NEW YORK - A climate bill in the U.S. Senate would cost leading U.S. refinery Valero Energy Corp between $6 billion and $7 billion per year in its current form, the company's CEO said on Wednesday.

That figure is about what Valero earned in 2006, a record earnings year for the company, and is based on carbon payments of $20 a ton, the low end of where carbon prices are pegged.

The wide range on carbon offset prices -- which goes from $20 to as high as $50 a tonne -- creates budget difficulties for a company like Valero, who will be a buyer of the credits.

This is a poorly constructed bill, Valero Chief Executive Officer Bill Klesse said, citing the lack of clarity in pricing as well as the inequity of the apportioning of carbon credits in the bill that passed the U.S. House of Representatives.

Democratic leaders in the U.S. Senate are expected to introduce their version of the bill shortly, but it is unclear if they have enough votes to pass it this year.

The bill in its current form gives refiners just over 2 percent of the greenhouse emission credits while 30 percent of credits goes to electric utilities.

The majority of electricity in the U.S. is generated by burning coal, and Klesse said he felt the lobbying power of the coal industry was prompting a disproportionate number of credits going to power generation.

It's not a level playing field, he said.

CARROTS NOT STICKS

Instead of a climate bill, which Valero strongly opposes, Klesse said there are others ways, including a straight-up tax on refiners, which could accomplish the same end in a more positive manner.

A carbon tax would be more straightforward and even an additional gasoline tax of 10 to 20 cents a gallon would be preferable to the proposed cap and trade plan, in which prices for emitting a price of carbon could be hard to predict.

Another, more positive solution could be reinstitution of an industrial investment tax credit to provide incentives for companies to replace old and less energy efficient units and components, Klesse said.

We favor efficiency, he said, adding that such an instrument would also create jobs and help consumers as well.

And more money should be spent for research and development into other forms of energy -- wind farms, solar and renewable fuels -- which also create jobs and are a positive for the economy.

Pleased with their purchase earlier this year of seven ethanol plants for about 30 cents on the dollar, Valero is on the lookout to buy more as the gasoline demand downturn has bankrupted many ethanol makers and made it a buyers' market.

We continue to look for operations we can 'bolt on,' said Gene Edwards, Valero's executive vice president of corporate development, adding that proximity to corn production was a must.

Valero is also looking at animal fats and second-generation enzymes as renewables in the long term.

The company is letting customers know that the bill will boost gasoline prices by putting signs on the tops of some of their retail gasoline pumps encouraging patrons to write to lawmakers.

This bill is bad for consumers, bad for the oil business and bad for Valero, said Klesse. (Editing by Christian Wiessner)

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