The House Climate Bill: More Details on Federal Cap and Trade

As we mentioned yesterday, the discussion draft of the Waxman-Markey “American Clean Energy and Security Act of 2009” which was released on Tuesday is notable both for what it includes and the significant portions it leaves to be decided at a later date.

In summary, the bill contains four titles:

  1. a “clean energy” title, which promotes renewable energy through a portfolio standard of 6% in 2012 rising to 25% by 2025, additional funding for carbon capture and sequestration, a low-carbon transportation fuel standard, and authorization for federal agencies to enter into long-term contracts with renewable energy providers;
  2. an “energy efficiency” title, which calls for a nationwide building efficiency code, and directs EPA to set emission standards for locomotives, marine vessels and non-road sources;
  3. a “global warming” title, which specifies that greenhouse gases are not to be treated as criteria pollutants or regulated in new source review under the Clean Air Act (the authorities currently viewed to be EPA’s best tools in regulating greenhouse gases), lays out up to 83% cuts in greenhouse gas emissions from 2005 levels by 2050 and creates the framework for a cap-and-trade auction system to be overseen in part by FERC, but does not specify how allowances would be allocated or auctioned, nor how auction proceeds would be spent, other than giving a portion to preventing international deforestation; and
  4. a “transitioning” title which establishes a new council within NOAA to prepare an adaptation plan and fund, but does not provide details on where the funds come from, and lays out various programs creating release valves to be triggered by increasing prices, but again withholds critical details, such as how the programs will provide assistance to consumers.

After the jump, we provide more detail about Title 3, the Global Warming section.

Here are more specifics on Title 3, the Global Warming title:

  •  Modeled closely on the recommendations of the US Climate Action Partnership (USCAP), a coalition of electric utilities, oil companies, chemical companies, automobile manufacturers and environmental organizations
  • Preemption: the bill explicitly preempts state and regional cap-and-trade programs after 2012, but provides for the exchange of existing allowances. The bill also specifies that CO2 and other greenhouse gases may not be regulated as criteria air pollutants or hazardous air pollutants on the basis of their effect on global warming, nor would they apply to New Source Review.
  • Cap + Trade Program:
    • Who: the electric utilities, fuel distribution companies, geological sequestration sites, and large industrial sources included under the cap are similar to those included in EPA’s recently released reporting regulations, individually emit more than 25,000 tons of CO2e, and are collectively responsible for 85% of US global warming emissions
    • What: must annually surrender allowances equivalent to their emissions, beginning with the first tier of entities’ 2012 emissions, or pay a penalty equal to twice the market value of the missing allowances, plus offsetting those emissions within the next year. The downward trajectory of the cap begins with 3% reductions from 2005 levels by 2012.
    • How to get allowances: the bill sets up the framework for quarterly auctions, similar in details to the RGGI auctions now occurring, except that the names and amounts of winning bids would be announced. The program allows unlimited banking and borrowing from the next year’s vintage allowances. The bill leaves blank the proportions of allowances that would be sold at auction and those that might be allocated directly to covered entities.
    • Alternative Compliance: offsets may be surrendered at 5:4, but nationwide use is limited to 2 billion tons; the bill also allows use of international allowances and compensatory allowances (for instance, from the destruction of CFCs)
    • Safety valves: the draft directs EPA to create a “strategic reserve” of 2.5 billion allowances (equivalent to 1/3 of US annual emissions), from which allowance will be made available through closed auctions to covered entities, if allowance prices rise to high levels. The proceeds of the auction will be used to purchase allowances to replenish the reserve.
  • Additional Deforestation Initiative: a portion of the allowances/proceeds will go to creating supplemental reductions through agreements to prevent international deforestation. By 2020 the reductions must be equivalent to 10% of US’s 2005 emissions.
  • New Regulations for Hydroflurocarbons (HFCs) and Black Carbon: the bill authorizes EPA to act under the Clean Air Act to create new regulations specifically for these contributors to global warming
  • Citizen Suits under CAA: adds a citizen suit provision to section 304 of the Clean Air Act allowing anyone who is harmed by air pollution or climate change (even a general harm) to bring suit against the EPA for a failure to act

One thought on “The House Climate Bill: More Details on Federal Cap and Trade

Leave a Reply

Your email address will not be published. Required fields are marked *


4 − two =

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>