May 13 (Bloomberg) -- Democrats on the House Energy and Commerce Committee agreed on a compromise measure to cut U.S. greenhouse-gas emissions 17 percent by 2020, Chairman Henry Waxman said.

The accord, reached yesterday, exceeds the target sought by President Barack Obama.

Waxman, a California Democrat who leads the Congressional effort to craft legislation addressing climate change, in March proposed a 20 percent reduction in emissions from 2005 levels. He called the agreed-upon figure “smack in the middle” of the 14 percent to 20 percent range recommended by the U.S. Climate Action Partnership, an industry and environmental coalition.

Obama had recommended a 14 percent reduction goal for heat- trapping gases such as carbon dioxide that scientists blame for global warming.

“We will have the votes” for passage, Waxman told reporters in Washington last night. “We have resolved a good number of the issues.”

The U.S. goal is less ambitious than the 27-nation European Union’s target for its own polluters, setting the stage for a possible clash at next month’s international negotiations to forge a new climate-change treaty.

The energy committee will release more details of the agreement today and begin considering the legislation on May 18, Waxman said.

Obama plans to meet with Waxman and House Democratic leaders today at the White House.

Renewable-Energy Mandate

Committee Democrats also agreed to a provision in the climate-change bill requiring that one-fifth of all electricity come from renewable sources and improved efficiencies by 2020, said Representative Bart Gordon, a Tennessee Democrat.

Utilities in each state would be required to obtain 15 percent of their electricity from renewable sources and demonstrate annual energy savings of 5 percent. Governors of states unable to reach the renewable goal could lower it to 12 percent if their utilities demonstrate an 8 percent reduction in energy use.

Lawmakers spoke outside a closed meeting where Democrats on the committee worked on the legislation to create a cap-and- trade system to limit greenhouse gas emissions. As part of the bill, free pollution credits would be provided to cut business costs while companies find ways to reduce their emissions. The free permits would be phased out and eventually they would be sold at auction.

Buying Permits

The Democratic plan would give free permits to heavy manufacturers, the automobile industry, research and development, utilities and others. Allocations for refineries “have yet to be worked out,” Waxman said, and the total number of allocations hasn’t been decided.

Utilities would get 35 percent of the program’s allocations free. That should cover “90 percent of their needs,” said Representative G.K. Butterfield, a North Carolina Democrat. “They will still have to purchase a portion” of the permits they would need to comply with the law, he said.

The free pollution allowances are meant to ease the transition to a system that eventually would require polluters to buy a limited number of emissions permits. The giveaways were necessary to win support from a key bloc of committee Democrats. They are at odds with Obama’s goal of selling permits to raise an estimated $646 billion to fund middle-class tax cuts.

The 59-member energy committee requires 30 votes to pass legislation, and 14 Democrats on the panel come from states that generate more than half of their electricity from coal, according to the U.S. Energy Information Administration.

Carbon-Free Car

Representative Gene Green, a Texas Democrat who represents an oil-refining area, said he was concerned about a provision to require oil companies to pay for allowances if they haven’t developed carbon-free car and truck fuel by 2014.

That deadline is unrealistic “if we don’t have the technology” to produce non-carbon fuel,” Green said. If oil companies can’t produce the fuel, “all they are going to do is pass that on” to consumers in higher gasoline prices, he said.

Green said yesterday that lawmakers were considering giving oil refineries free credits worth 1 percent to 5 percent of all emissions that would be regulated under the program.

An additional percentage of allowances may go to a strategic reserve that could be used to increase the supply of pollution credits if prices get too high.

Republicans on the committee also held a strategy session. Their leader, Representative Joe Barton of Texas, said he plans to offer amendments to the “economic disaster plan” Democrats were negotiating. He didn’t provide details.

European Proposal

The EU, a signatory to the existing Kyoto Protocol accord to stem climate change, has proposed deeper emissions cuts by developed nations such as the U.S., which never ratified Kyoto.

The European bloc is on course to trim its greenhouse gases 20 percent in 2020 compared with 1990 and is holding out the possibility of deepening that reduction to 30 percent.

EU Environment Commissioner Stavros Dimas on April 1 reaffirmed the bloc’s proposal for industrialized countries as a group to cut gases by 30 percent in 2020 compared with 1990, under a new climate treaty. The EU target is an average that would be based on varying goals for individual governments including China and the U.S., the world’s biggest emitters.

Using comparable base years, the U.S. cuts would be a fraction of what the EU is proposing. A 20 percent cut by 2020 from 2005 -- which the Democrats have now weakened -- translates into a 5 percent to 6 percent reduction from 1990, Dimas said.

His estimate was based on the U.S. legislation covering companies responsible for about 85 percent of the country’s emissions, under a new cap-and-trade system.

Envoys from more than 180 nations are set to resume talks on June 1 in Bonn to forge a new climate treaty by December.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Daniel Whitten in Washington at dwhitten2@bloomberg.net

Last Updated: May 13, 2009 05:09 EDT