By Valerie Volcovici and Jeff Mason

WASHINGTON (Reuters) - The U.S. power sector will need to emit 30 percent less carbon dioxide by 2030 than it did in 2005, according to new federal regulations - the centerpiece of the Obama administration's climate change strategy - to be unveiled on Monday.

The Environmental Protection Agency's proposal is one of the most significant environmental rules proposed by the United States, and could transform the power sector, which relies on coal for nearly 38 percent of electricity.

The plan has come under pre-emptive attack from business groups and many Republican lawmakers as well as Democrats from coal-heavy states like West Virginia. But as details leaked out on Sunday, it looked less restrictive than some had feared, with targets arguably easier to reach.

The Environmental Protection Agency (EPA) is expected to set separate targets for each state to hit, first in 2020 and then in 2030, with different starting points based on their current electricity generation mix and other considerations.

"The sum of all the emissions when sources meet the state targets (in 2020) works out to 26 percent less than the power sector emissions in 2005," said one person who was briefed on the proposal.

By 2030, carbon emissions from power plans should have fallen by 30 percent.

States will be given several ways to achieve their emission targets. Those include improving power plant heat rates; using more natural gas plants to replace coal plants; ramping up zero-carbon energy, such as solar; and increasing energy efficiency, said sources briefed on the proposal.

States will also be given an option to use measures such as carbon cap-and-trade systems as a way to meet their goals.

Share prices for major U.S. coal producers like Arch Coal, Peabody Energy and Alpha Natural Resources were near multi-year lows ahead of the EPA rules.



Monday's rules cap months of outreach by the EPA and White House officials to an array of interests groups.

The country's more than 1,000 power plants, which account for nearly 40 percent of U.S. carbon emissions, will face limits on carbon pollution for the first time.

Climate change is a legacy issue for Obama, who has struggled to make headway on foreign and domestic policy goals since his re-election.

But major hurdles remain. The EPA's rules are expected to stir legal challenges on whether the agency has overstepped its authority. In the first instance a public comment period will follow the rules' release.

Last week the U.S. Chamber of Commerce warned the rules could cost consumers $289 billion more for electricity through 2030 and crimp the economy by $50 billion a year.

That assessment keyed off a more stringent proposal by the Natural Resources Defense Council, an influential environmental group. The NRDC had proposed cutting emissions by at least 30 percent from a 2012 baseline by 2020.

Using the 2005 starting point should make the target easier to hit, though, since emissions by 2013 were already slightly more than 10 percent below 2005 levels, according to the Energy Information Administration.

A shift toward cleaner-burning natural gas away from coal-fired plants, and the severe economic downturn of 2008-09 helped cut emissions.

Obama countered criticism of the rules in his weekly radio address on Saturday.

"Special interests and their allies in Congress will claim that these guidelines will kill jobs and crush the economy. Let's face it, that's what they always say," Obama said.

Sources briefed on the proposal were told that an economic impact study by the EPA concluded that the health and environmental benefits of the plan outweighed costs anywhere from $8 to $1 to $12 to $1 by 2030.



The rules, when finalized, are expected to have an impact that extends far beyond the United States.

The failure to pass "cap and trade" legislation in Obama's first term raised questions about how the United States would meet commitments the president made to reduce U.S. greenhouse gas emissions roughly 17 percent by 2020 compared to 2005 levels.

The new EPA caps are meant to answer those questions.

They could also give Washington legitimacy in international talks next year to develop a framework for fighting climate change. The United States is eager for emerging industrial economies such as China and India to do more to reduce their emissions, too.

"I fully expect action by the United States to spur others in taking concrete action," UN climate chief Christiana Figueres said in a statement Sunday.

Chinese and Indian negotiators have often argued that the United States needs to make a more significant emission reduction because of its historical contribution to climate change.

EPA Administrator Gina McCarthy will introduce the power plant guidelines Monday morning at the agency's headquarters. Later, Obama will hold a conference call with health professionals hosted by the American Lung Association.


(Reporting By Valerie Volcovici and Jeff Mason; Editing by Ros Krasny and Himani Sarkar)