On March 31, 2009, U.S. House Representatives Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.) released their discussion draft, “American Clean Energy and Security Act of 2009” (ACES). This is a far-reaching bill containing a framework for a proposed greenhouse gas (GHG) cap-and-trade system, as well as initiatives on clean energy and energy efficiency. ACES will be considered by the House Energy and Commerce Committee through May 25, 2009, after which it will be introduced to the full House of Representatives. Although ACES is an early step, it marks the muchanticipated beginning of a new round of congressional debate on the future of the U.S. response to climate change.
ACES proposes a cap-and-trade regime for entities that emit more than 25,000 tons per year of carbon dioxide–equivalent GHG emissions. These entities would be issued tradable allowances to release a certain amount of GHGs in a given compliance period, although the number of available allowances would be lowered over time so that total emissions from covered entities would be reduced by the following percentages below 2005 levels: 3% by 2012; 20% by 2020; 42% by 2030; and 83% by 2050. These proposed caps are more aggressive than those proposed by President Obama, who has called for a 14% reduction by 2020, and those contained in the Lieberman-Warner bill, which was defeated on the Senate floor in 2008. The U.S. Environmental Protection Agency (EPA) would administer the cap-and-trade system, while the Federal Energy Regulatory Commission would regulate the cash market in emission allowances and offsets.
Although, ACES is, in general, currently silent on whether allowances would be issued for free or sold through auction, it would direct the EPA to retain a strategic reserve of allowances that could be auctioned if the trading price for allowances became unacceptably high. Although the use of any auction revenues would undoubtedly be hotly debated, under ACES, the EPA would use proceeds from reserve auctions to purchase offset credits generated by projects that reduce or remove GHG emissions when not required by law to do so.
In another strategy to contain covered entities’ cost of compliance, ACES would allow for the generous use of offset credits from projects that started up after 2001. In any given year, covered entities, in the aggregate, could use offset credits representing up to 2 billion tons of emissions reductions, split evenly between emissions reduced by domestic and international projects – representing approximately 40% of the proposed 2012 cap. However, the value of offset credits would be discounted, and covered entities would need five such credits to offset four tons of emissions.
Notably, ACES would allow certain industries to receive rebates for costs incurred in complying with the cap-and-trade system, provided that they were disadvantaged relative to their overseas competitors. If the President found rebates insufficient to correct competitive imbalances, ACES would direct him to establish a “border adjustment program,” under which certain foreign manufacturers and importers would be required to obtain special allowances to account for the carbon content of goods they brought into the United States. The viability of such a program under international trade rules might be subject to debate.
ACES’ relationship with existing regional cap-and-trade systems might also generate discussion. As currently drafted, ACES would allow emitters that bought allowances issued by the Regional Greenhouse Gas Initiative or the state of California before December 31, 2011 to trade them in for allowances under the federal system.
ACES also contains aggressive initiatives to promote the use and development of clean energy. It would require retail electricity suppliers to supply a percentage of their load – 6% in 2012 and rising incrementally to 25% in 2025 – with electricity generated from renewable sources. In addition, ACES would authorize funding for the development of carbon capture and storage (CCS) technologies, electric vehicles and a smart electricity transmission grid. The significant amount of funding promised for CCS is consistent with Prime Minister Harper and President Obama’s “Clean Energy Dialogue,” in which the two leaders committed funding for the research and demonstration of CCS technologies at coal-fired power plants (see Torys’ February 2009 EH&S Bulletin). Furthermore, ACES would direct the U.S. Federal Energy Regulatory Commission to take action to modernize the grid, while authorizing various federal agencies to enter into long-term contracts to purchase electricity generated by renewables. To spur some of these initiatives, ACES would set a low carbon standard for transportation fuel and, in time, emissionsperformance standards for new coal-fired generators.
Among its various initiatives to encourage energy efficiency, ACES would direct President Obama to ensure that the EPA’s federal fuel-efficiency standards are harmonized with the equivalent California standards for light-duty vehicles. In January, the President had already directed the EPA to issue a waiver that would allow California (and consequently other states) to enforce its own tailpipe-emissions standards. Under ACES, certain electricity and natural gas distribution companies would also be required to demonstrate that their customers, cumulatively, were gradually achieving greater electricity and natural gas savings relative to business-as-usual projections. Other initiatives would fund retrofits of energy-inefficient buildings, codify energy-efficiency standards for certain household appliances and require the Secretary of Energy to establish standards for industrial energy efficiency.
The House Energy and Environment Subcommittee will be holding hearings on ACES during the week of April 27, with this subcommittee beginning its markup of the bill the following week. The full Energy and Commerce Committee will begin its markup of ACES during the week of May 11.
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