Feb. 26 (Bloomberg) -- President Barack Obama’s budget plan assumes $78.7 billion in revenue in 2012 from the sale of greenhouse-gas emission permits to polluters, putting pressure on Congress to pass legislation by early next year.

A “cap-and-trade” program would generate a total of $645.7 billion by 2019, according to the budget blueprint Obama sent to Congress today. Initial funds would be used to invest in “clean” energy, help finance Obama’s tax credit for workers as well as offset higher energy costs for low- and middle-income people and clean up costs for small businesses.

The budget calls for the Environmental Protection Agency to get $19 million to begin setting up an inventory of greenhouse- gas emissions that most scientists say are causing rising temperatures and sea levels. Obama has asked Congress to send him a bill that would create an emissions trading system, putting a mandatory cap on carbon-dioxide pollution nationwide for the first time in the U.S.

“The Obama administration is now upping the ante for action in this Congress,” said Dan Weiss, director of climate strategy for the Washington-based Center for American Progress, a public policy group that supports Democratic policies.

Heading to Congress

The plan is likely to spark a contentious debate in Congress. Many Republicans agree with former President George W. Bush, who opposed setting a carbon cap, arguing that it would cost jobs and harm the economy.

While Democrats have majorities in the House and Senate, the party splits regionally on climate-change issues as lawmakers from rural districts and manufacturing and coal states seek to protect local industries and jobs, especially during the recession.

The cap-and-trade program favored by Obama would let companies trade pollution allowances on an open market to give them incentives for reducing greenhouse-gas emissions and moving toward cleaner technology.

Obama has acknowledged it would cause an initial spike in energy costs and is proposing to use $60 billion a year from the auction of carbon trading permits to help finance his “making work pay” tax credit program for lower-income families.

Impact on Consumers

“Cap-and-trade system will have some effects on households,” White House budget director Peter Orszag said today. “That’s one reason we are linking the cap-and-trade program to making work pay.”

The president’s budget plan also calls for using $15 billion a year from cap-and-trade revenue for “energy efficiency” investments and an unspecified amount to assist low- and middle- income people hit with higher energy bills.

The Congressional Budget Office estimates the revenue generated from such a system could ultimately range from $50 billion to $300 billion a year. Obama’s plan assumes a reduction from 2005 emissions levels of 14 percent by 2020 and 83 percent by 2050, and is based on establishing an economy-wide cap on emissions with carbon credit prices starting around $20 per ton.

It also assumes an auction of all pollution-trading allowances. Some lawmakers, including Obama’s Republican rival in the presidential race, Senator John McCain of Arizona, have supported giving permits to some industries for free to help offset the cost of trying to move toward a low-carbon energy economy.

Support From Companies

Some companies, including General Electric Co., say they favor a cap-and-trade program because it would spur investment in “green” technology and because they want clarity on federal rules so they know how to proceed with long-term business investments.

Analysts said it might be difficult to get Congress to approve an auction of 100 percent of the allowances.

Lawmakers will want to protect U.S. jobs and limit power price rises, said Abyd Karmali, head of carbon emissions in London for Merrill Lynch & Co., the New-York investment bank bought by Bank of America Corp.

“There’s a lot of fear out there and the fear is increased by the terrible economic conditions,” Weiss said.

Senator James Inhofe of Oklahoma, the top Republican on the Environment and Public Works Committee, says capping such emissions would cost taxpayers as much as $330 billion a year.

Opposition

Representative Joe Barton of Texas, the top Republican on the House Energy and Commerce Committee, said the Obama plan would help create “an artificial market” for carbon emissions, one that won’t necessarily reduce greenhouse gas emissions.

He cited the European Union, which has had a carbon-trading program for three years. Barton said that program has not reduced the continent’s carbon emissions.

“I also challenge the pop wisdom that America’s example will charm big emitters elsewhere to follow our lead, since others don’t seem to prize our example nearly as much as they value our money,” Barton said.

Still, Republicans aren’t uniformly opposed. McCain is among lawmakers who back mandatory limits on greenhouse-gas emissions and setting up a cap-and-trade system.

Congress would have to pass legislation this year or early in 2010 for the system to be operating and providing revenue by 2012, said David Doniger, policy director of the Washington-based Natural Resources Defense Council’s climate center.

Senate Majority Leader Harry Reid of Nevada and House Speaker Nancy Pelosi of California, both Democrats, have said they want to pass climate-change legislation this year.

Environmentalists praised Obama’s willingness to put cap- and-trade assumptions in his budget plans.

“Barack Obama had made this a priority during the campaign,” said Tim Greeff, deputy legislative director at the Washington-based League of Conservation Voters. “What this shows is President Obama has the full intention of coming through on this issue.”

To contact the reporters on this story: Kim Chipman in Washington at kchipman@bloomberg.net; Catherine Dodge in Washington, at Cdodge1@bloomberg.net

Last Updated: February 26, 2009 16:09 EST