The House of Representatives recently approved HR 2454, the American Clean Energy and Security Act. Introduced by Representatives Henry Waxman and Ed Markey, the bill would reduce greenhouse gas emissions from roughly 7,400 power plants, industrial facilities and other major sources to 17% below 2005 levels by 2020, with an 83% reduction required by 2050. These limits would be enforced through a system of emissions allowances, the total number of which would correspond with the bill's overall emissions cap.

Covered facilities would have to reduce their emissions to match their supply of allowances, purchase allowances from other regulated sources or buy offsetting reductions from sectors not covered under the cap (eg, domestic agriculture, international forestry). Implementation of this cap-and-trade approach is modelled in part after the Regional Greenhouse Gas Initiative (RGGI), a programme created in 2005 to regulate carbon dioxide emissions from power plants in 10 northeastern and mid-Atlantic states, including New York.

The bill would pre-empt RGGI and other state cap-and-trade programmes between 2012 and 2017, the first five years of the new federal programme. Sources with unused RGGI allowances could trade them in for federal credits based on the average auction price for the year in which the RGGI allowances were issued. In its last auction earlier this month, the price of future RGGI allowances fell significantly, reflecting this possible pre-emption and the limits the bill imposes upon the exchange of RGGI credits.

In a last-minute change intended to protect the international competitiveness of vulnerable US industries, by 2020 the bill could require US importers to purchase special allowances covering the manufacturing-related emissions of aluminium, steel and other goods produced overseas under less stringent greenhouse gas controls. President Obama has criticized this international reserve allowance programme, which could function as a tariff on certain carbon-intensive products and is likely to draw complaints under World Trade Organization (WTO) agreements. A report released last week by the WTO and the United Nations Environment Programme provides an in-depth analysis of these trade-related climate issues.

The climate debate now moves to the Senate, where Barbara Boxer, chair of the Environment and Public Works Committee, is likely to play a leading role. A global warming bill crafted by Boxer, Senator Joe Lieberman and former Senator John Warner passed out of that committee in the last Congress, but fell to a filibuster on the Senate floor. This year, however, the prospects for federal legislation are greater given the threat of Environmental Protection Agency rulemakings that could regulate greenhouse gases under the existing Clean Air Act, preparations for upcoming international negotiations in December and the Obama administration's emphasis on addressing climate change.

For further information on this topic please contact Jeffrey B Gracer or Jonathan Kalmuss-Katz at Sive Paget & Riesel PC by telephone (+1 212 421 2150), fax (+1 212 421 2035) or email (jgracer@sprlaw.com or jkalmuss-katz@sprlaw.com).

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