WASHINGTON - A greenhouse gas cap-and-trade measure that the Senate will take up in June would raise gasoline prices by 25 cents a gallon, experts testified Thursday, urging lawmakers to use the system's revenues to help consumers with higher energy prices.

The measure would also cause an increase in electricity and natural gas costs for consumers, the experts agreed at a Finance Committee hearing. But they said the legislation is necessary to stave off the worst effects of climate change and that it would bring in enough revenue that Congress could assist low-income and middle-income households with the higher costs.

Under a cap-and-trade system, lawmakers would set a limit on emissions and allow companies to buy and sell rights to emit carbon dioxide. Majority Leader Harry Reid, D-Nev., has promised that the Senate in June will consider legislation establishing such a system.

The Finance panel, chaired by Sen. Max Baucus, D-Mont., has jurisdiction over the tax issues in the bill. He said Montana is already seeing the effects of climate change, noting that over the last 40 years, annual snowfall has decreased by 6 inches to 22 inches and that wildfires of more than 1,000 acres have increased six-fold.

Baucus said Congress must address climate change but must protect the economy and cushion the blow of higher energy prices.

"It's possible that action may have costs," he said. "But it's highly likely that inaction will also have costs, probably greater."

Although the magnitude of the damage from greenhouse gases remains uncertain, there is growing recognition of the risk that it may be extensive or even catastrophic, testified Peter Orszag, director of the Congressional Budget Office. The CBO provides nonpartisan, objective analysis to aid Congress in budgetary decisions.

A cap-and-trade program would limit the risk of the most significant damage but would impose some costs on the economy, he said. Most analyses suggest that well-designed policies to start lowering emissions "have more benefits than costs," he said.

"We have to pay up front for long-term benefits," he said.

The cap-and-trade legislation sponsored by Sens. Joe Lieberman, I-Conn., and John Warner, R-Va., would have a permit price in 2015 of $30 per ton - which translates into about 25 cents per gallon of gasoline, Orszag said. There would be effects on other energy prices as well.

The permits to emit would be worth about $145 billion in 2012, and that value would keep increasing as the cap became stricter over time, Orszag said. Lawmakers must choose whether to give away the permits to businesses or to auction them off.

The energy price increases would occur even if the permits are given away, Orszag said. Businesses would not bear most of the costs of limiting emissions but would pass them along to customers. The price increases also are essential to a successful system because they encourage energy consumers to change their behavior and become more energy efficient.

The Warner-Lieberman bill would increase revenues by about $1.2 trillion from 2009 to 2018, CBO estimates.

If the permits are auctioned, the revenue could be used to give a lump-sum rebate to households, invest in clean energy technologies or decrease corporate income taxes.

Significant increases in energy prices will affect lower-income households the most, testified Robert Greenstein, executive director of the Center on Budget and Policy Priorities, which researches how fiscal policy and public programs affect low- and moderate-income families.

If nothing is done to protect them under a cap-and-trade system, "many more Americans will slip into poverty and those who are poor will become poorer," he said. With a 15 percent reduction in greenhouse gas emissions, the 60 million Americans with the lowest incomes would pay $750 to $950 more annually in energy costs, he said.

It would take a "modest share," or 14 percent of the value of the permits, to fund a climate rebate program that would help the poorest 40 percent of households, he said. He recommended that the money be distributed through already existing methods like the earned income tax credit and the debit-card system set up for food stamps.

Sen. Jim Bunning, R-Ky., who has been a climate change skeptic, said that although he does not believe a cap-and-trade system is the way to go, he can "see the handwriting on the wall" and noted that all three presidential candidates support it. He pushed for a huge new government research project on clean-energy technology.

* Last we knew: A bill aimed at reducing greenhouse gas emissions through a cap-and-trade program has been introduced in Congress.

* The latest: The Senate Finance Committee heard testimony on the proposal Thursday.

* What's next: The full Senate is expected to consider the measure in June.]]->