April 24 (Bloomberg) -- A group of Democrats on the House Energy and Commerce Committee want to give utilities free permits for all their existing carbon emissions, according to people familiar with a plan sent to the committee’s chairman.

Representative Rick Boucher of Virginia sent the four-page list of recommendations to Henry Waxman, the committee’s chairman and the author of draft climate-change legislation that some of his fellow Democrats are seeking to temper, said the people, who declined to be identified before the plan is made public.

The summary of recommendations circulated yesterday was “a very early draft,” said Courtney Lamie, Boucher’s spokeswoman, in an e-mailed statement today. “This is not the final list,” she said.

Waxman’s measure would establish a cap-and-trade system of pollution credits designed to cut carbon dioxide 20 percent from 2005 levels by 2020. He needs to win the support of Boucher and the other Democrats pushing for changes in his plan because no Republicans are likely to vote for it, Representative Gene Green, a Texas Democrat, said yesterday.

“It’s all about the consumer,” said Representative Charles Gonzalez of Texas, whose San Antonio-area district has oil and gas operations. “It’s also the economic interests of a member’s district or region.”

Waxman’s panel is concluding four days of hearings on his plan today, with testimony by former Vice President Al Gore and former House Speaker Newt Gingrich.

Obama’s Auction Plan

Under a cap-and-trade system, the federal government would set an overall ceiling, or cap, on greenhouse gas emissions. The cap would be divided into billions of emission permits, each conferring the right to emit the equivalent of one metric ton of carbon dioxide.

While Waxman’s plan doesn’t detail how the initial emission credits would be distributed, President Barack Obama proposed in his budget plan to auction all credits for carbon-dioxide emissions, raising at least $646 billion from 2012 to 2019 that would be used for a tax cut.

Boucher’s initial proposal calls instead for “free allowance allocation to the utility sector of 40 percent, consistent with the sector’s share of CO2 emissions.”

The proposal by Boucher, who represents Virginia’s coal country, also would ease targets for emissions reductions and requirements for renewable electricity in the Waxman draft.

Emissions would have to be cut 6 percent from 2005 levels by 2020, down from the 20 percent reduction that Waxman sought.

‘Negotiating Room’

The proportion of electricity required to come from renewable sources, such as wind and solar power, would be 15 percent by 2025, compared with 25 percent in the Waxman draft. Boucher also would allow more emissions reductions to be offset by projects such as tree-planting.

“There has to be enough negotiating room so that we can get a bill,” Gonzalez said yesterday.

Democratic resistance to Waxman’s legislation jeopardizes its approval, according to a report yesterday by Height Analytics, a Washington-based investment consultant firm.

“Unless Democrats are mollified by leadership promises to ‘fix’ their problems as the legislative process continues, House Chairman Waxman could lack the votes to move the bill through the full Committee by Memorial Day,” the consultants said.

Representative Ed Markey, a Massachusetts Democrat who helped Waxman write the bill, said this week that he doesn’t support auctioning all the emission credits.

“We are trying to create a formula, and the witness testimony is helping us to conceptualize the best balance that would be struck within that formula to protect consumers,” Markey told reporters yesterday.

PNM Resources

In yesterday’s hearing, Jeffry Sterba, a former chairman of the Edison Electric Institute and the chairman of Albuquerque, New Mexico-based PNM Resources Inc. pressed for free credits to utilities.

Free permits are necessary because cutting greenhouse gases “will be costly and raise electricity prices substantially,” Sterba said.

U.S. utilities released 2.4 billion tons of carbon dioxide in 2007, Department of Energy data show, about 40 percent of emissions that contribute to global warming. Buying allowances for all of that pollution would cost about $42 billion, based on prices on London’s European Climate Exchange.

To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net; Simon Lomax in Washington at slomax@bloomberg.net.

Last Updated: April 24, 2009 09:59 EDT