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Oil Report

RPT-US Senate climate bill would end EPA/state programs

(Repeats from Wednesday night with no change in text)

* States could retain energy-efficiency standards-source

* Some nuclear power incentives still being negotiated

WASHINGTON, April 14 (Reuters) - Climate control legislation being developed in the U.S. Senate would prohibit the Environmental Protection Agency from regulating carbon dioxide emissions and end state and regional “cap and trade” programs, a Senate source told Reuters on Wednesday.

The compromise bill, which might be unveiled sometime next week, aims to reduce U.S. smokestack emissions of carbon and other greenhouse gases blamed for global warming by 17 percent by 2020, from 2005 levels.

It would set in place a national program for the carbon pollution reductions and replace state and regional programs, according to the source, who is familiar with the legislation being drafted.

The Obama administration has said it would go ahead with EPA regulation of carbon pollution under the Clean Air Act if Congress fails to legislate.

Some environmentalists and some Democrats in Congress want any future climate control law also to be backed up by EPA authority under the Clean Air Act.

The Senate source, who asked not to be identified, said the bill being written by Democratic Senator John Kerry, independent Senator Joseph Lieberman and Republican Senator Lindsey Graham would allow states to retain their ability to impose energy-efficiency standards and renewable energy standards.

But existing cap and trade programs, for example the one some New England states conduct, would have to be terminated, the source said.

CRUCIAL TO INTERNATIONAL EFFORTS

Under cap and trade, companies are required to buy pollution permits to cover every ton of carbon they emit and those permits are traded in a private market. The price of the permits is designed to encourage companies to move toward cleaner alternative fuels.

International efforts to make deep reductions in carbon pollution, which scientists fear will have devastating environmental impacts in coming decades, hinge in part on Washington undertaking firm steps.

Kerry, Lieberman and Graham are writing a bill that would establish a cap and trade program that would start in 2012 for electric power utilities. In 2016, the program would begin for manufacturers.

Reducing emissions in the transportation sector would be accomplished by another approach -- a fee on motor fuels that would be set after oil is refined and before it is delivered to retail outlets. That fee likely would be passed on to consumers.

Details were not available on the fee, although it would be linked to the price of carbon permits traded in the utility sector. Backers hope the fee encourages the development of more fuel-efficient, clean-energy vehicles.

According to the Senate source, the draft legislation also is likely to include incentives for heavy trucks to switch to cleaner-burning natural gas.

It would also allow domestic and international “offsets” to help companies achieve overall carbon-reduction goals, the source said. The offsets would allow for other environmentally friendly projects, such as new steps to save forests, and replace some emissions cuts. But details were not available.

The source said disagreements over whether nuclear power would be included in a renewable energy standard for electricity generators were still unresolved.

While the source said that states would get some of the revenues from expanded offshore oil drilling, specific details were not provided. Some liberal Senate Democrats are threatening to withhold their support of the climate bill because of the expanded drilling, which the Obama administration now supports.

The source also said there were fears that once the legislation is unveiled, various Senate committees might insist on time-consuming hearings that could result in changes to what is becoming a delicately crafted bill to snare the support of moderate Democrats and some Republicans. Such changes could unravel the bill, the source indicated. (Editing by Peter Cooney)

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