WASHINGTON - A U.S. cap-and-trade market on greenhouse gases should be designed carefully to avoid unfair economic pain in fossil fuel industries and other parts of the economy, experts told lawmakers on Wednesday.

The aim of a cap-and-trade market on greenhouse gases at the center of the climate bill introduced by Senate leaders this month would transform the economy from being based on fossil fuels to more nuclear and renewable power.

The shifts will be significant, Douglas Elmendorf, director of the Congressional Budget Office, told a U.S. Senate Committee on Energy and Natural Resources hearing.

The fact that (renewable energy) jobs turn up somewhere else for some people does not mean that there aren't substantial costs borne by people, communities, firms in affected industries in affected areas.

That could be a factor as Senators John Kerry and Barbara Boxer try to wrangle up the 60 votes needed to pass climate legislation.

In addition, Elmendorf said in written testimony that some areas of the country, like the South and the coal-dependent Midwest, could be hit harder by higher prices for energy and energy-intensive goods in a cap-and-trade program.

Some but not all of the those income shifts, he wrote, could be counteracted by authorizing the government to sell carbon credits in a cap-and-trade program and using the revenues to compensate consumers or businesses.

The Kerry-Boxer bill has left unanswered how many of the credits, or permits for business to emit greenhouse gases, would be sold or given to business. The climate bill that narrowly passed in the House of Representatives would give a majority of the permits to companies.

Senator Mary Landrieu, a Democrat from Louisiana, the second biggest U.S. state for oil refining, told the hearing she was worried about the economic impact of a cap-and-trade market on crude oil and natural gas.

Richard Newell, administrator of the Energy Information Administration, the statistics branch of the Department of Energy, said a cap-and-trade market would reduce imports of crude oil and liquid fuels like gasoline and diesel by 1 million to 2 million barrels per day by 2030.

Limits on emissions could bring jobs to alternative sources of transportation power such as batteries and advanced biofuels. But some question whether those would provide permanent jobs because or if they can replace fossil fuels that have driven the economy for about 100 years.

Landrieu worried emissions limits would reduce jobs in her state by cutting refining of crude while increasing imports of petroleum products like gasoline and diesel from developing countries that may not be required to make tough emissions cuts in a global emissions reductions pact.

People don't know whether to invest, in the petroleum business, she said.

Elmendorf said one thing that could help in the transition would be upper and lower limits on the prices of carbon credits. Such limits, included in the House and Senate bills, could reassure investors about future energy costs.

(Reporting by Timothy Gardner; Editing by David Gregorio)

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