For other versions of this document, see http://wikileaks.org/wiki/CRS-RL33846 ------------------------------------------------------------------------------ Order Code RL33846 Greenhouse Gas Reduction: Cap-and-Trade Bills in the 110th Congress Updated June 27, 2008 Larry Parker, Brent D. Yacobucci, and Jonathan L. Ramseur Resources, Science, and Industry Division Greenhouse Gas Reduction: Cap-and-Trade Bills in the 110th Congress Summary Multiple proposals to advance programs that reduce greenhouse gases have been introduced in the 110th Congress. S. 2191 was reported May 20, 2008, from the Senate Committee on Environment and Public Works. An amended version of S.2191, S. 3036, was considered by the Senate in June 2008, but a vote to invoke cloture failed. In general, these proposals would create market-based greenhouse gas reduction programs along the lines of the trading provisions of the current acid rain reduction program established by the 1990 Clean Air Act Amendments. This report presents a side-by-side comparison of the major provisions of those bills and includes a glossary of common terms (Appendix C). Although the purpose of these bills is to reduce greenhouse gases (GHGs), the specifics of each differ greatly. Five bills (S. 280, S. 309, S. 485, H.R. 620, and H.R. 1590) cap greenhouse gas emissions from covered entities at 1990 levels in the year 2020. S. 317 places its first emissions cap at 2001 levels in 2015; S. 1766 targets reductions at 2006 levels in 2020; S. 2191 as reported would cap GHGs at about 19% below 2005 levels in 2020; H.R. 4226 would limit 2020 emissions to 85% of their 2006 levels; H.R. 6186 would reduce emissions to 20% below 2005 levels by 2020, and H.R. 6316 would reduce emission to 20% below 1990 levels by 2020. Ten bills (S. 280, S. 317, S. 485, S. 2191, S. 3036, H.R. 620, H.R. 1590, H.R. 4226, H.R. 6186, and H.R. 6316) would establish cap-and-trade systems to implement their emission caps. In contrast, S. 1766 provides for two compliance systems -- a cap- and-trade program and an alternative safety valve payment -- and allows the covered entities to choose one or employ a combination of both. Finally, S. 309 provides discretionary authority to the Environmental Protection Agency (EPA) to establish a cap-and-trade program to implement its emission cap. The differences continue with respect to entities covered under the programs. Three bills (S. 309, S. 485, H.R. 1590) provide discretionary authority to EPA to determine covered entities by applying cost-effective criteria to reduction options. In contrast, S. 317's emission cap is imposed solely on the electric generating sector. The other bills (S. 280, S. 1766, S. 2191, S. 3036, H.R. 620, H.R. 4226, H.R. 6186, and H.R. 6316) cover most economic sectors but not all (e.g., they exclude the agricultural sector). Thus, the overall reductions achieved by the bills depend partly on the breadth of entities covered. Beyond the basics of these bills, each contains other important provisions. For example, S. 280 creates a new innovation infrastructure, while several -- S. 1766, S. 2191, S. 3036, H.R. 4226, H.R. 6186, and H.R. 6316 -- encourage foreign countries to undertake comparable control actions and specify potential consequences for inaction. Other provisions include mandatory greenhouse gas standards for vehicles (S. 309, S. 485, H.R. 1590), and a renewable portfolio standard for the electric generating sector (S. 309, S. 485, H.R. 1590). This comparison should be considered a guide to the basic provisions contained in each bill. It is not a substitute for careful examination of each bill's language and provisions. Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Proposed Legislation in 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Legislative Action in the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Appendix A. Comparison of Key Provisions of Senate Greenhouse Gas Reduction Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Appendix B. Comparison of Key Provisions of House Greenhouse Gas Reduction Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Appendix C. Common Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Greenhouse Gas Reduction: Cap-and-Trade Bills in the 110th Congress Introduction Climate change is generally viewed as a global issue, but proposed responses generally require action at the national level. In 1992, the United States ratified the United Nations Framework Convention on Climate Change (UNFCCC), which called on industrialized countries to take the lead in reducing the six primary greenhouse gases to 1990 levels by the year 2000.1 For more than a decade, a variety of voluntary and regulatory actions have been proposed or undertaken in the United States, including monitoring of power plant carbon dioxide emissions, improved appliance efficiency, and incentives for developing renewable energy sources. However, carbon dioxide emissions have continued to increase. In 2001, President George W. Bush rejected the Kyoto Protocol, which called for legally binding commitments by developed countries to reduce their greenhouse gas emissions.2 He also rejected the concept of mandatory emissions reductions. Since then, the Administration has focused U.S. climate change policy on voluntary initiatives to reduce the growth in greenhouse gas emissions. In contrast, in 2005, the Senate passed a Sense of the Senate resolution on climate change declaring that Congress should enact legislation establishing a mandatory, market-based program to slow, stop, and reverse the growth of greenhouse gases at a rate and in a manner that "will not significantly harm the United States economy" and "will encourage comparable action" by other nations.3 A number of congressional proposals to advance programs designed to reduce greenhouse gases have been introduced in the 110th Congress. These have generally followed one of three tracks. The first is to improve the monitoring of greenhouse gas emissions to provide a basis for research and development and for any potential future reduction scheme. The second is to enact a market-oriented greenhouse gas reduction program along the lines of the trading provisions of the current acid rain reduction program established by the 1990 Clean Air Act Amendments. The third 1 Under the United Nations Framework Convention on Climate Change (UNFCCC), those gases are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). Some greenhouse gases are controlled under the Montreal Protocol on Substances that Deplete the Ozone Layer, and are not covered under UNFCCC. 2 For further information, see CRS Report RL30692, Global Climate Change: The Kyoto Protocol, by Susan R. Fletcher. 3 S.Amdt. 866, passed by voice vote after a motion to table failed 43-54, June 22, 2005. CRS-2 is to enact energy and related programs that would have the added effect of reducing greenhouse gases4; an example would be a requirement that electricity producers generate a portion of their electricity from renewable resources (a renewable portfolio standard). This report focuses on the second category of bills. (For a review of additional climate change related bills, see CRS Report RL34067, Climate Change Legislation in the 110th Congress, by Jonathan L. Ramseur and Brent D. Yacobucci.) Proposed Legislation in 110th Congress In the 110th Congress, Members have introduced 12 bills that include provisions to impose or permit some form of market-based controls on emissions of greenhouse gases. General descriptions of those bills follow, beginning with S. 2191, which was reported, with amendments, on May 20, 2008, by the Senate Committee on Environment and Public Works.5 The major provisions of the seven Senate bills are compared in Appendix A. The major provisions of the five House bills are compared in Appendix B. S. 2191, as introduced October 18, 2007, by Senators Lieberman and Warner, would cap greenhouse gas emissions from the electric generation, industrial, and transportation sectors (for facilities that emit more than 10,000 metric tons of carbon dioxide equivalent -- mtCO2e). As introduced, the cap is estimated by the sponsors to reduce emissions to 15% below 2005 levels in 2020, declining steadily to 63% below 2005 levels in 2050. The program would be implemented through an expansive allowance trading program to maximize opportunities for cost-effective reductions. Credits obtained from increases in carbon sequestration and acquisition of allowances from foreign sources could be used to comply with 30% of allowance requirements. The bill would also establish a Carbon Market Efficiency Board to observe the allowance market and implement cost-relief measures if necessary. (For recent action on S. 2191 and for modifications to the provisions, see the next section.) S. 3036, introduced by Senator Boxer on May 20, 2008, is identical to the reported version of S. 2191, except that S. 3036 contains a budget amendment aimed at making the bill revenue-neutral. This would entail devoting a percentage of auction revenues -- increasing from 6.1% in 2012 to 15.99% in 2031 and thereafter -- to offset budget deficits that are projected to occur due to the cap-and-trade program.6 This bill was considered by the Senate the week of June 2, 2008. 