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Simon Lomax & Kim Chipman –BusinessWeek – March 26, 2010

March 26 (Bloomberg) -- Senators Lindsey Graham and Joseph Lieberman outlined U.S. climate-change legislation that would have power companies buy and sell pollution rights in a carbon market and force oil companies to pay fixed fees for emissions.

While the bill is “a work in progress” and won’t be ready until next month, emissions from utilities will be regulated through a restricted trading system for pollution rights, Graham, a South Carolina Republican, told reporters after meeting with industry representatives in Washington yesterday.

“Nobody’s signed on, but I think we’ve got them engaged,” Lieberman, a Connecticut independent, said, referring to the meeting with industry groups that included the U.S. Chamber of Commerce and the Edison Electric Institute.

The outline marks the most Senators Graham, Lieberman and John Kerry, a Massachusetts Democrat, have said about their months-long attempt to revamp stalled legislation that would curb carbon dioxide and the other greenhouse-gas emissions linked to climate change.

The next step is to convince other lawmakers, including Senator Ben Cardin of Maryland who yesterday questioned whether there is a “critical mass” of support.

While negotiations with other senators are getting better, the trio is “not there yet,” Graham said.

The senators yesterday only described their ideas for the legislation and have yet to submit a written proposal.

Coastal Senators

Ten Senate Democrats including Cardin, Bill Nelson of Florida and Ron Wyden of Oregon said yesterday they won’t back climate-change legislation if it includes provisions that open U.S. coasts and oceans to “unfettered” oil-and-gas drilling.

“The votes of these 10 coastal senators are essential,” said Dan Weiss, director of climate strategy at the Washington- based Center for American Progress, a public policy group that advises Democrats. Weiss said there is “potential” for a compromise on the issue.

The coastal senators sent a letter to Graham, Lieberman and Kerry on March 23 and warned them of the potential for oil spills that would put coastal state economies and ecosystems in jeopardy. Graham and Lieberman didn’t say yesterday if drilling provisions are included in their proposal.

Legislation to establish a cap-and-trade program, in which power plants, oil refineries and factories would buy and sell emission rights, narrowly passed the House of Representatives in June. A similar plan, which was approved by the Senate Environment and Public Works Committee in November over a Republican boycott, failed to advance any further in Congress.

Under the new legislation, oil companies would pay a fixed fee for their emissions that is linked to the price that power companies pay for carbon dioxide allowances, Graham said. Some of the trading restrictions would include a maximum and minimum price for carbon dioxide allowances, or a “hard price collar,” Graham said.

While it’s not certain how the fee will be calculated, “it’s all related to the carbon market,” Lieberman said.