http://www.nytimes.com/2008/06/02/business/02trade.html

By JAD MOUAWAD

Some of the most powerful corporate leaders in America have been  meeting regularly with leading environmental groups in a conference  room in downtown Washington for over two years to work on proposals  for a national policy to limit carbon emissions.

The discussions have often been tense. Pinned on a wall, a large 
handmade poster with Rolling Stones lyrics reminds everyone, ?You 
can?t always get what you want.?


What unites these two groups ? business executives from Duke Energy, 
the Ford Motor Company and ConocoPhillips, as well as heads of 
environmental organizations like the Natural Resources Defense 
Council ? is a desire to deal with climate change. They have broken 
with much of corporate America to declare that it is time for the 
federal government to act and set mandatory limits on emissions.


What divides them is that dealing with climate change will almost 
certainly hurt some industries and enrich others. Billions of dollars 
are at stake. Depending on how the nation decides to tackle the 
problem, electricity bills in some states could rise 50 percent, and 
gasoline prices could go up 50 cents a gallon.


?It?s really now a battle over the economics,? said James E. Rogers, 
chief executive of Duke Energy, who has long advocated curbing carbon 
emissions. ?The debate is not about the climate problem. Everybody 
could agree on the principles and still get the economics wrong.?


The Senate is to vote Monday to kick off a weeklong discussion on 
carbon limits. But the intense debates under way already illustrate 
just how hard it will be for Congress to satisfy conflicting business 
interests while coming up with a global-warming plan that works.


Opposition from corporate interests, including oil, gas and power 
companies, prompted the Bush administration to opt out of the Kyoto 
Protocol, a treaty that called on developed countries to limit their 
emissions.


But the political winds have shifted. All three presidential 
candidates have said they favor mandatory curbs on emissions, and the 
Democratic majority in Congress wants a strong climate policy. The 
Senate debate could help set parameters of future legislation, which 
many experts expect to see within two years.


Congress is considering a complicated approach that would set a 
limit, or cap, on emissions that would be reduced each year. It would 
also create emissions permits that large industrial companies, like 
oil refineries or power plants, would be required to use.


By putting a value on carbon dioxide, this cap-and-trade system would 
provide incentives for companies to reduce emissions. Experts say it 
could turn into one of the biggest markets in the world, estimated to 
be worth over $200 billion a year.


Thus far, climate policy has been slowly shaped by states like 
California and Massachusetts, with others following. The resulting 
patchwork of policies has created uncertainty for companies, some of 
which have recognized that federal system to limit carbon is 
ultimately unavoidable.


?If they are not at the table, they will not have a hand in the 
making of the regulation,? said Robert N. Stavins, director of the 
environmental economics program at Harvard University.


That recognition led to the Climate Action Partnership, the 
Washington group, in which corporate behemoths and environmental 
groups have been debating climate policy for over two years, 
sometimes meeting every week, in order to force the issue.


In January 2007, the eclectic group endorsed a bold national policy 
that called for reduction in carbon dioxide emissions of 60 percent 
to 80 percent by 2050, an aggressive target that is in line with 
recommendations from an international panel of scientists. But the 
group, which now has 33 members, has failed to reach consensus on a 
variety of issues, including how to allocate carbon permits and 
whether to include a price cap for carbon credits.


?They helped crystallize the concerns about climate,? said David G. 
Victor, the director of the energy and sustainable development 
program at Stanford University and an expert on climate policy who 
has been closely following the debates. ?But the moment the coalition 
starts to focus on the details, it starts breaking apart. It?s a 
litmus test for the debate in the country.?


The sharpest battle lines have been drawn over the structure of a cap- and-trade system. This mostly centers on whether carbon allocations ? 
or pollution permits, as some see them ? should be granted to 
companies or auctioned off.


Under one proposal, Congress would give away about half the 
allowances to businesses like power plants and oil companies, but 
also to states and farmers, in order to give time for them to adapt 
to lower-carbon technologies. Over time, it would gradually sell the 
rest to the highest bidder, raising money for developing alternative 
energy sources.


The bill, sponsored by Senators Joseph I. Lieberman, an independent, 
and John W. Warner, a Republican, passed a crucial vote in a 
committee last December and will be debated on the Senate floor this 
week.


Under a similar emissions-trading system in Europe, carbon currently 
trades at around 26.45 euros a ton, or about $41. At that price, the 
value of the carbon credits would be about $220 billion in the first 
year alone.


The debate over who gets carbon credits is particularly intense in 
the power sector, which creates 40 percent of the nation?s carbon 
emissions.


Companies that rely on coal to generate power say that allowances 
should be free so that customers in the Midwest and the Great Plains, 
where coal is mostly used, are not disproportionately penalized. Coal 
accounts for half the nation?s power generation, and executives like 
Mr. Rogers of Duke say these customers should not have to bear the 
brunt of a national climate policy.


But not everyone wants to see allowances doled out free, especially 
among power producers that are less dependent on coal than Duke. 
Lewis Hay III, chairman of FPL Group, a Florida power company, says 
carbon emitters should have to pay for their emissions.


?There is just going to be a giant fight over the free allowances,? 
he said.


Oil companies are also unhappy with the Senate plan. Although the 
transportation sector represents around 35 percent of the nation?s 
carbon emissions, oil companies and refiners ? which fuel that sector 
? would be granted just 4 percent of total allowances. That would 
force them to buy carbon credits, which would drive up the price of 
gasoline and diesel fuels.


At a time of sharply rising prices, oil executives say this is not 
the best way to reduce carbon emissions. Better, they argue, to raise 
fuel efficiency requirements directly or set up a low-carbon fuel 
standard.


The other big fight splitting corporations and environmental groups 
is whether to set a maximum price on carbon credits.


Many environmental groups oppose this, fearing it might jeopardize 
the ultimate goal, which is to reduce emissions. They say that if the 
price is artificially kept too low, companies would have fewer 
incentives to cut emissions.


But business groups say a ceiling would keep prices from 
skyrocketing. Some fear that higher energy costs would reduce 
companies? ability to compete globally and could drive jobs to 
countries that do not limit carbon. John Engler, president of the 
National Association of Manufacturers, said the climate bill amounted 
to ?economic disarmament.?


As the fight escalates, trade groups are planning ad campaigns to 
make their case against a climate policy. One ad, produced by the 
United States Chamber of Commerce, shows a man cooking breakfast over 
candles in a cold, darkened house, then jogging to work on empty 
highways, asking: ?Is it really how Americans want to live??


Setting a price for carbon will raise energy costs throughout the 
economy, experts said. The Environmental Protection Agency estimated 
recently that a cap-and-trade bill could reduce gross domestic 
product by 0.9 percent to 3.8 percent by 2050.


?The reality is that cutting emissions is going to cost money,? said 
Peter C. Fusaro, chairman of Global Change Associates, an energy and 
environmental consulting firm.