."
White House spokesman Robert Gibbs said the administration is reviewing the legislation, but that the current proposal "represents a big step forward in dealing with dangerous greenhouse gasses and creating a sustained market for clean-energy jobs."
According to a document posted on the committee's Web site, 35% of the credits will be allocated to the power industry. Energy-intensive industries, such as the cement, glass and paper manufacturing sectors, will get 15% of the free permits. An additional 9% would go to the natural-gas sector, 2% to oil refiners and 1.5% to users of heating oil. Most of those emission allocations will phase out between 2026 and 2030.
The auto industry would get 3% of the free credits up to 2017, for investments in clean-vehicle technology. The remaining free allocations, about 10%, would be divided among the carbon-capture and storage industry, clean-energy research and development, deforestation-prevention projects, and help for other countries to adapt to climate changes.
Daniel Weiss, director of climate strategy at the Center for American Progress Action Fund, said the allocations would smooth the clean-energy transition. Even with the free credits, Mr. Weiss said, the proposal's greenhouse-gas cuts "would be comparable to taking 500 million cars off the road -- half of all cars world-wide in 2020.
Write to Ian Talley at ian.talley@dowjones.com