4 For discussions of relevant energy legislation, see CRS Report RL34294, Energy Independence and Security Act of 2007: A Summary of Major Provisions, by Fred Sissine, and CRS Report RL33831, Energy Efficiency and Renewable Energy Legislation in the 110th Congress, by Fred Sissine, et al. 5 The bill was ordered reported December 5, 2007, by an 11-8 vote. 6 See CBO, S. 2191, America's Climate Security Act, with an Amendment (April 10, 2008), at [http://www.cbo.gov/ftpdocs/91xx/doc9120/s2191.pdf]. CRS-3 S. 280, introduced January 12, 2007, by Senator Lieberman, would cap emissions of the six greenhouse gases specified in the United Nations Framework Convention on Climate Change at reduced levels from the electric generation, transportation, industrial, and commercial sectors -- sectors that account for about 85% of U.S. greenhouse gas emissions. The reductions would be implemented in four phases, with an emissions cap in 2012 based on the affected facilities' 2004 emissions (for an entity that has a single unit that emits more than 10,000 metric tons of carbon dioxide equivalent); the cap steadily declines until it is equal to one-third of the facilities' 2004 levels. The program would be implemented through an expansive allowance trading program to maximize opportunities for cost-effective reductions, and credits obtained from increases in carbon sequestration, reductions from non-covered sources, and acquisition of allowances from foreign sources could be used to comply with 30% of reduction requirements. The bill also contains an extensive new infrastructure to encourage innovation and new technologies. S. 309, introduced January 16, 2007, by Senator Sanders, would cap greenhouse gas emissions on an economy-wide basis beginning in 2010. Beginning in 2020, the country's emissions would be capped at their 1990 levels, and then proceed to decline steadily until they were reduced to 20% of their 1990 levels in the year 2050. EPA has the discretion to employ a market-based allowance trading program or any combination of cost-effective emission reduction strategies. The bill also includes new mandatory greenhouse gas emission standards for vehicles and new powerplants, along with a new energy efficiency performance standard. The bill would establish a renewable portfolio standard (RPS) and a new low-carbon generation requirement and trading program. S. 317, introduced January 17, 2007, by Senator Feinstein, would cap greenhouse gas emissions from electric generators over 25 megawatts. Beginning in 2011, affected generators would be capped at their 2006 levels, declining to 2001 levels by 2015. After that, the emission cap would decline 1% annually until 2020, when the rate of decline would increase to 1.5%. The allowance trading program includes an allocation scheme that provides for an increasing percentage of all allowances to be auctioned, with 100% auctioning in 2036 and thereafter. The cap- and-trade program allows some of an entity's reduction requirement to be meet with credits obtained from foreign sources and a variety of other activities specified in the bill. S. 485, introduced February 1, 2007, by Senator Kerry, would cap greenhouse gas emissions on an economy-wide basis beginning in 2010. Beginning in 2020, the country's emissions would be capped at their 1990 levels. After 2020, emissions economy-wide would be reduced 2.5% annually from their previous year's level until 2031, when that percentage would increase to 3.5% through 2050. The allowance trading system includes an allocation scheme that requires an unspecified percentage of allowances to be auctioned. The bill also includes new mandatory greenhouse gas emission standards for vehicles, along with a new energy efficiency performance standard. The bill would establish a renewable portfolio standard (RPS), increase biofuel mandates under the Renewable Fuels Standard, and mandate new infrastructure for biofuels. Finally, the bill expands and extends existing tax incentives for alternative fuels and advanced technology vehicles, and establishes a manufacturer tax credit for advanced technology vehicle investment. CRS-4 S. 1766, introduced July 11, 2007, by Senator Bingaman, would set emissions targets on most of the country's greenhouse gas emissions. Greenhouse gas emitting activities such as methane emissions from landfills, coal mines, animal waste, and municipal wastewater projects, along with nitrous oxide emissions from agricultural soil management, wastewater treatment, and manure management, are not included under the targets, although credits for use by covered entities are available or may be generated by verified GHG reductions in these areas. Beginning in 2012, covered entities would have emissions targets set at their 2006 levels in 2020. The emissions targets would decline steadily until 2030 when the emission target would be set at the entities' 1990 levels. Compliance can be secured either through an allowance trading program or by paying a safety valve price (called a Technology Accelerator Payment or TAP). Under the trading program, allowances are allocated according to various categories, including covered entities; eligible facilities, such as coal mines and carbon-intensive industries; states; and sequestration activities. Initially, 24% of all allowances are auctioned, a percentage that increases over time. The TAP is set at $12 a metric ton of carbon dioxide equivalent; it increases 5% annually above the rate of inflation. The bill also requires countries that do not take comparable action to control emissions to submit special allowances (or their foreign equivalent) to accompany exports to the United States of any covered greenhouse intensive goods and primary products. H.R. 620, introduced February 7, 2007, by Representative Olver, is a substantially modified version of S. 280. Using the same basic structure as S. 280, the emission caps under H.R. 620 are more stringent. Reductions from affected sectors (electric generation, transportation, industrial, and commercial) would be set at 2004 levels in 2012 and then steadily decline until the cap is equal to about one- fourth of facilities' 2004 levels. Although H.R. 620 permits affected entities to comply with the reduction requirements with credits from foreign sources, sequestration, and reductions from non-covered entities, these credits are limited to 15% of the source's reduction requirement. H.R. 1590, introduced March 20, 2007, by Representative Waxman, is similar to S. 485. H.R. 1590 would cap greenhouse gas emissions on an economy-wide basis beginning in 2010. Beginning in 2020, the country's emissions would be capped at their 1990 levels. After 2020, emissions economy-wide would be reduced by roughly 5% annually from their previous year's level through 2050, when emissions levels would be capped at 80% below 1990 levels. The allowance trading system includes an allocation scheme that requires an unspecified percentage of allowances to be auctioned. The bill also includes new mandatory greenhouse gas emission standards for vehicles, along with a new energy efficiency performance standard. The bill would also establish a renewable portfolio standard. H.R. 4226, introduced November 15, 2007, by Representative Gilchrest, is a modified version of H.R. 620. Using the same basic structure as H.R. 620, emission limitations are based on percentages of 2006 emission levels. Reductions from affected sectors (electric generation, transportation, industrial, and commercial) would be set at 2006 levels in 2012 and then steadily decline until the cap is equal to about one-fourth of facilities' 2006 levels in 2050. The bill provides that the President may establish a program to require importers to pay the value of GHGs emitted during the production of goods or services imported into the United States CRS-5 from countries that have no comparable emission restrictions to those of the United States. The program's requirement may not be imposed on countries until negotiations to achieve agreement on such restrictions have been attempted. In addition, the bill also establishes a Carbon Market Efficiency Board to observe the allowance market and implement cost-relief measures if necessary. H.R. 6186, introduced June 4, 2008, by Representative Markey, would cap emissions from covered sources at 930 million mtCO2e in 2050. Of the long-term reduction targets in the cap-and-trade bills, this is among the most stringent. H.R. 6186 would auction 94% of its emission allowances in 2012, increasing to 100% by FY2020. Almost 60% of the auction revenues would be distributed (via tax credits and rebates) to low- and middle-income households. The bill would direct EPA to develop emission performance standards for non-covered entities, which may include coal mines, landfills, wastewater treatment operations, and animal feeding operations. In addition, new (as defined in the bill) coal-fired power plants would be required to capture and geologically sequester not less than 85% of their CO2 emissions within a specified time frame. H.R. 6316, introduced June 19, 2008, by Representative Doggett, would cap emissions from covered sources at 348 million mtCO2e in 2050. Of the long-term reduction targets in the cap-and-trade bills, this is the most stringent. In addition, the bill would direct EPA to develop regulations that prevent growth in emissions from non-covered entities. H.R. 6316 would auction 85% of its emission allowances in 2012, increasing to 100% by FY2020. Approximately 54% of the auction revenues would be distributed for consumer assistance: of this allotment, 66% would fund a healthcare coverage program (established by subsequent legislation); the remainder would provide rebates and tax relief to low- and moderate-income households. Domestic offsets and international allowances could combine to contribute up to 25% of covered source's allowance requirements. Similar to other bills, a Carbon Market Efficiency Board would observe the allowance market and implement cost-relief measures if necessary. The bill would also require countries that do not take comparable action to control emissions to submit special allowances (or their foreign equivalent) to accompany exports to the United States of any covered primary product. Legislative Action in the 110th Congress On May 20, 2008, the Senate Committee on Environment and Public Works' Subcommittee on Private Sector and Consumer Solutions to Global Warming and Wildlife Protection reported out a revised version of S. 2191. As reported from subcommittee, S. 2191 is estimated to reduce greenhouse gas emissions 19% below 2005 levels by 2020 (up from 15% as introduced) and 63% below 2005 levels by 2050. The increase in the estimated reductions in 2020 is the result of amended text that includes greenhouse gases from all natural gas uses under the overall emissions cap. Other amendments approved included modifications to eligibility requirements for the advanced technology vehicles manufacturing