House and Senate conferees abandoned giving makers of the gasoline additive MTBE (search) liability protection against environmental lawsuits on Sunday, removing the major roadblock to enactment of broad energy legislation.

Senate negotiators rejected a House proposal for a $11.4 billion MTBE cleanup fund that House Republicans had hoped would serve as a compromise and still provide the liability shield to the oil industry.

But Rep. Joe Barton (search), R-Texas, said "the proposal has not been accepted by the Senate" and that he would offer another MTBE proposal on Monday.

Sen. Pete Domenici (search), R-N.M., leader of the Senate energy negotiating team, said while some MTBE issues were still being discussed, those did not include a cleanup fund, nor liability protection.

"Those are gone," Domenici told reporters as the House-Senate conferees held an unusual Sunday session in hopes of completing work on a sweeping energy bill by Monday night.

If the negotiators are successful an energy bill could pass Congress before week's end, meeting an Aug. 1 goal to have a bill at the White House as urged by President Bush.

The legislation creates billions of dollars in tax breaks and other federal subsidies such as loan guarantees for energy industries and for energy conservation. It also would provide a boon to farmers by requiring billions of gallons of corn-base ethanol to be used in gasoline, although the amount remains to be negotiated.

Bush telephoned the House-Senate conference leaders on Sunday, reiterating his desire to get energy legislation passed this week before lawmakers begin their summer recess. "It was a very cordial, positive kind of touching-based phone call," said Barton. He said specific issues such as MTBE were not discussed.

The MTBE liability issue has dogged lawmakers trying to pass an energy bill for more than two years. Many senators have vowed to block any bill that includes a House-favored measure that would shield MTBE makers against lawsuits claiming the additive is a defective product and that the industry knew years ago it would pose cleanup problems if leaked into water supplies.

An additive introduced into widespread use in the mid-1990s to reduce air pollution, MTBE has been found in drinking water supplies in at least 36 states, causing foul taste and smell. Communities and water agencies say they're facing billions of dollars in cleanup costs. More than 150 lawsuits have been filed seeking cleanup payments from MTBE producers.

On Friday, Barton proposed a $11.4 billion cleanup fund for MTBE, a third of which would be paid for by the oil industry, including MTBE manufacturers, refiners and gasoline station owners. But the proposal drew criticism from all sides.

The oil industry talked having to pay $4.1 billion into the fund, while water agencies argued the fund had too many loopholes and not enough money to meet cleanup needs.

The MTBE liability issue had been viewed by Senate negotiators, especially Domenici, as a deal breaker that — as it did two years ago — would scuttle any chances of getting an energy bill through the Senate.

While a number of contentious issues remained to be worked, the conference leaders said they were optimistic of getting agreement on a bill, perhaps by Monday night.

"We're making tremendous headway," said Domenici as the conferees took up issues Sunday related to hydropower and geothermal energy.

Elsewhere, negotiations were picking as congressional tax writers sought a compromise on the energy bill's tax provisions. Those have been conducted behind closed doors in separate negotiations with little information surfacing.

The Senate approved a $14 billion tax package, focused heavily on subsidizing renewable energy sources and conservation, while a smaller House-passed $8 billion package leaned more toward supporting oil, gas and nuclear industries.

Among the non-tax issues still to be resolved were whether to require electric utilities to produce 10 percent of their electricity from renewable fuels and the ethanol mandate. The Senate has called for refiners to use 8 billion gallons of ethanol by 2012. The House has limited the requirement to 5 billion gallons.