Energy bill well-watered down

In fact, the tide has rolled so far against their efforts that they are now mulling requests from utilities for regulatory exemptions — in other words, rolling back provisions of the Clean Air Act.

The current version under discussion, according to Senate staffers and lobbyists, would limit greenhouse gas emissions caps to utilities, exempting transportation and manufacturing.

By dropping broader emission caps, the bill would reduce pollution permits the government could sell. To make up for the revenue lost, the bill would scrap various tax breaks and subsidies in the oil sector, up other industry fees and give the government a bigger cut of oil production royalties. The money collected would be used to subsidize clean-energy projects.

Those are only outlines, though. No bill has been released, and insiders say it's in a state of flux.

"It is just a snapshot of a process that has been ongoing for two weeks," said a Senate aide.

The situation is maddening for Democratic leaders and green groups who had much grander hopes. But lacking the 60-vote majority needed to pass anything through the Senate, they have been forced to make concessions.

"It's a start," Daniel Lashof, director of the Natural Resources Defense Council's Climate Center, told IBD. "If you have to scale back from a comprehensive approach — which we continue to prefer — starting with power plants makes a lot of sense."

The new tack follows a push by the NRDC and other green groups earlier this month to keep the Senate from dropping caps on carbon emissions altogether.

Liberal House Democrats have said they'll try to put the caps back in during conference if the Senate drops them.

Industry executives and Republicans are not any fonder of the current approach. As one business lobbyist put it, "There is something in here for everyone to hate."

A major snag is that the utilities industry is pushing back against the bill now that the caps are no longer economy-wide.

The Edison Electric Institute, which represents electric utilities, reportedly met privately with Sen. John Kerry, D-Mass., a key energy bill backer.

Others are coming out against this version as well. The American Iron and Steel Institute sent a letter Thursday to Senate Majority Leader Harry Reid warning that "an electric utility cap-and-trade approach is unlikely to include sufficient resources to address these substantial higher costs to energy-intensive manufacturers."

But greens say they have made too many concessions already. Any regulatory relief for utilities could make them walk away.

"If there was any significant weakening of public health protections, yes, we would walk away from that," NRDC's Lashof said.

Another problem is the administration's decision to reinstate a moratorium on Gulf offshore drilling after a judge threw out an earlier one. That angered some Gulf lawmakers, including Democrats like Sen. Mary Landrieu, D-La.

"The moratorium has cast a shadow over a lot of this," said the business lobbyist.

Democrats and greens had hoped the BP BP oil spill would spur lawmakers to take up a climate bill. But many lawmakers, including moderate Democrats, fear cap-and-trade will hurt home state economies, especially those that rely on coal-fired electricity.

Reid, D-Nev., plans to move a bill the last week of July, giving senators little time to finish before their scheduled August recess.

During the health care debate, endless talks with industry, interest groups and reluctant lawmakers produced a bill that dropped key features, such as a public option. Liberals were upset but an unwillingness to accept defeat kept the Democrats working until a bill finally squeaked though.

Senate leaders are trying the same let's-keep-pushing-until-something-gets-passed approach on the energy/climate bill. They are betting that rank-and-file Democrats won't rebel this time.

"I believe that most of the people on the left in the Democratic caucus will support our bill as a significant step forward even though they would like to have more," Sen. Joe Lieberman, I-Conn., co-author of one energy bill, told The Hill newspaper.