incentive program and the advanced coal generation technology demonstration program. Modifications were also made to the proposed allocation of allowances to help tribal communities CRS-6 respond to climate change and to encourage international forest carbon activities, along with 1% of allowances reserved for rural cooperatives and a corresponding reduction in allowances allocated to the rest of the electric power industry. The revised bill also added two new recipients of auction revenues: a Bureau of Land Management Emergency Firefighting Fund ($300 million) and a Forest Service Emergency Firefighting Fund ($800 million). On December 5, 2007, the full committee ordered reported out a revised version of S. 2191 by an 11 to 8 vote. The bill was reported by the committee on May 20, 2008 (S.Rept. 110-337). The revised bill expands the greenhouse gas reduction program coverage by replacing the previous definition of covered facility based on the electric power, transportation, and industrial sectors with a comprehensive upstream definition for oil refineries, natural gas processing plants, and a downstream definition for coal consumers. Among the amendments agreed to by the full committee were a new low carbon fuel standard (LCFS) that would require the carbon intensity of transportation fuel to be frozen in 2011 and then reduced by 5% in 2015 and 10% in 2020. Other amendments agreed to would increase incentives for states to modify their utility regulatory structures to encourage energy efficiency, and would broaden the ability of states to use their allowance allocations to mitigate adverse economic impacts resulting from the bill's implementation. As ordered reported, S. 2191's emissions cap is estimated by its sponsors to require a 71% reduction from 2005 levels by 2050 from covered entities (estimated by the sponsors to account for 87% of total U.S. greenhouse gas emissions). Overall, the sponsors estimate that S. 2191 would reduce total U.S. greenhouse gas emissions by up to 66% from 2005 levels by 2050. In April 2008, a proposed amendment to S. 2191 was submitted by the committee to the Congressional Budget Office (CBO) to be included in the scoring of the bill. The amendment would provide for some of the auctioned revenues to be put aside for deficit reduction purposes. Senator Boxer introduced S. 3036 on May 20, 2008. This proposal combined the reported version of S. 2191 with the revenue-neutral amendment. The Senate considered S. 3036 the week of June 2, 2008. On June 6, 2008, a motion to invoke cloture failed on a roll call vote of 48 to 36, and bill supporters withdrew the bill from consideration. CRS-7 Appendix A. Comparison of Key Provisions of Senate Greenhouse Gas Reduction Bills S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) Emission Absolute cap on total Absolute cap on total Absolute cap on total Absolute cap on total Emissions targets for all Absolute cap on total reduction/ emissions from all emissions economy- emissions from covered emissions economy- covered entities. emissions from all limitation covered entities in the wide. electric generators. wide. Affected entities covered entities. Affected scheme electric power, estimated to cover about entities estimated to cover transportation, industry, 85%-90% of all U.S. about 80%-87% of all and commercial sectors. GHG emissions. U.S. GHG emissions. Responsible Environmental EPA. EPA. EPA. To be determined by the EPA. agency Protection Agency President. (EPA). Greenhouse Carbon dioxide, Same six gases as S. Same six gases as S. Same six gases as S. Same six gases as S. Same six gases as S. 280. gases defined methane, nitrous oxide 280. 280. 280. 280. (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). Specific Beginning in 2012, Beginning in 2010, Beginning in 2011, Beginning in 2010, In 2012, the emissions In 2012, emissions from emissions emissions from covered emissions economy- emissions from affected emissions economy- target for covered covered entities are limits entities are capped at wide to be reduced 2% electric generators wide to be reduced by entities is set at 6.652 capped at 5.775 billion 6.13 billion metric tons, annually. capped at 2006 levels. appropriate measures to billion metric tons. metric tons. Cap is minus 2012 emissions cap emissions at 1990 Target is reduced reduced annually from non-covered Beginning in 2020, Beginning in 2015, levels by 2020. annually thereafter until thereafter until 2050. entities. emission cap on emissions from affected 2030. economy-wide basis set electric generators Beginning in 2021, Emission cap for covered Beginning in 2020, at 1990 level, with capped at their 2001 emissions economy- Emission target for sources in 2020 is 4.924 emission cap declines to declining emission caps levels, declining 1% wide to be reduced 2.5% covered sources in 2020 billion metric tons. 5.239 billion metric of 26.7% below 1990 annually from previous annually from previous is 6.188 billion metric tons, minus 2020 levels in 2030 and year's level from 2016 year's level. tons. Emission cap for covered emissions from non- 53.3% in 2040. to 2020. sources in 2030 is 3.860 covered entities. Beginning in 2031 Emission target for billion metric tons. Beginning in 2050, Beginning in 2020, through 2050, emissions covered sources in 2030 Beginning in 2030, emission cap set at 80% emission cap declines economy-wide to be is 4.819 billion metric Emission cap for covered emission cap declines to below 1990 levels. 1.5% annually from reduced 3.5% annually tons. sources in 2040 is 2.796 4.1 billion metric tons, previous year's level. from previous year's billion metric tons. minus 2030 emissions level. If the President CRS-8 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) from non-covered determines that Emission cap for covered entities. scientific, technological, sources in 2050 is 1.732 and international billion metric tons. Beginning in 2050, considerations suggest emission cap further further reductions are declines to 2.096 billion warranted, his metric tons, minus recommendations are to annual emissions from be considered by non-covered entities. Congress under expedited procedures. Covered In metric tons of carbon EPA promulgates rule Any fossil fuel-fired EPA promulgates rule Regulated fuel Assuming no capture of entities dioxide equivalents within two years of electric generating within two years of distributors include GHGs, any producer or (CO2e): any electric enactment that applies facility that has a enactment that applies petroleum refineries, importer of petroleum- or power, industrial, or the most cost-effective capacity of greater than the most cost-effective natural gas processing coal-based liquid or commercial entity that reduction options on 25 megawatts and reduction options on the plants, and imports of gaseous fuel that emits emits over 10,000 CO2e sources or sectors to generates electricity for largest emitting sources petroleum products, GHGs, or any facility that annually from any achieve reduction goals. sale, including or sectors to achieve coke, or natural gas. produces or imports more single facility owned by cogeneration and reduction goals. Regulated coal facilities than 10,000 CO2e of GHG the entity; any refiner or government-owned are entities that chemicals annually; any importer of petroleum facilities. consume more than facility that uses more products for 5,000 tons of coal a than 5,000 tons of coal transportation use that, year. Regulated nonfuel annually; any natural gas when combusted, will entities are importers of processing plant or emit over 10,000 metric HFCs, PFC, SF6, N2O, importer (including tons annually; and any or products containing LNG); or, any facility that importer or producer of such compounds, and emits more than 10,000 HFCs, PFCs, or SF6 that, adipic acid and nitric CO2e of HFCs annually as when used, will emit acid plants, aluminum a byproduct of over 10,000 CO2e. smelters, and facilities hydrochlorofluorocarbon that emit HFCs as a production. byproduct of HCFC production. General A tradeable allowance Tradeable allowance Tradeable allowance A tradeable allowance Two compliance A tradeable allowance allocating and system is established: system permitted. In system is established. system is established. systems are provided. system is established. Off implementing EPA shall determine implementing reduction Allocations to existing The President submits to Covered entities may the top, a share of strategy allocations based on program, EPA shall sources based on Congress an allocation choose which one to use allowances are auctioned several economic, select the most cost- historic electricity plan within one year of or employ a for deficit reduction equity, and sector- effective emission output, and includes enactment that includes combination of both. increasing from 6.1% in specific criteria, reduction strategies. allowance allocations a combination of 2012 to 15.99% in 2031 CRS-9 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) including economic EPA shall allocate to for incremental nuclear auctions and free First, a tradeable and thereafter. Then the efficiency, competitive various sectors and capacity and renewable allocation of allowance system is "remainder allowances" effects, and impact on interests any allowances energy, along with allowances. To the established. In 2012, are distributed in 2012 consumers. Allowances that are not allocated to sequestration and early maximum extent 53% of allowances (adjusted in future years) are to be allocated affected entities, action provisions. practicable, the allocated to covered and as follows: 38% of upstream to refiners and including households, allocation and revenues eligible industrial allowances to covered importers of dislocated workers, From 2011 on, an received should entities; 23% allocated electric utilities, industrial transportation fuel, energy efficiency and increasing percentage of maximize public to States and for facilities, and coops, along with producers of renewable energy all allowances are to be benefits, promote sequestration and early declining steadily to 0 in HFCs, PFCs, and SF6, activities, sequestration auctioned, with 100% of economic growth, assist reduction activities; 2031; 10.5% to states for and downstream to activities, and ecosystem allowances auctioned in households and 24% are auctioned to conservation, extra electric generation, protection activities. 