Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
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Climate Change: Comparison of the
Cap-and-Trade Provisions in
H.R. 2454 and S. 1733
(name redacted)
Specialist in Energy and Environmental Policy
(name redacted)
Specialist in Environmental Policy
(name redacted)
Specialist in Energy and Environmental Policy
November 5, 2009
Congressional Research Service
7-....
www.crs.gov
R40896
CRS Report for Congress
Prepared for Members and Committees of Congress
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Summary
On June 26, 2009, the House passed H.R. 2454, the American Clean Energy and Security Act of
2009. In addition to establishing a cap-and-trade system to regulate greenhouse gas emissions, the
bill addresses energy efficiency, renewable energy, and other energy topics. On September 30,
2009, Senator Kerry introduced S. 1733, the Clean Energy Jobs and American Power Act, which
was referred to the Senate Committee on Environment and Public Works. The committee held
hearings on the bill starting October 27, 2009, and markup of the bill began November 3. On
November 5, the committee approved Senator Boxer’s “Manager’s Amendment” as a substitute,
and ordered S. 1733 reported.
Although there are significant differences in some portions of the House and Senate bills, both
bills would require major reductions in greenhouse gas emissions from entities comprising
roughly 85% of current U.S. greenhouse gas emissions. Covered sectors would include electricity
production, natural gas distribution, petroleum refining, and industrial sectors. Both bills would
also grant the Environmental Protection Agency (EPA) the authority to set greenhouse gas
performance standards for some entities not covered by the cap-and-trade system. Through the
cap-and-trade system and other programs, both bills aim to reduce U.S. greenhouse gas emissions
to 20% below 2005 levels by 2020 and 83% below 2005 levels by 2050.
This report provides a comparison of the cap-and-trade provisions of these two bills. Most
notably, there are six key differences between the bills: (1) the Senate bill has a more stringent
emissions cap between 2017 and 2029; (2) the two bills allocate emissions allowances and
auction revenue to different recipients at different levels; (3) the bills would treat offsets
differently; (4) the House bill would establish extensive carbon market regulation (the Senate bill
currently has a placeholder for this topic); (5) the House bill would establish a requirement that
importers purchase special emission allowances for certain imports from countries without
greenhouse gas controls (the Senate bill currently has a placeholder for this topic); and (6) both
bills would limit the Environmental Protection Agency’s authority to regulate greenhouse gases
under the Clean Air Act, although in different ways. The Appendix contains a section-by-section
comparison of the cap-and-trade provisions in the two bills.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Contents
Background ................................................................................................................................1
Key Differences Between the Cap-and-Trade Provisions of H.R. 2454 and S. 1733 .....................1
Emissions Cap ......................................................................................................................2
Allowance Allocation............................................................................................................3
Offset Treatment and Implementation....................................................................................7
Carbon Market Regulation ....................................................................................................7
Carbon Leakage and International Competitiveness...............................................................8
Relationship to Existing Clean Air Act Authorities ................................................................8
Figures
Figure 1. Total Emissions Allowances (Cap) Under H.R. 2454 and S. 1733 .................................3
Figure 2. 2016 Allowance Allocation Under H.R. 2454 ...............................................................5
Figure 3. 2016 Allowance Allocation Under S. 1733 ...................................................................5
Figure 4. 2030 Allowance Allocation Under H.R. 2454 ...............................................................6
Figure 5. 2030 Allowance Allocation Under S. 1733 ...................................................................6
Appendixes
Appendix. Comparison of the Cap-and-Trade Provisions in the American Clean Energy
and Security Act (H.R. 2454) as Passed by the House and the Clean Energy Jobs and
American Power Act (S. 1733), as Ordered Reported ............................................................. 10
Contacts
Author Contact Information ...................................................................................................... 55
Congressional Research Service
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Background
On June 26, 2009, the House passed H.R. 2454, the American Clean Energy and Security Act of
2009.1 In addition to establishing a cap-and-trade system to regulate greenhouse gas emissions,
the bill addresses energy efficiency, renewable energy, and other energy topics. On September 30,
2009, Senator Kerry introduced S. 1733, the Clean Energy Jobs and American Power Act, which
was referred to the Senate Committee on Environment and Public Works. The committee held
hearings on the bill starting October 27, 2009, and markup of the bill began November 3. On
November 5, the committee approved Senator Boxer’s “Manager’s Amendment”2 as a substitute,
and ordered S. 1733 reported.
