Oct. 7 (Bloomberg) -- U.S. House lawmakers released draft climate-change legislation that would establish a nationwide cap on greenhouse gases to reduce emissions by as much as 80 percent.

Top Democrats on the House Energy and Commerce Committee proposed creating an emissions trading system that would include power plants and industrial factories as well as producers and importers of petroleum and other fossil-based fuels, according to a draft released today by the committee.

The draft bill follows the June defeat of climate-change legislation in the U.S. Senate. Both U.S. presidential candidates, John McCain of Arizona and Barack Obama of Illinois, have said they support a federal cap-and-trade approach to addressing global warming.

``Politically, scientifically, legally and morally, the question has been settled: Regulation of greenhouse gases in the United States is coming,'' committee Chairman John Dingell of Michigan and energy and air quality subcommittee Chairman Rick Boucher of Virginia said in a letter to House committee members.

The bill would preempt climate-change regulations set up by states in the absence of federal policy. Two weeks ago, 10 Northeastern states, including New York and New Jersey, opened the country's first market for trading greenhouse-gas permits called the Regional Greenhouse Gas Initiative.

Usurps Regional Plans

California, six fellow Western states and four Canadian provinces, also have outlined a market-based approach to restrict emissions starting in 2012, called the Western Climate Initiative.

Under carbon trading, the government sets caps on emissions and companies must buy credits if they exceed those targets from businesses that have undershot their pollution allowances. Europe is already using a cap-and-trade system to curb greenhouse gases.

The House bill steps into a legal battle between California and the U.S. Environmental Protection Agency by prohibiting states from setting greenhouse-gas emission standards for automobiles. California, joined by New York and more than a dozen other states, sued the EPA earlier this year for not allowing it to set such rules as a way to cut greenhouse gases.

``This is a punch in the nose to California and other states that have taken the initiative to limit greenhouse-gas emissions,'' said Frank O'Donnell, president of Clean Air Watch, a Washington-based group.

Coal Power

The bill also would establish new performance standards for coal-fired power plants. Once technology is available, the bill would require companies to capture and hold carbon-dioxide emissions.

The bill covers 88 percent of the U.S. greenhouse-gas emissions. The rules aim to cut U.S. emissions to 6 percent below 2005 levels by 2020, 44 percent by 2030 and 80 percent by 2050.

The pace of the reductions was criticized by some environmental groups.

``The unbending science demands that we reduce global warming pollution far enough -- and fast enough -- to protect us from the worst consequences of climate change,'' Fred Krupp, chairman of the Environmental Defense Fund, said in a statement. ``The near-term targets and timetables in the current draft of the proposal fall far short of that goal.''

Offsets

The proposal also outlines options for allocating emission credits that companies will need to meet the pollution caps, including giving them away for free to minimize costs to industry or selling them at an auction.

Polluters would be able to meet targets by purchasing domestic or international ``offset credits,'' which are investments in projects such as wind energy or the capture of methane at dairies.

A British government advisory panel said today that the U.K. must slash global-warming gases by 80 percent rather than the current 60 percent target to avert rising temperatures that may have a ``major and increasing'' impact on humans and the environment.

Reducing carbon dioxide and other gases generated by power plants and vehicles would cost as much as 2 percent of economic output by 2050, the U.K. Committee on Climate Change said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: October 7, 2008 17:09 EDT