2036 and thereafter. dislocated workers, fund low income reductions, and other industrial, and encourage energy assistance, carbon activities; 7.5% for commercial entities. efficiency, renewable capture and storage, and various sequestration energy, and adaptation activities. activities; 11% allocated Allocations to covered sequestration activities, The percentage for electricity and natural entities are provided at and assist states in auctioned increases gas consumer assistance; no cost. addressing the impact of steadily, reaching 53% 5% for early reductions; climate change. by 2030. 0.5% for tribal Congress has one year governments; 1% for to enact an alternative to Second, a Technology methane reduction the plan; otherwise, Accelerator Payment projects and 21.5% (plus EPA shall implement it. (i.e., safety valve) may an early auction of 5%) be paid in lieu of auctioned to fund submitting one or more technology deployment, allowances. carbon capture and storage, low income and rural assistance, and adaptation activities, as well as program management. The percentage auctioned for CCCC activities increases steadily, reaching 69.5% by 2031 and thereafter. Public EPA shall determine the EPA may choose to From 2011 on, an The President shall Beginning in 2012, 24% Beginning in 2012, 6.1% sale/auction of number of allowances provide for trustees to increasing percentage of determine the number of of available allowances of total allowances are allowances allocated to the Climate sell allowances for the all allowances are to be allowances to be are auctioned to fund auctioned for deficit Change Credit benefit of entities auctioned, with 100% of auctioned. The low income assistance, reduction. Further, 21.5% CRS-10 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) Corporation (CCCC) eligible to receive allowances auctioned in proceeds of the auction technology, and of "remainder (established by the bill). assistance under the 2036 and thereafter. to be deposited with the adaptation activities. allowances" (plus 5% proposal (see above). Climate Reinvestment The percentage from an early auction of EPA shall allocate to the Revenues from the Fund created by the auctioned increases 2012 remainder CCCC allowances auction are to be Department of the steadily, reaching 53% allowances) are auctioned before 2012 to auction deposited in the Climate Treasury. (See by 2030; after that it to fund the activities of to raise revenue for Action Trust Fund "Revenue recycling" increases 1 percentage the CCCC. This technology deployment created by the below.) point annually through percentage increases and dissemination. Department of the 2043. steadily to 69.5% by 2031 Treasury. and thereafter. The CCCC may buy and Revenues from the sell allowances, and use auction are to be Revenues from the the proceeds to reduce deposited in one of auction are to be costs borne by three funds created by deposited in one of ten consumers and other the Department of the funds created in the purposes. (See Treasury: the Energy Department of the "Revenue recycling" Technology Treasury: Deficit below.) Deployment Fund, the Reduction Fund, Climate Adaptation Technology Deployment, Fund, and the Energy Energy Independence Assistance Fund. Acceleration Fund, Energy Assistance Fund, Climate Change Worker Training Fund, Adaptation Fund, and the Climate Change and National Security Fund, as well as a fund for program management and two Emergency Firefighting Funds. Cost-limiting No explicit provision. No explicit provision. No explicit provision. No explicit provision. A Technology A Carbon Market safety valve Accelerator Payment Efficiency Board is However, if the However, limited (TAP) (i.e., safety established to observe the President determines a borrowing against future valve) may be paid in allowance market and national security reductions is permitted lieu of submitting one implement cost-relief emergency exists, the if EPA determines or more allowances. For measures if necessary. President may allowance prices have 2012, the TAP price is Measures include temporarily adjust, reached and sustained a set at $12 per metric permitting increased CRS-11 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) suspend, or waive any level that is or will cause ton, rising 5% above allowance borrowing regulation promulgated significant harm to the inflation annually from future allocations; under this program U.S. economy. Also, thereafter. increased offsets and (subject to judicial EPA may increase to foreign allowance use; review). 50% the share of If the President expanded payback period international credits that determines the TAP for such allowances; can be used in such should be increased or lower interest charged for cases. eliminated to achieve borrowed allowances; and the act's purposes, his expanded total borrowed recommendations are to allowances. Increased be considered by borrowing limited to 5% Congress under of emission cap and expedited procedures. repayment schedule can not be longer than 15 years. If the President determines a national security emergency exists, the President may temporarily adjust, suspend, or waive any regulation promulgated under this program (subject to judicial review). Penalty for Excess emission Existing enforcement $100 per excess ton Excess emission Excess emissions Excess emission penalties non- penalties are equal to provisions of Section indexed to inflation plus penalties are equal to penalties are equal to per ton are equal to the compliance three times the market 113 of the Clean Air Act a 1.3 to 1 offset from twice the market price three times the TAP higher of $200 or three price for allowances on are extended to future allowances. If for allowances as of price for that calendar times the mean market the last day of the year program. the market price for an December 31 of the year year. In addition, civil price for allowances at issue. allowance exceeds $60, at issue, plus a 1 to 1 penalties are $25,000 a during the year the the penalty is $200 per offset from next year's day for violating allowance was due, plus a excess ton, adjusted for allowance allocation. provisions of the act. 1-to-1 offset from a future inflation. year allocation. Offset Up to 30% of required Market trading systems Up to 25% (50% for Market trading systems If the President Up to 15% of allowance treatment and reductions may be incorporated into new affected units) of incorporated into determines that requirement may be other achieved through credits Renewable Portfolio required reductions may Renewable Portfolio emission credits issued achieved through credits flexibility obtained through pre- Standard, new energy be achieved with credits Standard and new under foreign programs obtained through CRS-12 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) mechanisms certified international efficiency performance obtained through EPA- energy efficiency or foreign offset agricultural sequestration, emissions trading standard, and new low- approved foreign performance standard. projects are comparable land use change, forestry, programs, approved carbon generation government programs to U.S. ones, he may manure management, and reduction projects in requirement. developed under United No limit on use of promulgate rules other specified activities. developing countries, Nations Framework domestic biological allowing such credits or Percentage may be domestic carbon No limit on use of Convention on Climate sequestration to meet offsets to be used to increased by the Carbon sequestration, and domestic biological Change (UNFCCC) reductions requirements. meet the act's emission Market Efficiency Board reductions from non- sequestration to meet protocols. targets. covered entities. reductions requirements. Up to 15% of allowance EPA may increase to No more than 10% of an requirement may be 50% the share of entity's emissions targetachieved through international credits, if can be met through allowances obtained EPA determines foreign offset project through certified foreign allowance prices have credits. allowance markets. reached and sustained a Percentage may be level that is causing or Establishes program to increased by the Carbon will cause significant provide credits obtained Market Efficiency Board. harm to the U.S. through verified economy. reductions from non- covered activities. No limit on their use to meet reduction targets. Banking Banking of allowances No specific prohibition Banking of allowances Banking of allowances Banking of allowances Banking of allowances is is permitted; allowances on banking. is permitted; allowances is permitted; allowances is permitted; allowances permitted; allowances may be saved for use in may be saved for use in may be saved for use in may be saved for use in may be saved for use in future years. future years. future years. future years. future years. Borrowing Borrowing against No specific provision. Limited borrowing No specific provision. No specific provision. The Carbon Market future reductions is against future reductions Efficiency Board may permitted. is permitted if EPA permit borrowing against determines allowance future reductions in prices have reached and certain cases. sustained a level that is causing or will cause significant harm to the U.S. economy. Early Entities with registered Reductions previously Entities with reductions Recognizing and One percent of Five percent of reduction emission reductions achieved under state achieved from 2000 rewarding early allowances available "remainder allowances" credits and achieved before 2012 programs that are at through 2010 shall reductions is a stated from 2012 through 2020 established for 2012 bonus credits may receive allowances least as stringent as a receive credits under goal of the program. are allocated