Washington (Platts)--8Jan2009

A Republican US senator and emerging voice on energy issues said Thursday
he would support the creation of a price for carbon, as long as it took the
form of a carbon tax rather than a cap-and-trade system.

"What we need to do with the American people is be transparent, and if
carbon is something that is bad, and we want to deal with, and we want to tax
it, we'd do much better to have a carbon tax rather than a cap-and-trade
system," Tennessee Senator Bob Corker said following a hearing of the
chamber's Energy and Natural Resources Committee.

Corker told reporters that the cap-and-trade model to limit carbon
emissions, which is favored by Democratic leaders in both chambers of
Congress, would amount to a tax on carbon.

Unlike a direct tax, however, the senator said cap-and-trade would amount
to a hidden cost to consumers and a temptation to lawmakers anxious to spend
its proceeds on programs like energy subsidies and social programs.

"Its one of the biggest giveaways you've ever seen," said Corker. He
instead proposed distributing all income from a carbon tax to the taxpayers in
the form of a dividends check.

Asked whether he would support Connecticut Representative John Larson's
proposal to reduce the federal payroll tax to offset a new tax on carbon,
Corker said: "That's a way of doing it."

"The problem is that by only reducing the payroll tax, there are people
in our country who are not employed and do not pay payroll taxes that would
still, obviously, have the adverse consequences of a carbon tax," he said. "So
we have to find a way of doing it that is fair to all Americans."

Senator Barbara Boxer, the California Democrat who heads the committee
primarily responsible for climate change legislation, has said she will
introduce a cap-and-trade bill early this session.

Corker said that he and a group of allies were considering offering
legislation of their own in the coming weeks, either in the form of a bill or
as an amendment.

Corker appears to have support from senators across the aisle. Both
Indiana Democrat Evan Bayh and Colorado Senator Mark Udall, who are new
members of the Energy and Natural Resources Committee, said at the hearing
that they were open to considering a carbon tax in place of the cap-and-trade
model proposed by the leaders of their party.

"Having seen some of the [cap-and-trade] proposals that come up here,
they seem awfully complicated," said Bayh.

Kit Batten, a senior fellow at the left-leaning Center for American
Progress, said that the group supported cap-and-trade because it is linked
directly to emissions levels, while a carbon tax wouldn't necessarily be.

She also defended the notion of using some of the proceeds from the sale
of emissions credits to promote renewable energy, retrofit coal-fired power
plants to reduce their carbon outputs, and for federal programs.

The committee's chairman, New Mexico Democrat Jeff Bingaman, has already
presented the Senate leadership with recommendations for energy items in an
upcoming economic stimulus bill.

The measure, which could total $1.2 trillion, is now being assembled by
the US House of Representatives and Senate leadership with input from
President-elect Barack Obama's team.

The committee heard testimony Thursday that could inform legislation
going forward, including an energy bill that Senate Majority Leader Harry Reid
has proposed for early this year.

Bingaman is working with the panel's new Republican leader, Alaska
Senator Lisa Murkowski, in the hopes of making the bill a bipartisan effort,
committee spokesman Bill Wicker said.

One issue that Bingaman has said he plans to consider this Congress is
whether to give the Federal Energy Regulatory Commission more authority to
site transmission lines in order to relieve pressure on the US energy grid.

"I think there's sufficient [federal] authority at this point, it becomes
a matter of identifying the best locations. Being able to ensure that those
corridors are going to be acceptable not only to wildlife and other resources,
but also to individuals living in those communities and to economies," said
panelist Dianne Nielson, an energy advisor to Utah Governor Jon Huntsman.

Karen Harbert, executive vice president of the Institute for 21st Century
Energy at the US Chamber of Commerce, disagreed. She said that states often
sue FERC over siting transmission lines under current law, and proposed giving
the commission greater authority to make those determinations.

Though the committee does not have jurisdiction over renewable energy tax
credits, several senators asked panelists how best to encourage new
investments in wind, solar energy and other industries during an economic
downturn that has caused the cancellation of many new projects.

The upcoming stimulus bill is likely to contain some changes to the
production tax credit and investment tax credit for renewable energy.

House Ways and Means Committee Chairman Charles Rangel supports making
the credits refundable, effectively issuing checks to renewable investors.

A Senate Republican aide, meanwhile, said the Finance committee was
considering allowing the credits to be sold as a way of raising capitol for
new projects.

Eric Schwartz of the Energy Security Leadership Council, which advocates
greater domestic energy production, said that rather than making the credits
refundable, Congress should make them longer term to give investors more
certainty in planning long-term projects.

Harbert seconded this idea, proposing that Congress extend the PTC for
wind and other technologies for eight years, and then phasing it out over four
additional years.