CONGRESSIONAL CLIMATE: Democratic leaders have released a draft plan to handle the hand out of allowances to emit carbon dioxide under legislation to combat climate change.
White House photo 2/24/09 by Joyce N. Boghosian

Democratic leaders of the House Energy and Commerce Committee have reached agreement on the distribution of hundreds of billions of dollars in allowances that would be used for compliance with a new U.S. climate policy, according to a summary of their proposal.

Reps. Henry Waxman of California and Ed Markey of Massachusetts circulated the proposed allowance allocations last night to committee Democrats ahead of next week's planned markup of the climate and energy bill. The complete legislative text, expected to fill about 1,000 pages, will be released later today, Democratic aides said.

In their summary, Waxman and Markey explain that they are trying to accomplish three goals with emission allowances: "to protect consumers from energy price increases, to assist industry in the transition to clean energy economy and to spur energy efficiency and the development and deployment of clean energy technology."

The allowance-allocation proposal comes after months of negotiations among Democratic lawmakers and outside interests trying to grab pieces of the allocation pie. President Obama campaigned for the White House last year seeking a complete 100 percent auction of cap-and-trade allowances, but he has since acknowledged that compromise was necessary to get agreement on the legislation.

Republicans have continued to criticize the legislative process, with Rep. Joe Barton (R-Texas), the ranking member on Energy and Commerce, insisting that Democrats were buying votes by handing out allowances. Barton has predicted that Democrats would make too many promises and give away more than they have.

"I don't see how Henry and Ed put the genie back in the bottle," Barton told reporters.

But aides to Waxman and Markey said today the allowance breakdown totals up to 100 percent, starting in the cap-and-trade program's opening year, 2012, with 85 percent given free and an auction for the remaining 15 percent.

Here's how the Democrats would divide the credits:

The electric utility industry, which produces the largest share of U.S. greenhouse gas emissions, would receive 35 percent of the allowances for free. More specifically, state-regulated local electric-distribution companies will get 30 percent of the credits, with a stipulation that they must use the funds to protect consumers from electricity price increases. Merchant coal and long-term power producers will get the remaining 5 percent of the allowances. All of the utility sector credits will be distributed according to a formula suggested by the industry, split along historic emission levels and retail sales. Credits will be phased out between 2026 and 2030.

Local natural gas distribution companies would get 9 percent of the allowances, with a requirement that state-regulated firms use the funds to protect consumers from natural gas price increases. The free allowances will be phased out between 2026 and 2030.

States would get 1.5 percent of the allowances for programs to benefit users of home heating oil and propane, an issue of primary concern in the Northeast. The free allowances will be phased out between 2026 and 2030.

Democrats plan to begin auctioning 15 percent of the allowances around 2011, with the proceeds directed toward low- and moderate-income families. The funds would be distributed via tax credits, direct payments and electronic benefit payments -- which is similar to how states now process food stamps and other low-income assistance programs. Unlike the free credits, the payments will not phase out. U.S. EPA would have a year to set up the program following enactment, with the first compliance auction beginning in 2012. The House Ways and Means Committee must sign off on this provision.

Energy-intensive industries, including pulp, paper, cement and steel, would get free credits -- 15 percent starting in 2014 but phasing out by about 2 percent per year. The allowances will be phased out after 2025. Also, the bill would give the president authority to impose tariffs on carbon-intensive goods from developing countries.