to early (declining steadily to 0 in CRS-13 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) for them, including federal trading program specific criteria, reductions reported 2017) are allocated to reductions achieved may be recognized by including EPA rules that under the 1992 Energy early reductions reported under more stringent the federal program. ensure reductions are Policy Act's 1605(b) under the 1992 Energy mandatory state real, additional, program, EPA's Policy Act's 1605(b) programs. Entities that demonstrate verifiable, enforceable, Climate Leaders program, EPA's Climate reductions achieved and permanent, and that Program, or a State- Leaders Program, a State- For the time period early (but not before they were reported administered or administered or voluntary 2012-2017, entities that 1992) that are as under either 1605(b) of privately administered program. have entered into an verifiable as reductions the 1992 Energy Policy registry. agreement with EPA to under a federal trading Act, or according to a Four percent of remainder reduce emissions to program may be state or regional Geologic sequestration allowances established for 1990 levels by 2012 are recognized by the registry. Quantity of projects built from 2008 2012 through 2035 entitled to additional federal program. credits given is limited through 2030 receive available on a steadily allowances to cover to 10% of the 2011 bonus allowances for declining basis from 2012 their additional allowance allocation. the first 10 years of through 2039 for geologic reductions and are operation. sequestration projects for allowed to achieve 40% electric generating plants of their reduction built from 2008 through requirement (as opposed 2035. The bonus to 30%; see above) allowances are limited to through international the first 10 years of emissions trading and operation. projects, sequestration, or reductions by non- covered entities. Revenue Revenues generated by Allowances may be Revenues generated Revenues generated by A new Energy Off the top, a growing recycling allowance auctions and allocated by EPA to from the auction are to allowance auctions and Technology share of allowances are trading proceeds are households, dislocated be deposited in the penalties are received by Deployment Fund is auctioned for deficit received by a new workers, energy Climate Action Trust a new Climate funded by TAPs reduction. Climate Change Credit efficiency and Fund created by Reinvestment Fund received and some Corporation (CCCC). renewable energy Department of the created by Department auction proceeds. Revenues received by Activities to be funded activities, sequestration Treasury. Activities to of the Treasury. Activities to be funded "remainder allowance" include mechanisms to activities, and ecosystem be funded include an Activities to be funded include zero- or low- auctions are to be received reduce consumer costs protection activities. Innovative Low- and include mechanisms to carbon energy, by the Climate Change and to assist dislocated Zero-emitting Carbon reward early reductions, advanced coal and Credit Corporation workers, low-income Technologies Program, maximize public sequestration, cellulosic (CCCC). Activities to be persons, and affected a Clean Coal benefits, promote biomass, and advanced funded include communities, along with Technologies Program, economic growth, assist technology vehicles. technology deployment programs to encourage and an Energy households and activities (including zero- CRS-14 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) deployment of new Efficiency Technology dislocated workers, A new Climate or low-carbon energy, technology and wildlife Program, along with encourage energy Adaptation Fund is advanced coal and restoration. Allocations research and efficiency, renewable funded by some auction sequestration, cellulosic to the CCCC are to be development. energy, and proceeds. Activities to biomass, and advanced determined by EPA sequestration activities, be funded include technology vehicles); based on the funding Adaptation and and assist states in coastal, arctic, and fish assistance activities needs of the advanced mitigation activities to addressing the impact of and wildlife impact (including low income, technologies be funded include climate change. mitigation. weatherization, and rural demonstration and affected workers and assistance); worker deployment programs. communities, and fish A new Energy transition assistance; and Further, at least 50% of and wildlife habitat. Assistance Fund is adaptation activities revenue received must funded by some auction (including wildlife be used for technology proceeds. Activities to conservation and deployment. be funded include low- restoration, aquatic income and rural energy ecosystems, and coastal assistance, and habitats). weatherization. Revenues would also fund a Climate Change and Natural Security Council to report annually on the ramifications of climate change for national security. Such sums as are necessary to maintain a fund of $1.1 billion is directed toward wildland fire suppression activities by the Bureau of Land Management and the Forest Service. Other key Provisions include Provisions include Establishes program to Provisions include Provisions include Provisions require new provisions studies of research on mandatory greenhouse encourage offsets from mandatory greenhouse periodic review of the appliance standards in abrupt climate change gas emission standards the agricultural sector. gas emission standards activities of the nation's 2012 and provide for new and impact of climate for vehicles by 2010, for Offset credits available for vehicles by 2010, 5 largest trading model building efficiency change on the world's new electric for agricultural, forestry, and a new energy partners, an NAS standards by 2010. poor, among others, and powerplants that begin grazing, and wetlands efficiency standard assessment of the status CRS-15 S. 309 S. 3036 (Boxer) / S. 2191 Topic S. 280 (Lieberman) S. 317 (Feinstein) S. 485 (Kerry) S. 1766 (Bingaman) (Sanders) as amended (Lieberman) creation of a national operation after management, beginning in 2009. of the science and Beginning in 2018, greenhouse gas December 31, 2011, and sequestration projects, Establishes a Renewable control technologies, requires annual review of database. a new energy efficiency or practices that meet Portfolio Standard and and energy security foreign countries' GHG performance standard. specific criteria in the credit program. implications. control actions. A new Innovation proposal. Infrastructure is created, Establishes a Renewable Increases biofuel Beginning in 2019, Beginning in 2019, along with program Portfolio Standard and Offset credits also mandates under the requires foreign requires foreign countries initiatives to promote credit program. available for approved Renewable Fuels countries that do not that do not take less carbon- intensive emission reduction Standard, and mandates take comparable comparable emission technology, adaptation, Establishes a new low- offset projects from a infrastructure for emission reduction reduction actions to sequestration, and carbon generation variety of activities biofuels. actions to submit submit international related activities. requirement and trading listed in the proposal. international reserve reserve allowances (or program. Expands and extends allowances (or foreign foreign equivalents) to Requires periodic Requires periodic existing tax incentives equivalents) to accompany exports of any review of target Requires periodic review of target for alternative fuel and accompany exports of covered greenhouse gas adequacy by the Under review of target adequacy by EPA, advanced technology any covered greenhouse intensive goods and Secretary of Commerce adequacy by the taking into account the vehicles, and establishes gas intensive goods and primary products to the for Oceans and National Academy of recommendations of a manufacturer tax credit primary products to the United States. Least Atmosphere. Sciences (NAS). newly established for advanced technology United States. Least developed nations or Climate Science vehicle investment. developed nations or those that contribute no Advisory Panel. those that contribute no more than 0.5% of global Establishes new more than 0.5% of emissions are excluded. National Climate global emissions are Change Vulnerability excluded. Proceeds Requires periodic review and Resilience Program. from the sale of such of the bill's reserve allowances are implementation and Requires periodic to be deposited in an purposes by the NAS. review of target International Energy adequacy by the NAS. Deployment Fund to Establishes a separate cap- encourage and finance and-trade program to limit international technology U.S. consumption of development. hydrofluorocarbons. Establishes a low carbon fuel standard (LCFS) requiring transportation fuels to have, on average, 10% lower lifecycle emissions per unit energy by 2020. CRS-16 Appendix B. Comparison of Key Provisions of House Greenhouse Gas Reduction Bills H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) Emission Absolute cap on total Absolute cap on total Absolute cap on total Absolute cap on total emissions Absolute cap on total reduction/ emissions from all covered emissions economy-wide. emissions from all covered from all covered entities in the emissions from all covered limitation scheme entities in the electric entities in the electric power, electric power, transportation, entities in the electric power, power, transportation, transportation, industry, and industry, and commercial sectors. transportation, industry, and industry, and commercial commercial sectors. commercial sectors. sectors. Also includes emission performance standards that would apply to specific non-capped sectors. Responsible EPA EPA EPA EPA Treasury Department agency Greenhouse gases Same six gases as S. 280. Same six gases as S. 280. Same six gases as S. 280. Same six gases as S. 280, plus Same six gases as S. 280. defined (Carbon dioxide, methane, nitrogen trifluoride (NF3). nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).) Specific emissions Beginning in 2012, Beginning in 2010, Beginning in 2012, Beginning in 2012, emissions Beginning in 2012, limits emissions from covered emissions economy-wide emissions from covered from covered entities are capped emissions from covered entities are capped at 6.15 to be reduced by roughly entities are capped at 2006 at 6.098 billion metric tons; Cap is entities are capped at 6.351 billion metric tons, minus 2% annually to cap levels, minus 2012 emissions reduced annually thereafter until billion metric tons; Cap is 2012 emissions from non- emissions at 1990 levels from non-covered entities. 