Sen. Lindsey Graham (R-S.C.) says he is not abandoning negotiations on a comprehensive energy and climate bill even as he warns of partisan gridlock following the Democrats' push this week to pass health care reform.

"It's going to make it very difficult to do anything complicated and controversial," Graham told reporters yesterday.

"I'm still committed to trying to roll out a vision of how you can price carbon and make it business-friendly. We're still going to do that. ... But the truth of the matter is, I think you're going to find most of our colleagues around here risk adverse."

Graham's continued role in the climate talks with Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) is critical for lawmakers trying to maintain momentum on an issue that has largely been kept on the sidelines while President Obama and Democrats focused on health care.

In recent days, Graham warned that immigration reform would be the "first casualty" following the Senate Democrats' efforts to complete the health care bill via a fast-track reconciliation vote. And he also predicted GOP gains this November. "Republicans will pick up a lot of votes from people who think this is bad for their business, their family, and the process used to pass it was sleazy," Graham said over the weekend.

Graham attended several briefings last week on the climate issue with major industry trade groups and senators, but his remarks about the health care bill nonetheless prompted speculation off Capitol Hill that the entire legislative effort could soon be over because of his wavering.

"If Lindsey Graham flies the coop, this thing is dead," said Kevin Book, managing director with ClearView Energy Partners.

While Graham said he is staying put, his predictions about the Senate mood appear to be spot on -- at least among some moderate Republicans.

"It's no different than it was last week," Sen. Lisa Murkowski (R-Alaska) said of the mood on Capitol Hill. "It was bad last week. It's going to be bad this week. Who knows what it's going to be like next week?"

Sen. Olympia Snowe (R-Maine) said she would "continue to work" with Democrats on energy and climate change legislation. But she is not feeling very optimistic in light of the push on health care, another issue that put her in the partisan spotlight.

"I think it makes it a very difficult environment with which to deal with complex and big issues, most certainly incorporating Republican ideas in building that camaraderie," Snowe said. "Obviously, you're always going to try to work on issues that are important to this country, but it takes patience to build that kind of consensus, and they haven't demonstrated the patience in that regard. It's regrettable."

Sen. John McCain (R-Ariz.) baited Democrats yesterday on the health care fallout during a radio interview back in Arizona. "There will be no cooperation for the rest of the year," he said. "They have poisoned the well in what they've done and how they've done it."

The 2008 GOP presidential nominee's remarks prompted a quick reply from Majority Leader Harry Reid's office.

"For someone who campaigned on 'Country First' and claims to take great pride in bipartisanship, it's absolutely bizarre for Senator McCain to tell the American people he is going to take his ball and go home until the next election," said Jim Manley, a spokesman for the Nevada Democrat. "He must be living in some parallel universe because the fact is, with very few exceptions, we've gotten very little cooperation from Senate Republicans in recent years."

Asked later if he meant the climate debate would be spoiled by health care, McCain said, "I never thought there was going to be one. You'd have to ask those who think there'd be one, because they refuse to have nuclear power. There's no debate as far as discussion as far as I'm concerned unless you had nuclear power."

Sen. Bob Corker (R-Tenn.) said that there was still a chance for bipartisanship following the health care debate, starting with the Wall Street regulatory reform bill that Democrats passed yesterday out of the Senate Banking Committee (see related story).

"What'll happen is, people will go away for a couple of weeks on recess, and this will be behind us," Corker said. "I really do not believe that what's happened, or will happen over the next four days on reconciliation, will in any way effect banking regulation. I think people will dust off, they'll come back, and we're mostly adults around here, and I think we'll deal with the next issue. I really do."

Kerry predicted a boost for his efforts after Obama signs the health care bill into law.

"In the wake of health care's passage, we have a strong case to make that this can be the next breakthrough legislative fight," Kerry said in a statement. "Many senators who want to see a comprehensive energy and climate bill passed have been consumed with the drive to get health care passed. The same was rightfully true of the White House even as they kept the coals warm on energy and climate. Now they can pour their energy and attention into climate and energy. And here I think we can put the pieces of real bipartisanship back together."

