On June 26, 2009, in a 219-212 vote, the U.S. House of Representatives narrowly passed the American Clean Energy and Security Act of 2009 (ACES), the climate change bill sponsored by Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.). It will now be considered by the Senate, where it is expected to undergo continued scrutiny and revision. As drafted, however, ACES would establish a framework for a U.S.-wide cap-and-trade system, designed to reduce U.S. GHG emissions by 17% below 2005 levels by 2020 and 83% below 2005 levels by 2050. The system would, among other things, allow capped entities to trade emission allowances and to acquire credits representing up to 2 billion tons of emission offsets annually from projects outside the capped sectors that reduce or remove GHG emissions. Up to half of these offset credits could come from projects that avoid, reduce or sequester GHGs outside the United States in developing countries with which the United States has an international agreement. In particular, these international offsets could be issued (i) in exchange for credits, such as Certified Emissions Reductions, issued by a body established by or under the United Nations Framework Convention on Climate Change or a successor treaty, provided that those credits have undergone sufficient scrutiny to ensure their environmental integrity; (ii) for sector-wide reductions or avoidance of GHG emissions in countries that the United States determines to have a comparatively high level of GHG emissions or economic development, and if that sector, if located in the United States, would be subject to the emissions cap; and (iii) to certain projects that reduce deforestation.  

In addition, the Environmental Protection Agency (EPA) would maintain a strategic reserve of emissions allowances that it could auction if allowance prices exceeded 160% of their three-year average. Initially, ACES would establish a floor price of auctioned allowances of $10 per tonne (in 2009 dollars), although the EPA has estimated that allowances would cost between $11 and $15 in 2012, increasing to between $22 and $28 by 2025. Notably for Canadians, ACES retains provisions allowing the U.S. government to impose tariffs, in certain circumstances, on the import of carbon-intensive products, ostensibly to prevent the “leakage,” or movement, of U.S. carbon-intensive industries to other jurisdictions to avoid the regulatory burden of a cap-and-trade system. A recent report by the World Trade Organization and the United Nations Environment Programme indicated that such border adjustment tariffs may be justifiable under international trade law.  

ACES would also establish many complementary climate change initiatives. Key provisions include (i) requiring retail electricity suppliers to meet 6% of their electricity demand by renewable-source generation and energy-efficiency gains by 2012, rising to 20% by 2020; (ii) investing approximately $190 billion in energy efficiency and new clean energy technologies; and (iii) setting new energy efficiency standards for buildings, appliances and industry, which would, for example, require new buildings to be 50% more energy-efficient in 2016 than they currently are. Many of these provisions have already been substantially amended from those in the version of ACES that was originally proposed in March 2009 (see Torys’ April 1 Climate Change Bulletin).  

For further information, please see http://globalwarming.house.gov/.