2050. reduced annually thereafter covered entities. by 2020. until 2050. Beginning in 2020, emission Emission cap for covered sources Beginning in 2020, Beginning in 2021, cap declines to 85% of 2006 in 2020 is 4.983 billion metric Emission cap for covered emission cap declines to through 2050, emissions levels, minus 2020 emissions tons. sources in 2020 is 6.087 5.232 billion metric tons, economy-wide to be from non-covered entities. billion metric tons. minus 2020 emissions from reduced roughly 5% Emission cap for covered sources non-covered entities. annually from previous Beginning in 2030, emission in 2030 is 3.633 billion metric Emission cap for covered year's level. cap declines to 63% of 2006 tons. sources in 2030 is 3.508 Beginning in 2030, levels, minus 2030 emissions billion metric tons. emission cap declines to Beginning in 2050, from non-covered entities. Emission cap for covered sources 3.858 billion metric tons, emission cap set at 80% in 2040 is 2.283 billion metric Emission cap for covered minus 2030 emissions from below 1990 levels. Beginning in 2050, emission tons. sources in 2040 is 1.928 non-covered entities. cap further declines to 25% billion metric tons. CRS-17 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) Beginning in 2050, of 2006 levels, minus annual Emission cap for covered sources Emission cap for covered emission cap further emissions from non-covered in 2050 is 0.930 billion metric sources in 2050 is 0.348 declines to 1.504 billion entities. tons. billion metric tons. metric tons, minus annual emissions from non-covered entities. Covered entities In metric tons of carbon EPA promulgates rule In metric tons of carbon Any electric power or industrial Assuming no capture of dioxide equivalent: any within two years of dioxide equivalent: any facility that emits over 10,000 GHGs, any producer or electric power, industrial, or enactment that applies the electric power, industrial, or mtCO2e; any producer or importer of petroleum- or commercial entity that emits most cost-effective commercial entity that emits importer of petroleum or coal- coal-based liquid or gaseous over 10,000 metric tons reduction options on the over 10,000 mtCO2e based liquid products that, when fuel that emits GHGs, or any carbon dioxide equivalent largest emitting sources or annually from any single combusted, will emit over 10,000 facility that produces or (mtCO2e) annually from sectors to achieve facility owned by the entity; mtCO2e annually; local imports more than 10,000 any single facility owned by reduction goals. any refiner or importer of distribution company that delivers CO2e of GHG chemicals the entity; any refiner or petroleum products for natural gas that, when combusted, annually; any facility that importer of petroleum transportation use that, when will emit over 10,000 mtCO2e uses more than 5,000 tons of products for transportation combusted, will emit over annually; producer or importer of coal annually; any natural use that, when combusted, 10,000 mtCO2e annually; HFCs, PFCs, SF6, or NF3 [that gas processing plant or will emit over 10,000 and any importer or producer when used, will emit] over 10,000 importer (including LNG); mtCO2e annually; and any of HFCs, PFCs, or SF6 that, mtCO2e; a site at which CO2 is or, any facility that emits importer or producer of when used, will emit over geologically sequestered on a more than 10,000 CO2e of HFCs, PFCs, or SF6 that, 10,000 mtCO2e. commercial scale. HFCs annually as a when used, will emit over byproduct of 10,000 mtCO2e. hydrochlorofluorocarbon production. General A tradeable allowance A tradeable allowance A tradeable allowance A tradeable allowance system is A tradeable allowance allocating and system is established: EPA system is established. The system is established: EPA established; although the vast system is established. implementing shall determine allocations President submits to shall determine allocations majority of the allowances would Beginning in 2012, 5% of strategy based on several economic, Congress an allocation based on several economic, be auctioned, between 2012 and the allowances are allocated equity, and sector-specific plan within one year of equity, and sector-specific 2019, 6% of allowances would be to electric generators, criteria, including economic enactment that includes a criteria, including economic distributed to manufacturers of declining to 0% in 2020; efficiency, competitive combination of auctions efficiency, competitive "trade-exposed primary goods," 10% are allocated to energy effects, and impact on and free allocation of effects, and impact on including (per bill text) aluminum, intensive industries, consumers. Allowances are allowances. To the consumers. Allowances are cement, iron/steel, glass, and declining to 0% in 2020. to be allocated upstream to maximum extent to be allocated upstream to paper; EPA would develop refiners and importers of practicable, the allocation refiners and importers of distribution system. Remaining allowances are transportation fuel, along and revenues received transportation fuel, along auctioned by the Treasury with producers of HFCs, should maximize public with producers of HFCs, Auction revenues distributed (in Department with 15% of PFCs, and SF6, and benefits, promote PFCs, and SF6, and FY2010-FY2019) as follows: revenues transferred to the CRS-18 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) downstream to electric economic growth, assist downstream to electric 58.5% to middle- and low-income Deficit Reduction Trust generation, industrial, and households and dislocated generation, industrial, and households as tax credits and/or Fund and 85% transferred to commercial entities. workers, encourage commercial entities. rebates; 12.5% for development the Citizen Protection Trust energy efficiency, and promotion of low-carbon Fund. Allocations to covered renewable energy, and Allocations to covered technology; 12.5% for energy entities are provided at no sequestration activities, entities are provided at no efficiency programs; 4.5% for cost. and assist states in cost. biological sequestration; 1.5% for addressing the impact of worker transition assistance; 2% climate change. Congress for domestic adaptation efforts; has one year to enact an 1.5% for protection of natural alternative to the plan; resources; 1.5% for international otherwise, EPA shall forest protection; 3.5% for implement it. international clean technology; 2% for international adaptation efforts. Public EPA shall determine the The President shall EPA shall determine the Between 2012 and 2019, 94% of Beginning in 2012, 85% of sale/auction of number of allowances determine the number of number of allowances allowances auctioned; 100% allowances are auctioned. allowances allocated to the Climate allowances to be allocated to the Climate auctioned thereafter. This increases steadily to Change Credit Corporation auctioned. The proceeds Change Credit Corporation 100% in 2020 and (CCCC) (established by the of the auction are to be (CCCC) (established by the thereafter. bill). deposited with the Climate bill). Reinvestment Fund created The CCCC may buy and by the Department of the The CCCC may buy and sell sell allowances, and use the Treasury. (See "Revenue allowances, and use the proceeds to reduce costs recycling" below.) proceeds to reduce costs borne by consumers and borne by consumers and other purposes. (See other purposes. (See "Revenue recycling" "Revenue recycling" below.) below.) Cost-limiting No explicit provision. No explicit provision. A Carbon Market Efficiency No explicit provision. A Carbon Market Efficiency safety valve Board is established to Board is established to observe the allowance observe the allowance market and implement cost- market and implement cost- relief measures if necessary. relief measures if necessary. Measures include permitting Measures include increasing increased allowance available allowances by up borrowing from future to 5% in a given year, by allocations; expanded making a compensating payback period for such reduction in allowance CRS-19 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) allowances; lower interest availability in future years, charged for borrowed and by permitting increased allowances; and expanded use of offsets and foreign total borrowed allowances. allowances in a given year Increased borrowing limited by covered entities. to 5% of emission cap and repayment schedule cannot If the President determines a be longer than 15 years. national security emergency exists, the President may temporarily adjust, suspend, or waive any regulation promulgated under this program (subject to judicial review). Penalty for Excess emission penalties Excess emission penalties Excess emission penalties are Excess emission penalties per ton Excess emission penalties non-compliance are equal to three times the are equal to twice the equal to three times the are equal the greater of $200 or per ton are equal the greater market price for allowances market price for market price for allowances three times the mean market price of $200 or three times the on the last day of the year at allowances as of December on the last day of the year at for allowances during the year the mean market price for issue. 