Although there are significant differences in some portions of the House and Senate bills, both
bills would require major reductions in greenhouse gas emissions from entities comprising
roughly 85% of current U.S. greenhouse gas emissions. Covered sectors would include electricity
production, natural gas distribution, petroleum refining, and industrial sectors. Both bills would
also grant the Environmental Protection Agency (EPA) the authority to set greenhouse gas
performance standards for some entities not covered by the cap-and-trade system. Through the
cap-and-trade system and other programs, both bills aim to reduce U.S. greenhouse gas emissions
to 83% below 2005 levels by 2050.
Key Differences Between the Cap-and-Trade
Provisions of H.R. 2454 and S. 1733
There are many differences between the two bills, in both the establishment of their greenhouse
gas reductions programs, and in other energy provisions (e.g., renewable energy, transportation).
This report focuses on the major differences between the two bills’ cap-and-trade systems, while
the Appendix contains a side-by-side comparison of the cap-and-trade related sections of both
bills.
There are six key differences between the two bills, which are discussed below:
•
The Senate bill contains a more stringent (i.e., lower) emissions cap between
2017 and 2029;
•
Although the two bills allocate allowances and auction revenues to many of the
same recipients, the amounts of those allocations are in some cases larger or
smaller;
•
The bills’ treatment of offsets differs significantly;
1
For a more detailed discussion of H.R. 2454, see CRS Report R40643, Greenhouse Gas Legislation: Summary and
Analysis of H.R. 2454 as Passed by the House of Representatives, coordinated by (name redacted) and (name redacted).
2
For this report, S. 1733 refers to the bill as amended by the Manager’s Amendment released by Senator Boxer on
October 30, 2009, and available on the website of the Senate Committee on Environment and Public Works.
http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=1d1bc826-beed-4eb3-933bd7559bc61d4b.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
•
The House bill contains substantial provisions on regulating the carbon market.
The Senate bill currently has a placeholder awaiting action by other Senate
committees.
•
The House bill contains provisions imposing a border measure (an international
reserve allowance scheme) on countries with inadequate carbon reduction
policies. The Senate bill currently has a placeholder awaiting action by other
Senate committees.
•
Both bills have provisions exempting various entities from certain provisions of
the Clean Air Act with respect to greenhouse gas emissions. However, there are
substantive differences with respect to some of those exemptions.
Emissions Cap
For most years, the two bills have identical emissions caps and cover the same sources. The key
exception is that between 2017 and 2029, S. 1733 has a more stringent cap (i.e., a lower number
of emissions allowances). Between 2017 and 2025, the Senate bill’s cap is between 2% and 4%
lower than the cap under H.R. 2454. From 2026 through 2029 that gap narrows, and from 2030
onward both bills have the same cap on emissions. That slight difference can be seen in Figure 1.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Figure 1.Total Emissions Allowances (Cap) Under H.R. 2454 and S. 1733
Allowances (Million Metric Tons CO2 Eqivalent)
6,000
5,000
4,000
3,000
2,000
1,000
0
2012
2016
2020
2024
2028
H.R. 2454
2032
2036
2040
2044
2048
Senate Bill
Source: CRS Analysis of the American Clean Energy and Security Act (H.R. 2454) as passed by the House and
the Clean Energy Jobs and American Power Act as provided by the Senate Committee on Environment and
Public Works on its website October 30, 2009. http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&
FileStore_id=1d1bc826-beed-4eb3-933b-d7559bc61d4b.
Allowance Allocation
An allowance under a cap-and-trade system is effectively a permit to emit—in the case of the two
bills, a permit to emit one ton of carbon dioxide or its equivalent. These allowances represent
significant value either in terms of a wealth transfer in the case of directly allocated allowances or
government revenue in the case of auctioned allowances.
Both bills allocate allowances or auction revenue to support various purposes. Recipients of direct
allocations include entities covered by the cap-and-trade program, such as petroleum refineries,
and entities not covered by the program, such as states and electric and natural gas local
distribution companies (LDCs). In the case of non-covered entities, those entities may only use
the value generated from the sale of their allowances for specific purposes. For example, LDCs
must use the value to mitigate the energy cost impacts of the cap-and-trade program on their
customers (either through rebates or through investment in energy efficiency), while states must
use the funds for energy efficiency, renewable energy, or other projects.