Reid said he is meeting with Kerry today to go over the status of the climate and energy proposal. Reid met last Monday with Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) and Democratic Policy Chairman Byron Dorgan (D-N.D.) to discuss moving directly to floor debate on S. 1462 (pdf), a bill approved last summer in Bingaman's panel that includes a renewable energy standard and offshore oil drilling but no cap on greenhouse gas emissions -- a centerpiece of the Kerry-Graham-Lieberman effort.

Asked if he was considering the energy-only approach, Reid said, "I've got lots of options on energy. And I'm going to try to work it through with Bingaman and Kerry."

Kerry, Graham and Lieberman are expected to roll out further details of their proposal this week, including during a meeting today with key senators who have shown an interest in the issue over the last year. The Senate trio hopes to send specifics to U.S. EPA by Friday to begin a multi-week interagency analysis, with a formal bill introduction expected next month.

Reid is also still angling for a floor debate in the late spring.

Feinstein speaks up on drilling, state pre-emption, allocations

The Senate's top appropriator for environmental issues has also weighed in with a series of demands for the climate and energy bill.

Sen. Dianne Feinstein (D-Calif.) wrote Kerry a letter (pdf) last week calling for the climate legislation to begin with the electric utility sector, with more trade-exposed industries being phased in "at a later date." Draft language circulated last week to industry indicated the trio plans to do just that, with limits first on power plants in 2012 and the manufacturers following in 2016 (E&E Daily, March 18).

Feinstein also stated her preference on the allocation of valuable emission allowances for the power sector, urging Kerry to use the formula approved by most members of the Edison Electric Institute, the leading trade group for investor-owned utilities.

Under the EEI plan, which the House used in its version of climate legislation, allowances would be split 50-50 between companies based on their historic emission levels and retail sales. But Kerry faces pressure from 14 other Democratic senators, mostly from the Midwest and Great Plains, who insist that the formula should be changed to reflect allocations based solely on emissions (E&ENews PM, Nov. 12, 2009).

In her letter, Feinstein said a change from the EEI formula could force several electric utilities to drop their support for the legislation while leaving consumers in California paying higher costs for their past low-carbon investments. "Abandoning the 50-50 agreement to shift more assistance to consumers in the Midwest and Great Plains would put the needs of one set of consumers ahead of the needs of others, which would undermine the over-arching goal of mitigating consumer impact," she wrote.

Feinstein also pressed Kerry not to remove California's ability to set stronger tailpipe standards than the federal government. Automobile industry officials and Michigan lawmakers have repeatedly asked for such a move, and Senate aides confirmed last week that the trio is weighing the request. But Feinstein argued that her home state should maintain authority it has had dating back to the 1960s under the Clean Air Act.

On another issue central to California, as well as other coastal states, Feinstein requested language requiring any state to first pass a law affirming its desire for companies to explore for oil and gas off their coasts.

"On such a substantial decision about the future of a state, a decision should be made by both the legislature and the governor," Feinstein wrote. "The state should also have the power to review its decision on a regular basis."

And as the holder of the Senate's purse strings at U.S. EPA and the Interior Department, Feinstein weighed in with concerns that climate legislation may not have enough congressional oversight when it comes to billions of dollars directed into off-budget accounts run by the administration. Such a move, she wrote, "would diminish Congress' ability to ensure that these funds were well spent or even spent for the purposes outlined in the legislation."

Feinstein suggested instead that the Senate climate bill's spending authorizations expire no later than 10 years after enactment. "This approach, modeled on the Farm Bill and the Highway Bill, would ensure that Congress revisits spending levels and oversees how federal dollars are spent," she wrote.

Feinstein suggested stronger oversight of carbon markets. And on the mechanism under consideration for regulating transportation fuels, she proposed an adjustable carbon emissions fee that goes up or down a set amount each year depending on whether greenhouse gas emissions exceed or outperform the transportation sector's target.

"This provides greater price certainty than any other option, removes concern with regard to the impact of market manipulation on price and keeps the transportation sector's emissions subject to an emissions target," she wrote.

Kerry, Graham and Lieberman have acknowledged they are working with oil industry officials on a "linked fee" proposal, but they have avoided talk on any specifics of their plan (E&E Daily, March 3).

Click here (pdf) to read Feinstein's letter.

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