On October 1, 2009, the U.S. Senate released a draft energy and climate change bill – known as the Kerry-Boxer bill after its sponsors Senators John Kerry and Barbara Boxer. The Kerry-Boxer bill is similar in many respects to the Waxman-Markey bill that was passed in the U.S. House of Representatives in June, as described in Torys’ Bulletin; however, Kerry-Boxer bill contains some notable differences. Although both bills would establish a cap-and-trade system for the country’s largest industrial greenhouse gas (GHG) emitters, the Kerry-Boxer draft has a more aggressive shortterm target. It would cap emissions from covered entities at 20% below 2005 levels by 2020, rather than by 17% as proposed in the Waxman-Markey bill. Both bills, however, use a long-term target of reducing GHG emissions 83% below 2005 levels by 2050.

To limit price volatility, the Kerry-Boxer draft includes a "price collar" for its cap-andtrade system, which would ensure that the price of carbon allowances, at least initially, does not fall below $11 per ton of carbon dioxide equivalent (CO2e) or rise above $28/ton. At first, 25% of these allowances would be auctioned, but the question remains as to how the remaining 75% would be distributed and how auction proceeds would be used. Under the Kerry-Boxer draft, it is expected that the U.S. Commodity Futures Trading Commission would oversee both the cash and the derivative carbon trading markets with enough regulatory power to deter “excessive speculation.”

Aside from purchasing additional allowances, the Kerry-Boxer draft would allow capped emitters to purchase emissions credits from offset projects that reduced or removed GHG emissions when not required to do so. As in the Waxman-Markey bill, the Senate draft would allow capped emitters, collectively, to use only up to 2 billion tons of CO2e offsets toward their compliance obligation. Up to 1.5 billion of these offsets could come from domestic projects and up to 500 million from projects in developing countries (unless insufficient domestic offsets were available for compliance, in which case the number of allowable developing country offsets would rise to a maximum of 1.25 billion).

Notably for Canadians, the Kerry-Boxer draft does not speak to whether the United States would consider imposing carbon tariffs on products imported from countries without equivalent GHG regulations in place. The Waxman-Markey bill contemplates imposing a mandatory carbon tariff on imports from countries that do not agree to emissions reductions at least as stringent as those in the United States or energy or GHG emissions intensities in the relevant sector no less stringent than those in the United States. These issues will likely be considered in Senate committees, and an updated version of the Kerry-Boxer draft will reportedly be released in late October. For further information, please see the Senate’s summary.