May 22 (Bloomberg) -- Environmental group members and representatives of the world’s biggest greenhouse-gas emitters were on edge when they first sat down at the same table, John Mimikakis says.

“There were definitely a number of tense moments,” said Mimikakis, a senior policy manager for the Environmental Defense Fund, based in New York. “We were eyeing each other suspiciously.”

The alliance that grew out of those first meetings three years ago, the U.S. Climate Action Partnership, shaped the carbon-emissions legislation that a House committee approved yesterday. Companies in the group, from utilities such as PNM Resources Inc. and Duke Energy Corp. to manufacturers led by Alcoa Inc. and General Electric Co., won a bill their coalition called “a good foundation” for action in Congress.

“What USCAP does is provide a channel for negotiation that wouldn’t have ordinarily been there,” said Kevin Book, a Washington-based analyst with ClearView Energy Partners LLC., an investment adviser. “This is pretty close to a final bargain.”

Environmentalists won a commitment from industry groups to accept a mandatory program to cut emissions of greenhouse gases tied to global warming by more than 80 percent by 2050. Industry won free allocations to pollute early in the program, a gradual phase-in, and credit if they arranged for emissions reductions away from their own plants.

Cap-and-Trade System

The climate-change plan that was approved, 33-25, by the House Energy and Commerce Committee would cover 85 percent of carbon dioxide and other emissions in the U.S., which come mostly from manufacturers, utilities and refiners. It would set up a “cap-and-trade” system of emission permits to be bought and sold on a market.

Through 2030, $747 billion of the bill’s $1.5 trillion in allowances would be returned to consumers through allocations going to electricity distribution companies, according to a preliminary study by Point Carbon Research, a climate analysis firm based in Oslo, Norway.

While President Barack Obama initially wanted polluters to pay for all permits, he praised the measure negotiated by Energy and Commerce Committee Chairman Henry Waxman, a California Democrat, “for bringing together many who have in the past opposed” such an effort. Other lawmakers are unlikely to impose tougher terms as the measure moves through the House and the Senate crafts its own version, Book said in an interview.

“We would not be where we are today if not for them,” Representative Rick Boucher said of USCAP members. “Demonstrating a coalescence of environmental groups and industry support opened the door for a congressional consensus.”

Coal-Producing Region

Boucher, who represents a coal-producing region in Virginia, was the lead negotiator for a group of Democrats who opposed the original measure as too stringent until they won concessions from Waxman.

Under the version approved yesterday, utilities such as USCAP members Duke, PNM and Exelon Corp. would initially get free credits for 90 percent of their emissions, accounting for 35 percent of all credits. They also would get rights to offset parts of 2 billion tons of emissions by underwriting cuts away from their plants, such as forestation projects that capture carbon.

Manufacturers such as Alcoa and DuPont Co. would also be able to offset some of their emissions and would be eligible for as much as 15 percent of all credits for free.

GM, ConocoPhillips

Automakers General Motors Corp., Chrysler LLC and Ford Motor Co., all USCAP members, would share in 3 percent of all allowances and a doubling, to $50 billion, of an Energy Department loan fund for manufacturing high-mileage vehicles. Oil refiners in the group, such as Royal Dutch Shell Plc and ConocoPhillips, didn’t fare as well, getting 2 percent of all emissions though they are responsible for a third of all output.

Overall, the legislation calls for cutting emissions by 17 percent by 2020, the midpoint of the 14 to 20 percent proposed by USCAP before Waxman and Representative Ed Markey, a Massachusetts Democrat, drafted the 946-page measure.

Arriving at that range was among the most difficult tasks for the corporate and environmental negotiators in USCAP, requiring a number of meetings, Mimikakis said. “We were really wrestling hard with what companies should be on the hook for,” he said.

USCAP took its efforts before the public in January 2007 when four environmental groups and nine companies unveiled a set of principles for legislation. The group has since grown to five environmental groups and 25 companies.

FPL Group

“The reason we came together with environmental groups and other companies is to get something done,” said Randy Clerihue, a spokesman for FPL Group Inc. of Juno Beach, Florida, the biggest U.S. wind and solar producer. “That’s what coalitions can help you do in Washington: Demonstrate to lawmakers that the kinds of compromises necessary to pass a bill have already been made.”

Some companies in the group “are motivated by ideology and others are motivated by pragmatism because they understand that it’s better to be steering the car than be standing in front of it,” said Dan Weiss, climate strategy director at the Center for American Progress, a policy group in Washington that advises Democrats, in an interview.

USCAP participants hosted meetings with lawmakers, had members speak at events and appeared before the House Democratic Caucus to make their case.

A meeting in March with lawmakers, including House Speaker Nancy Pelosi of California, showed members their potential clout, said Jeffry Sterba, chief executive officer of PNM Resources, an electricity and natural gas company based in Albuquerque, New Mexico.

Pulling Together

“They all understood that the ideas that we pulled together could really make a difference,” Sterba said in an interview.

At least 22 representatives of companies in USCAP and eight from environmental groups testified before Waxman’s committee during 13 days of hearings on climate change. The entire first day, January 15, was reserved for 14 USCAP members.

Boucher said he met with members of the group dozens of times, although he and Waxman said partnership members didn’t draft any of the legislation’s provisions.

Not everyone was pleased with the resulting legislation, or with USCAP’s role in fashioning it. Republicans said companies that supported the measure would live to rue the day.

“The deals they made are not going to be good deals for the long term,” said Representative Joe Barton of Texas, the top Republican on the Energy and Commerce Committee. Barton unsuccessfully proposed a substitute bill that would have imposed limits only on new coal and natural gas plants.

‘Big Polluters’

Senate Republicans opposed to the climate bill say members of the coalition shaped it at the expense of consumers.

“While railing against big polluters for obstructing passage of cap-and-trade legislation, these self-same polluters -- the companies of the United States Climate Action Partnership, for example -- are writing significant portions of the Waxman-Markey bill,” the Republican staff of the Senate Environment and Public Works Committee said in a strategy memo.

Some environmental groups not in USCAP say the legislation is a sellout to polluters.

“We think that big oil and dirty coal and some of their allies have weakened the bill,” said Anna Aurilio, Washington representative for Boston-based Environment America.

To contact the reporter on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net

Last Updated: May 22, 2009 00:00 EDT