By Steve Holland
NASHUA, New Hampshire (Reuters) - President Barack Obama acknowledged on Tuesday that a controversial "cap-and-trade" mechanism to fight climate change could be separated from other aspects of an energy bill before the U.S. Senate.
A cap-and-trade system would set limits on greenhouse gas emissions and allow companies to trade permits to pollute. The system, a version of which was approved by the House of Representatives, is controversial, especially among lawmakers who represent states with big coal reserves.
"The most controversial aspects of the energy debate that we've been having: the House passed an energy bill and people complained that, 'Well, there's this cap-and-trade thing,'" Obama told the crowd.
"We may be able to separate these things out. And it's conceivable that that's where the Senate ends up," he continued.
Other, more popular parts of the energy bill seek to boost renewable energy such as wind and solar power. Those parts may be easier to pass.
As Obama was delivering his remarks, leading senators on Capitol Hill said detailed work was continuing on a comprehensive bill -- one that would promote alternative energy development but also impose nationwide controls on carbon emissions.
Democratic Senator John Kerry, the leader of the group, told reporters "a lot of progress" was being made.
But he added that there still is no deal on the mechanism for reducing carbon dioxide emissions.
"It is accurate that we are still working on precisely what carbon-pricing mechanism, what shape it will take," Kerry said, adding, "We know we need to price carbon."
A Senate aide close to the negotiations told Reuters that the goal was to get a bill ready for floor debate by April, after the Environmental Protection Agency conducts an economic analysis of whatever compromise is produced.
Meanwhile, independent Senator Joseph Lieberman told Reuters that he, Kerry and Republican Senator Lindsey Graham were "working to get to 60" votes of support -- the number needed to bypass opponents' procedural hurdles and approve major legislation.
Asked when the senators might be able to unveil a compromise bill, Lieberman said, "Probably not before March."
A White House spokesman said the president still supported comprehensive climate and energy legislation as one package.
Given the difficulty of passing a cap-and-trade program in the Senate, Kerry, Graham and other senators have talked of the possibility of a "hybrid" system to control carbon emissions.
One private-sector supporter of carbon control legislation, who asked not to be identified, said a "hybrid" could be a system that imposes cap and trade on coal-fired power plants, coupled with "some sort of cap and dividend or emissions fee for other industrial sources" of carbon pollution.
Cap and dividend refers to a system that would reduce industry's carbon emissions and compensate consumers for potentially higher energy prices. But it would not create a market for trading pollution permits like cap and trade does.
Getting an energy and climate bill through Congress was originally one of Obama's top policy goals, but the drawn-out healthcare debate delayed the package, and supporters fear it may die or be delayed further during an election year that could change the balance of power in the House and Senate.
Obama made it clear during a question and answer period with a crowd in New Hampshire that he wanted a market mechanism to put a price on carbon. He said that even with advanced technology, coal -- a highly-polluting fossil fuel -- would continue to be cheaper to buy than cleaner, renewable energy.
A market mechanism would address that by making companies pay for using fuels that emit more carbon dioxide, one of the most common greenhouse gases blamed for warming the earth.
"The concept of incentivizing clean energy so that it's the cheaper, more effective kind of energy is one that is proven to work and is actually a market-based approach," Obama said.
"Does it make sense for us to start pricing in the fact that this thing's really bad for the environment and, if we do, then can we do it in a way that doesn't involve some big bureaucracy and a control-and-command system, but just says...there's going to be a price to pollution," he said.
"Then everybody can adapt and decide which are...the best energies," he said.
In June a Senate committee approved an energy package that would require utilities to generate 15 percent of electricity from renewable sources such as solar and wind power by 2021.
It also supported a measures that would allow drilling within 45 miles of Florida's Gulf coast.
(Additional reporting by Richard Cowan in Washington; Writing by Jeff Mason; Editing by Cynthia Osterman)