Over time, both bills reduce the share of allowances directly allocated in favor of auctions. Over
the life of the Senate bill, a larger share of allowances is auctioned, as the Senate bill takes a
portion of allowances off-the-top to be auctioned or directly allocated. The largest share of those
off-the-top allowances is used for deficit reduction. In the early years of the program, 10% of
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
allowances are auctioned off-the-top for deficit reduction under S. 1733. In later years, that
percentage increases to 25%.3 In 2016 (the first year of full implementation of the program in
both bills), H.R. 2454 would auction roughly 16% of allowances (see Figure 2), with most of
those revenues directed at assisting low-income consumers, while the Senate bill would auction
roughly 32%, with about one third of those directed to low-income consumers and one third
directed at deficit reduction (see Figure 3). The remainder of auctioned allowances in both cases
is directed at worker assistance, public health, adaptation programs, and other policy objectives.
By 2030, roughly 65% of allowances are auctioned under H.R. 2454 (see Figure 4), while
roughly 75% are auctioned under the Senate bill (Figure 5).
Under both bills, a portion of allowances is taken off the top for the use in a strategic reserve.4
The aim of the strategic reserve is to provide an “emergency supply” of allowances in the event
that allowance markets become highly volatile. These reserve allowances would be auctioned
separately from the standard quarterly auctions for all other auctioned allowances. The allocations
in the figures represent the share of allowances for each purpose after the strategic reserve
allowances have been removed.
In addition to the larger share of allowances directed to deficit reduction under S. 1733, S. 1733
also allocates allowances/auction revenue for state programs to reduce greenhouse gas emissions
from the transportation sector, for mid-sized refiners,5 and for nuclear worker training.
It should also be noted that under H.R. 2454, a large share of allowances (e.g., 17% of 2030
allowances) are auctioned several years ahead of time for deficit reduction or consumer rebates.
The revenue from these auctions would be generated in the year the allowances were auctioned,
but entities could not use the allowances to cover their emissions until the “vintage year” or
thereafter. If, for example, a 2030 allowance were auctioned in 2025, that allowance could not be
used to cover an entity’s emissions until 2030 or later. Therefore, the market value of allowances
in those early auctions would likely be lower than allowances auctioned for use in the current
year. This provision would lead to a forward shift in auction revenue for that share of allowances,
but the potential revenue may be difficult to predict. The Senate bill allocates some allowances to
states early, but has no similar auctioning provision.
3
An additional smaller share of allowances from the overall pool is also auctioned for deficit reduction in the Senate
bill. Overall, roughly 10.3% of 2016 allowances are auctioned for deficit reduction in the Senate bill, as opposed to
only about 0.2% in the House bill. In 2030, the Senate bill auctions about 23% of allowances for deficit reduction,
while the deficit reduction allowances in the House have been phased out by 2030.
4
The reserve is called a “strategic reserve” under the House bill, a “market stability reserve” under the Senate bill.
5
Both the House bill and the Senate bill allocate allowances to all refiners, with an additional pool of allowances for
small refiners, while only the Senate bill would also provide a specific allocation to mid-size refiners.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Figure 2. 2016 Allowance Allocation Under H.R. 2454
Source: CRS analysis of H.R. 2454 as passed by the House.
Notes: Percentages reflect the share of total allowances less those reserved for the Strategic Reserve.
Figure 3. 2016 Allowance Allocation Under S. 1733
Source: CRS Analysis of the October 30 Manager’s Amendment to S. 1733.
Notes: Percentages reflect the share of total allowances less those reserved for the Market Stability Reserve.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Figure 4. 2030 Allowance Allocation Under H.R. 2454
Source: CRS analysis of H.R. 2454 as passed by the House.
Notes: Percentages reflect the share of total allowances less those reserved for the Strategic Reserve.
Figure 5. 2030 Allowance Allocation Under S. 1733
Source: CRS Analysis of the October 30 Manager’s Amendment to S. 1733.
Notes: Percentages reflect the share of total allowances less those reserved for the Market Stability Reserve.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Offset Treatment and Implementation
Both the House-passed legislation and the Senate bill would allow covered entities, in aggregate,
to submit 2 billion tons of offsets each year. However, the two programs have different formulas
for determining the annual percentage of offsets that each covered entity could use to meet its
compliance obligation. The percentage in the House program is tied to the emissions cap and is
known in advance: 27% in 2016, 36% in 2030, and 66% in 2050. In contrast, the percentage in
the Senate bill is based on covered entities’ actual emissions—which would depend on multiple
factors, including banking and offset use/supply—and can only be determined using emission
projections. Using EPA’s estimates of covered entity emissions (results from the agency’s H.R.
2454 analysis), the percentages would be 35% in 2016, 41% in 2030 and 48% in 2050.