31 of the year at issue, plus issue. allowance was due; allowances during the year a 1-to-1 offset from next the allowance was due; year's allowance In addition, the covered facility is allocation. required to offset excess In addition, the covered emissions at a 1-to-1 ratio in the facility is required to offset following year (or longer period excess emissions at a 1-to-1 prescribed by EPA). ratio in the following year (or longer period prescribed by EPA). Offset treatment Up to 15% of required Market trading systems are Up to 15% of required Covered entities permitted to use Use of domestic offsets is and other reductions may be achieved incorporated into new reductions may be achieved domestic offsets to meet up to limited to no more than 10% flexibility through credits obtained energy efficiency through credits obtained 15% of their allowance of a covered entity's mechanisms through pre-certified performance standard. through pre-certified submissions; allowance submission; international emissions international emissions certain agricultural projects trading programs, approved No explicit provision on trading programs, approved Covered entities may use either are subject to review by the reduction projects in use of domestic or reduction projects in international emission allowances, National Academy of developing countries, international offsets to developing countries, international offsets, or some Sciences and ultimately domestic carbon meet reduction domestic carbon combination thereof to satisfy limited to 5% of allowance sequestration, and requirements. However, sequestration, and reductions another 15% of their allowance submission; reductions from non- one goal of program is to from non-covered entities. submission; covered entities. encourage sequestration of Use of foreign allowances is CRS-20 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) carbon in the forest and limited to 15% of a covered agricultural sectors. entity's allowance submission; Use of international forest allowances is limited to 15% of a covered entity's allowance submission; Overall limitation: covered entities permitted to use a combination of domestic offsets and foreign allowances to meet up to 25% of their allowance submissions. Banking Banking of allowances is Banking of allowances is Banking of allowances is Banking of allowances is Banking of allowances is permitted; allowances may permitted; allowances may permitted; allowances may permitted; allowances may be permitted; allowances may be saved for use in future be saved for use in future be saved for use in future saved for use in future years. be saved for use in future years. years. years. years. Borrowing Borrowing against future No specific provision. Borrowing against future Borrowing against future The Carbon Market reductions is permitted. reductions is permitted. reductions is permitted, but Efficiency Board may limited. permit borrowing against future reductions in certain cases. Early reduction Entities with registered Recognizing and Entities with registered Under certain conditions, EPA One percent of revenues credits and bonus emission reductions rewarding early reductions emission reductions achieved may issue credits for offset allocated to the Citizen credits achieved before 2012 may is a stated goal of the before 2012 may receive projects that are developed before Protection Trust Fund is to receive allowances for program. allowances for them. the 2012. be distributed to facilities them. making reductions from For the time period 2012- 1994 to enactment. For the time period 2012- 2017, entities that have Eligibility to be determined 2017, entities that have entered into an agreement by EPA regulations. entered into an agreement with EPA to reduce with EPA to reduce emissions to 1990 levels by emissions to 1990 levels by 2012 are entitled to 2012 are entitled to additional allowances to additional allowances to cover their additional cover their additional reductions and are allowed to CRS-21 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) reductions and are allowed achieve 35% of their to achieve 35% of their reduction requirement (as reduction requirement (as opposed to 15%; see above) opposed to 15%; see above) through international through international emissions trading and emissions trading and projects, sequestration, or projects, sequestration, or reductions by non-covered reductions by non-covered entities. entities. Revenue recycling Revenues generated by Revenues generated by Revenues generated by Auction revenues distributed (in Revenues generated by allowance auctions and allowance auctions and allowance auctions and FY2010-FY2019) as follows: allowance auctions and trading proceeds are penalties are received by a trading proceeds are received penalties are deposited by received by a new Climate new Climate Reinvestment by a new Climate Change 58.5% to middle- and low-income the Treasury Department Change Credit Corporation Fund created by the Credit Corporation (CCCC). households as tax credits and/or into two funds: 15% to the (CCCC). Activities to be Department of the Activities to be funded rebates; 12.5% for development Deficit Reduction Trust funded include mechanisms Treasury. Activities to be include mechanisms to and promotion of low-carbon Fund and 85% to the Citizen to reduce consumer costs funded include reduce consumer costs and to technology; 12.5% for energy Protection Trust Fund. and to assist dislocated mechanisms to reward assist dislocated workers and efficiency programs; 4.5% for Distribution to the Citizen workers and affected early reductions, maximize affected communities, along biological sequestration; 1.5% for Protection Trust Fund are as communities, along with public benefits, promote with programs to encourage worker transition assistance; 2% follows: programs to encourage economic growth, assist deployment of new for domestic adaptation efforts; deployment of new households and dislocated technology and wildlife 1.5% for protection of natural 54% for consumer technology and wildlife workers, encourage energy restoration. Bill specifies that resources; 1.5% for international assistance (66% of which restoration. efficiency, renewable 25% of allowances allocated forest protection; 3.5% for goes towards providing energy, and sequestration to the CCCC be used to international clean technology; health insurance coverage, activities, and assist states restore large-scale freshwater 2% for international adaptation the remainder for rebates in addressing the impact of aquatic and estuarine efforts. and tax relief), 7% for climate change. ecosystems. natural resource adaptation, 1% for early action; 2.7% for states and tribes; 11.4% for international activities, 4% for worker assistance, 3% for forestry and agricultural activities, 0.4% for education, 7.5% for energy efficiency, 2% for transportation alternatives, and 7% for green energy research. CRS-22 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) Other key Provisions include studies Provisions include The President may establish Establishes a program to require Establishes a program to provisions of the impact of climate mandatory greenhouse gas a program to require importers to purchase require importers to change on coastal emission standards for importers to pay the value of "international reserve allowances" purchase "international ecosystems and vehicles by 2010, and a GHGs emitted during the to account for GHG emissions reserve allowances" to communities, and the new energy efficiency production of goods or from the production of "trade- account for GHG emissions world's poor, among others; standard beginning in services imported into the exposed goods" (e.g., iron/steel, from the production of assessment of adaptation 2010. Establishes a United States from countries cement, aluminum) from countries "primary goods" (e.g., technologies; and creation Renewable Portfolio that have no comparable that have no comparable emission iron/steel, cement, of a national greenhouse gas Standard. emission restrictions to those restrictions to those of the United aluminum) from countries database. of the United States. The States; least developed nations or that have no comparable Requires periodic review program's requirement may those that contribute less than emission restrictions to Requires periodic review of of target adequacy by the not be imposed on countries 0.5% of global emissions are those of the United States; target adequacy by the NAS. until negotiations to achieve excluded; least developed nations or Under Secretary of agreement on such those that contribute less Commerce for Oceans and restrictions have been Requires NAS to conduct a than 0.5% of global Atmosphere. attempted. periodic review of climate change emissions are excluded; science and the performance of Provisions include studies of the act; directs GAO to Requires EPA to promulgate the impact of climate change periodically review the regulations within two years on coastal ecosystems and effectiveness of auction revenue of enactment requiring that communities, and the distribution, both for domestic and emissions in uncovered world's poor, among others; international objectives; sectors do not grow (no assessment of adaptation baseline specified). technologies; creation of a Directs EPA to develop emission national greenhouse gas performance standards for non- database; and an outreach covered entities that exceed initiative to inform 10,000 mtCO2e per year; such agriculture of the bill's sources may include coal mines, revenue opportunities. landfills, wastewater treatment operations, and animal feeding Requires periodic review of operations; agricultural soil target adequacy by the Under management and forest Secretary of Commerce for management would be specifically Oceans and Atmosphere. excluded; Creates a performance standard for coal-fired power plants that commence construction on or after January 1, 2009. For plants that commence operation before 2020, they must capture and CRS-23 H.R. 620 H.R. 4226 Topic H.R. 1590 (Waxman) H.R. 6186 (Markey) H.R. 6316 (Doggett) (Olver) (Gilchrest) geologically sequester not less than 85% of their CO2 emissions by 2016 or four years after operations begin, whichever is later; all