A last-ditch attempt at passing a climate change bill begins in the Senate this week with senators mindful that time is running short and that approaches to the legislation still vary widely, according to sources.

We will present senators with a number of options when they get back from recess, said one Senate aide knowledgeable of the compromise legislation that is being developed. The goal is to reduce emissions of carbon dioxide and other greenhouse gases that scientists say threaten Earth.

The options will be presented to three senators -- Democrat John Kerry, independent Joseph Lieberman and Republican Lindsey Graham -- who are leading the fight for a bill to battle global warming domestically.

The aide said the Senate's drive for a bill got a boost last week with President Barack Obama's announcement of an $8.3 billion government loan guarantee to help start expanding the nuclear power industry, a top Republican priority. The administration is really putting their money where their mouth is, the aide said.

The Senate trio's success or failure likely will have a profound impact on international efforts to reduce carbon emissions and prevent Earth's temperature from exceeding a possibly dangerous 2 degree Celsius (3.6 Fahrenheit) increase from pre-industrial times.

For Wall Street, the Senate has the power to make or break the start-up of what eventually could be a $1 trillion market for power plant, oil refinery and factory pollution permits traded on a regulated exchange.

Congressional elections will be held on November 2 and there is wide agreement that if the Senate cannot pass a climate bill by mid-year, already hard-edged political partisanship will become hyperactive, making it nearly impossible for Congress to move on much of anything.

We're getting to the point where I think we need to start seeing senators coalesce around an approach, said Eileen Claussen, president of the Pew Center on Global Climate Change, which wants comprehensive greenhouse gas emissions control.

SKEPTICISM ABOUNDS

There is plenty of skepticism about whether Kerry, who is spearheading the effort, can pull off passage of such a difficult bill in an election year since the bill would increase future energy prices. But supporters are not giving up as they draw parallels to the last major environmental fight.

In 1990, we had a midterm president, a Mideast war, a banking crisis following a real estate bubble and a recession, yet Congress still passed updates to the Clean Air Act by overwhelming margins, said Representative Edward Markey, the co-author of the Waxman-Markey climate bill that narrowly passed the House of Representatives last June.

Tested over 20 years, those Clean Air Act updates are credited with effectively cutting acid rain air pollution through a cap-and-trade system that some now want to employ to reduce the carbon emissions blamed for global warming.

Under cap and trade, companies need government permits to emit an ever-dwindling amount of pollution. Fuel-efficient firms that end up holding more permits than they need can sell them to companies that are bigger polluters.

For carbon dioxide, cap and trade would eventually make the cost of using coal and other dirty-burning fossil fuels so high that cleaner, more expensive energy sources such as wind and solar power would emerge.

In recent months, many conservatives who do not want the federal government to mandate pollution reductions, have seized upon newly discovered errors in scientific reports underpinning the link between human activity and climate problems such as drought, flooding and rising sea levels.

Republican Senator James Inhofe, a leading critic, said the U.N. Intergovernmental Panel on Climate Change had fallen victim to outright fraud and deceit. It is further evidence Congress should not rush legislation, he has argued.

SIDE ISSUES

Meanwhile, so much political juice is now being expended by U.S. environmental groups on a side-issue to the climate bill, said Frank O'Donnell, president of Clean Air Watch. He was referring to green groups' attempts to stop Republican Senator Lisa Murkowski from advancing her bill blocking the Environmental Protection Agency from regulating carbon emissions, starting with vehicles.

The Obama administration would prefer to let Congress set climate change policy. But if it is unable to, the White House wants the EPA as a fallback.

Graham has talked about cobbling together a hybrid system for reducing carbon emissions.

Claussen said, If I was going to guess, it's probably cap and trade for electricity, which accounts for about 40 percent of carbon emissions, and maybe a separate oil industry tax or fee, with consumers being protected from price increases.

Tackling carbon emissions from factories making steel, cement, paper, glass and other large manufacturers either could be put off for much later or they could be given options for participating, she said.

Such an approach could gain the support of Midwestern senators who fear U.S. factories could be put at a competitive disadvantage against foreign manufacturers under a cap-and-trade program.

But it also has risks, others say, underscoring splits among Washington interest groups, politicians and others who want a climate change bill.

Robert Shapiro, chairman of the Climate Task Force and an advocate of a carbon tax, said a dual system would not make economic sense and could make for more volatile energy prices.

(Editing by Bill Trott)

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