A draft cap-and-trade bill expected to be introduced today by Senator Barbara Boxer

A draft cap-and-trade bill expected to be introduced today by Senator Barbara Boxer would distribute free tradable emissions allowances to electric utilities half based on their greenhouse gas emissions and half based on their retail sales.

Boxer, a California Democrat who chairs the Environment and Public Works Committee, is expected to unveil a final cap-and trade bill with Massachusetts Democrat John Kerry as its cosponsor.

The draft bill’s carbon targets are set at 3% below 2005 levels by 2012; 20% below 2005 levels by 2020; 42% below by 2030 and 83% below by 2050. Except for the 2020 goal, these targets reflect those in the cap-and-trade bill that passed House of Representatives in June. Boxer’s bill would install a stricter cap than the House’s 17% target.

Similar to the House bill, the Boxer draft calls for electricity sources to have an emission allowance to cover each ton of carbon emitted the previous year, starting in 2013. Fossil fuel suppliers and importers must have one allowance per ton of carbon emitted based on the fuels they sell or distribute.

The Boxer draft allows for banking and borrowing of emission allowances by emitters and sets up a “strategic reserve” of emission allowances with a minimum auction price of $28 starting in 2012. That price increases by 5% plus the rate of inflation for auctions held in 2013 through 2017.

The draft Senate bill said consideration should be given to offset projects for which there are well developed methodologies, including methane collection at coal mines and landfills and methane capture of venting, flaring and fugitive emissions from oil and natural gas systems, forest management, and agricultural practices.

EPA (Environmental Protection Agency) may also issue international offset credits based on activities that reduce or avoid greenhouse gas emissions or increase sequestration of GHGs in a developing country. The agency would also establish a list of developing countries that have the capacity to participate in deforestation reduction activities at a national level.

The draft bill defines allowance as a limited authorization to emit one ton of carbon dioxide, or its equivalent. It provides a formula for determining refinery allowances based on the output of an individual refinery and the tons of carbon dioxide equivalent emissions.