other plants must meet the standard when operations begin, although plants that start up before January 1, 2025, may seek an extension of up to 18 months; Overrides EPA denial of California waiver needed to implement GHG standards for vehicles; Establishes a low carbon fuel standard (LCFS): by 2011, the LCFS freezes the per-unit-energy lifecycle GHG emissions from transportation fuels at a baseline (based on 2005 data); by 2023, the LCFS requires a 5% reduction in lifecycle emissions below the fuel emission baseline; this requirement is separate from any requirements under the cap-and-trade program. CRS-24 Appendix C. Common Terms Allocation schemes (upstream and downstream). Regulatory approaches to allocating allowances (as opposed to auction schemes) can choose different points and participants along the production process to assign allowances and the resulting compliance responsibility. Upstream allocation schemes establish emission caps and assign allowances at a production, importation, or distribution point of products that will eventually produce greenhouse emissions further down the production process. For example, in the natural gas sector, emission caps could be established and allowances assigned at processing facilities where facilities and participants shrink from about 400,000 wells and 8,000 companies to 500 facilities and 200 companies. In contrast, downstream allocation schemes establish emission caps and assign allowances at the point in the process where the emissions are emitted. In the case of the natural gas industry, to achieve the same coverage as the upstream scheme, this would involve assigning allowances to natural gas-fired electric generators, industry, and even residential users. Thus, some downstream proposals choose either to exempt certain sectors (such as residential use) from a cap-and-trade program or to employ a hybrid allocation scheme where some of the allowances are allocated upstream and others downstream (such as the electric generators). Allowance. An allowance is generally defined as a limited authorization by the government to emit 1 ton of pollutant. In the case of greenhouse gases, an allowance generally refers to a metric ton of carbon dioxide equivalent. Although used generically, an allowance is technically different from a credit. A credit represents a ton of pollutant that an entity has reduced in excess of its legal requirement. However, the terms tend to be used interchangeably, along with others, such as permits. Auctions. Auctions can be used in market-based pollution control schemes in several different ways. For example, Title IV of the 1990 Clean Air Act Amendments uses an annual auction to ensure the liquidity of the credit trading program. For this purpose, a small percentage of the credits permitted under the program are auctioned annually, with the proceeds returned to the entities that would have otherwise received them. Private parties are also allowed to participate. A second possibility is to use an auction to raise revenues for a related (or unrelated) program. For example, the Regional Greenhouse Gas Initiative (RGGI) is exploring an auction to implement its public benefit program to assist consumers or pursue strategic energy purposes. A third possibility is to use auctions as a means of allocating some, or all, of the allowances established under a GHG control program. Obviously, the impact that an auction would have on cost would depend on how extensively it was used in any GHG control program, and to what purpose the revenues were expended. Banking. Although allowances are generally allocated on an annual basis, most cap-and-trade programs do not require participants to either use the allowance that year or else lose it. Under many proposals, allowances can be banked by the receiving participant (or traded to another participant who can use or bank it) to be used or traded in a future year. Banking reduces the absolute cost of compliance by making annual emission caps flexible over time. The limited ability to shift the CRS-25 reduction requirement across time allows affected entities to better accommodate corporate planning for capital turnover, allow for technological progress, control equipment construction schedules, and respond to transient events such as weather and economic shocks. Bubble. A bubble is a regulatory device that permits two or more sources of pollutants to be treated as one for the purposes of emission compliance. Cap-and-trade program. A cap-and-trade program is based on two premises. First, a set amount of pollutant emitted by human activities can be assimilated by the ecological system without undue harm. Thus, the goal of the cap-and-trade program is to impose a ceiling (i.e., an emissions cap) on the total emissions of that pollutant at a level below the assimilative capacity. Second, a market in pollution licenses (i.e., allowances) between polluters is the most cost-effective means of reducing emissions to the level of the cap. This market in allowances is designed so that owners of allowances can trade those allowances with other emitters who need them or retain (bank) them for future use or sale. In the case of the sulfur dioxide program contained in the 1990 Clean Air Act Amendments, most allowances were allocated free by the federal government to utilities according to statutory formulas related to a given facility's historic fuel use and emissions; other allowances have been reserved by the government for periodic auctions to ensure market liquidity. Carbon tax. A carbon tax is generally conceived as a levy on natural gas, petroleum, and coal according to their carbon content, in the approximate ratio of 0.6 to 0.8 to 1, respectively. However, proposals have been made to impose the tax downstream of the production process when the carbon dioxide is actually released to the atmosphere. In contrast to a cap-and-trade program, in which the quantity of emissions is limited and the price is determined by an allowance marketplace, with a carbon tax, the price is limited and the quantity of emissions is determined by the participants based on the cost of control versus the cost of the tax. Coverage. Coverage is the breadth of economic sectors covered by a particular greenhouse gas reduction program, as well as the breadth of covered entities within a covered sector. Emissions cap. A mandated limit on how much pollutant (or greenhouse gases) an affected entity can release to the atmosphere. Caps can be either an absolute cap, where the amount is specified in terms of tons of emissions on an annual basis, or a rate-based cap, where the amount of emissions produced per unit of output (such as electricity) is specified but not the absolute amount released. Caps may be imposed on an entity, sector, or economy-wide basis. Generation performance standard (GPS). Also called an output-based allocation, allowances are allocated gratis to entities in proportion to their relative share of total electricity generation in a recent year. Grandfathering. Grandfathering generally refers an allocation scheme in which allowances are distributed to affected entities on the basis of historic emissions. These allowances are generally distributed free-of-charge by the government to the affected entities. Grandfathering can also refer to entities that CRS-26 because of age or because they have met an earlier standard, or other factors, are exempted from a new regulatory requirement. Greenhouse gases. The six gases recognized under the United Nations Framework Convention on Climate Change are carbon dioxide (CO2), methane (CH4) nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFC), and perfluorocarbons (PFC). Hybrid Program. Generally a greenhouse gas reduction program that allows emitters to choose between complying with the reduction requirement of a cap-and- trade program or paying a set price (safety valve price) to the government in lieu of making reductions. Leakage. Decreases in greenhouse gas-related reductions or benefits outside the boundaries set for defining a project's or program's net greenhouse gas impact resulting from mitigation activities. For example, emissions could be reduced in an area with greenhouse gas controls by moving an emitting industry to an area without such controls. "No regrets" policy. A "no regrets" policy is one of establishing programs for other purposes that would have concomitant greenhouse gas reductions. Therefore, only those policies that reduce greenhouse gas emissions at no additional cost are considered. Offsets. Offsets generally refer to emission credits achieved by activities not directly related to the emissions of an affected source. Examples of offsets would include forestry and agricultural activities that absorb carbon dioxide, and reduction achieved by entities that are not regulated by a greenhouse gas reduction program. Revenue recycling. Some greenhouse gas reduction programs create revenues through auctions, compliance penalties, or imposition of a carbon tax. Revenue recycling refers to how a program disposes of those revenues. How a program handles revenues received can have a significant effect on the overall cost of the program to the economy. Safety valve. Devices designed to prevent or to respond to unacceptably high compliance costs for greenhouse gas reductions. Generally triggered by prices in the allowance markets, safety valve approaches can include (1) a set price alternative to making reductions or buying allowances at the market price, (2) a slowdown in tightening the emissions cap, and (3) lengthening of the time allowed for compliance. Depending on the interplay between the emissions cap and safety valve and actual compliance costs, a safety valve can affect the integrity of the emissions cap. Sequestration. Sequestration is the process of capturing carbon dioxide from emission streams or from the atmosphere and then storing it in such a way as to prevent its release to the atmosphere. ------------------------------------------------------------------------------ For other versions of this document, see http://wikileaks.org/wiki/CRS-RL33846