On June 26, 2009, the United States House of Representatives passed the American Clean Energy and Security Act (Act) by a narrow vote of 219-to-212. President Obama had actively lobbied for the passage of the Act. In addition to noting the goals of reducing America’s dependence on foreign oil and confronting carbon pollution, he had stressed that the Act will help position the country as a global leader in clean energy technology. Administration officials have also stated that the passage of greenhouse gas legislation will help the U.S. government demonstrate America’s commitment to addressing global warming ahead of December’s United Nations’ climate conference in Copenhagen, Denmark.
The bill includes numerous last minute compromises and concessions necessary to secure votes from wavering House members. Nevertheless, it represents an important landmark, marking the first time that a body of the U.S. Congress has approved a mandatory ceiling on the emission of gases linked to global warming.
The Act will likely face an uphill battle through the Senate, where the Environment and Public Works Committee has commenced hearings. Barbara Boxer, Chair of the Committee, plans to schedule a vote on the bill before the August recess. Senate Majority Leader Harry Reid hopes to shepard a bill to the Senate floor in the Fall. Should the Senate adopt its own version of climate change legislation, the process will proceed to conference and, in all likelihood, will be the subject of intense negotiation with the House.
Significant amendments to the Act since its approval by the House Committee on Energy and Commerce on May 21, 2009 include the following:
Carbon Market Regulation
As noted in our Osler Update of June 2, 2009, the Act provides for the regulation of new markets for emission allowances, offset credits and federal renewable electricity credits (RECs). The Federal Energy Regulatory Commission is responsible for the regulation of the cash market for allowances, offsets and RECs, and for developing regulations to ensure market transparency and prohibit market manipulation. The bill adopted by the House Committee would have granted jurisdiction over “regulated allowance derivatives” to the Commodity Futures Trading Commission (CFTC) unless the President delegated this responsibility to another Federal agency. Further, the House Committee version of the Act contained a definition of “regulated allowance derivative” that generally covered an investment of the character of, or commonly known to the trade as, a put or a call option, swap agreement or futures contract where the value, in whole or in part, is expressly linked to the price of a regulated allowance (i.e., emission allowance, compensatory allowance, offset credit or REC) or another regulated allowance derivative. The Act as passed by the House, however, grants the CFTC sole authority to regulate the establishment, operation and oversight of markets for regulated allowance derivatives. The responsibilities entrusted to the CFTC may be unclear, however, as the House-adopted version of the Act retains the concept of a “regulated allowance derivative” but deletes the definition of this term.
The Act as adopted by the House adds “sunset” provisions that apply to the regulation of certain transactions in derivatives involving energy commodities, the authority of the Federal Energy Regulatory Commission, the settlement and clearing through registered derivative clearing organizations, limitations on eligibility to purchase a credit default swap, transaction fees payable to the CFTC and the effect of the legislation on antitrust law or the authority of the Federal Trade Commission. Pursuant to these provisions, certain portions of the bill dealing with regulation of the derivatives market shall be repealed, and any regulations promulgated pursuant to such provisions shall be considered null and void “upon the passage of legislation that includes derivatives regulatory reform.” This is extremely broad language. The sunset provisions are not applicable to the regulation of regulated allowance derivatives.
Finally, the House version of the Act adds a requirement that no later than 24 months after the enactment of the Act, the President shall review the offset regulations and derivatives regulations to determine whether such regulations adequately protect the United States financial system from systemic risk.
Whereas the bill approved by the House Committee called for utilities to secure 25% of their electricity from renewable sources like wind, solar, hydro and geothermal energy by 2025, the bill approved by the House weakens requirements to 15% by 2020, with states being given the ability to reduce that requirement further if they are unable to meet the target. In addition, amendments broaden the definition of “renewable biomass” to include residues and by-products from wood, pulp and paper products facilities.
Canadians and other U.S. trading partners should take note that a last minute amendment to the Act requires the President to impose a “border adjustment” on certain goods from countries without emission caps that are comparable to the U.S. caps, beginning in 2020. The amendment addresses concerns raised by lawmakers from states with heavy industry, including steel, cement and chemical manufacturers, who fear that a U.S. cap on emissions puts these industries at a disadvantage vis-à-vis competitors in countries that don’t limit emissions. The tariffs can be waived by the President only with specific permission from Congress.
Clean Energy Incentives
The Act includes numerous incentives designed to jumpstart clean energy initiatives. Most significantly, it establishes the Clean Energy Deployment Administration (CEDA), an independent corporation wholly owned by the United States government, charged with providing access to affordable financing to develop and deploy innovative clean energy technologies.
The following incentive provisions were added to the latest version of the Act passed by the House:
- Energy Technology Deployment Goals: expands the list of clean energy deployment goals for the CEDA to include the sufficient availability of financial support for small businesses that develop and deploy clean energy technologies through partnerships with private entities with relevant credit experience.
- Clean Energy Manufacturing Revolving Loan Fund Program: requires the Secretary of Commerce to establish a program for the award of grants to establish revolving loan funds for small and medium-sized manufacturers to improve energy efficiency and produce clean energy technology.
- Development Corporation for Renewable Power Borrowing Authority: requires the Secretaries of Energy and Commerce to make recommendations to Congress regarding the need for new federal lending authority for renewable energy in areas of the United States not served by a federal power marketing authority.
Agricultural and Forestry-Related Offsets
Numerous concessions were made in the face of fierce opposition from agricultural proponents. The House added a new title to the Act which establishes a domestic offset credit program for agriculture and forestry related offsets, broadening the list of activities that qualify as offsets. The new title also shifts oversight of agricultural and forestry offsets from the Environmental Protection Agency to the farmer-friendly Department of Agriculture.