The Gulf of Mexico oil spill is spurring California legislators and conflicting interest groups to settle past differences and adopt the nation’s toughest renewable energy law to reduce the state’s dependence on oil and serve as a model for other states.

The effort is supported by Gov. Arnold Schwarzenegger, who is eager to burnish his environmental legacy before leaving office in January even though he vetoed a similar bill last fall.

Both the governor and the Democrats who control the Legislature want to require privately and publicly owned electric utilities to generate one-third of their power from wind, solar and other clean sources by 2020.

After last fall’s veto, Schwarzenegger issued an executive order unilaterally imposing the 33% renewable standard. But Democrats denounced the action as mainly symbolic because it does not bind future governors.

This year, Democrats came back with a compromise bill, which has its first legislative hearing Thursday in the Assembly Utilities and Commerce Committee.

“One needs only to look to the Gulf of Mexico and the tragedy and what happens when you just rely on oil,” Schwarzenegger said at an alternative fuel summit last week. “It is shameful how desperate and how dependent we have become on fossil fuels.”

With images of gushing crude and oil-covered birds dominating TV screens, Schwarzenegger’s chief of staff, Susan P. Kennedy, said environmentalists, utilities generators, labor unions and other industry groups that waged war over last year’s bill now are meeting at least weekly and are closing in on a deal.

“I’m very optimistic,” she said. “There’s always been a consensus around the goal. It’s simply a matter of identifying what the obstacles are in the implementation.”

Similar talks collapsed in acrimony in September with Schwarzenegger’s veto. The proposal, he said, was too “complex” and favored in-state projects over possibly more economical out-of-state wind and solar farms that feed power into the West’s transmission grid.

The biggest disagreement centered on the use of credits that energy producers around the West can earn for generating renewable power. Currently, the credits can be traded among electricity generators and purchasers and used by California electric utilities to satisfy part of their renewable energy obligations.

Environmentalists, construction and utility worker unions and consumer advocates want to restrict the use of credits, arguing that wind and solar power produced in Montana or Utah brings limited benefits to California in the form of cleaner air or new jobs.

“You’ve got to build a big chunk of it here,” said Scott Wetch, a lobbyist for the Coalition of California Utility Employees, whose members work for public and private electric companies.

The utilities counter that California needs to be part of a regional energy market if it wants to ensure adequate supplies of competitively priced electricity.

Now, under a compromise that is forming, the bulk of new renewable power plants would be built in California, creating thousands of high-paying green construction and operations jobs.

At the same time, the emerging deal would leave utilities with enough flexibility to buy electricity from power generators throughout the West. They could then use those purchases toward meeting their California renewable quotas.

“I think that both sides want a deal,” said Bill McGavern, chief lobbyist for the Sierra Club.

The compromise, Kennedy said, should guarantee that at least half the renewable energy under the 33% goal would be generated at California power plants. Still to be determined is the exact percentage that could come from tradable credits linked to power from renewable sources based outside the state.

Southern California Edison, the state’s biggest renewable power provider, also is upbeat about reaching an agreement on the 33% standard, though the utility hasn’t taken a public position on the negotiations.

At the end of last year, Edison, a unit of Edison International, produced about 17% of its power from renewables, the best performance of the state’s three major publicly held utilities but still below the current legal requirement of 20% by the end of 2010.

A combination of the right legislation and heightened environmental awareness because of the oil spill would make this “a ripe time to be thinking about expanding renewable energy,” said Stuart Hemphill, Edison’s senior vice president for power procurement.

Putting together a compromise this year would “send the clear signal to the market " that California is serious about attracting more renewable energy investment, said Sen. Joe Simitian (D- Palo Alto), the author of last year’s bill and this year’s Senate Bill 722.

V. John White of the Clean Power Campaign said it’s time for California policymakers to stop arguing and start putting “steel in the ground” in the form of new solar and wind power plants and the transmission plants to bring the power to Los Angeles and other big users.

“The public in California always has supported the idea of renewables,” he said, “so now we should get on with it.”

marc.lifsher@latimes.com