The House and Senate programs would also differ in their allowable proportions of domestic and
international offsets. In the House program, 50% of a covered entity’s allowable offset
submission could come from domestic projects, 50% from international sources (i.e., in 2016,
13.5% of a covered entity’s allowance submission could be domestic offsets; another 13.5%
could be international offsets). In the Senate, the ratio is 75% from domestic projects and 25%
from international projects. Although both bills would provide conditional authority for EPA to
increase (on an annual basis) the percentage of international offsets allowed, the annual volume of
international offsets could not exceed 1.25 billion tons in the Senate bill, but could reach up to 1.5
billion tons in the House bill.
In addition, the House and Senate bills authorize different agencies to implement their respective
offset programs. The Senate bill would delegate domestic program authority to the President and
international program authority to EPA. The House bill would effectively create two offset
programs: a domestic agriculture and forestry program would be implemented by the Department
of Agriculture; other domestic projects and all international projects would be under the primary
authority of the EPA.
Carbon Market Regulation
A major concern with respect to a cap-and-trade program is potential allowance market abuse and
manipulation. The size of a U.S. carbon market could be in the hundreds of billions of dollars
annually, and involve all of the financial instruments, particularly derivatives, that any other
commodity market includes. To provide oversight of the newly created carbon allowance market,
H.R. 2454 has detailed provisions for Federal Energy Regulatory Commission (FERC) oversight
of the cash allowance market, and enhanced Commodity Futures Trading Commission (CFTC)
oversight of allowance derivatives. With respect to the latter, the bill would remove energy
commodities (including carbon allowances) from the category of “exempt commodity” and
require that over-the-counter transactions be cleared through a clearing house (a standard feature
of a futures exchange). In addition the CFTC is required to establish position limits, thus setting
ceilings on the number of energy contracts that any person could hold.
The Senate bill currently has a placeholder awaiting action by other Senate committees.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Carbon Leakage and International Competitiveness
Many have expressed concern about U.S. greenhouse gas reduction legislation potentially
resulting in firms choosing to shift investment and production from the United States to countries
with less stringent carbon policies. The concern is both economic in terms of jobs being lost, and
environmental in terms of net emission reduction benefits being compromised by the resulting
increased greenhouse gas emissions in the less-regulated countries. This would happen, for
example, if a GHG emitting industry moved from a country with an emissions cap to a country
without a cap.
Two approaches to mitigating the potential impact of carbon leakage on the net greenhouse gas
reductions have been proposed. 6 The first is the allocation of allowances at no cost to energyintensive, trade-exposed industries; this is included in both bills.
The second is an international reserve allowance scheme that essentially imposes a shadow
allowance requirement on importers of energy-intensive, trade-exposed products, creating a de
facto tariff. Basically, the scheme would require importers of energy-intensive products from
countries with insufficient carbon policies to submit a prescribed amount of “international reserve
allowances,” or IRAs, for their products to gain entry into the United States. Based on the
greenhouse gas emissions generated in the production process, IRAs would be submitted on a
per-unit basis for each category of covered goods from a covered country. Whether the
international reserve allowance scheme would actually work is unclear. The daunting
administrative, informational, and analytical resources necessary to implement such a program
would create significant issues in any attempt to implement it. Likewise, it is not clear that the
potentially severe World Trade Organization (WTO) implications of the provision have been fully
exposed and accommodated.
This second approach is currently only included in the House bill. The Senate bill has a
placeholder stating the Senate’s intention to include such a provision. That inclusion is awaiting
action by other Senate committees.
Relationship to Existing Clean Air Act Authorities
Although new legislation to address greenhouse gases is a leading priority of the President and
many Members of Congress, the ability to limit these emissions already exists under Clean Air
Act authorities that Congress has previously enacted – a point underlined by the Supreme Court
in an April 2007 decision, Massachusetts v. EPA.7 In response to the Supreme Court decision,
EPA has begun the process of using this existing authority, issuing a proposed “endangerment
finding” for greenhouse gases (GHGs) in April 2009, and proposing GHG regulations for new
motor vehicles in the September 28, 2009, Federal Register.
There are five primary paths through which EPA could address greenhouse gases under the Clean
Air Act: (1) to regulate GHGs as criteria air pollutants, (2) to regulate GHGs as hazardous air
6
For a full discussion of carbon leakage, see CRS Report R40100, “Carbon Leakage” and Trade: Issues and
Approaches, by (name redacted) and (name redacted).
7
For more information on stationary sources of greenhouse gases and the Clean Air Act, see CRS Report R40585,
Climate Change: Potential Regulation of Stationary Greenhouse Gas Sources Under the Clean Air Act, by (name
redacted) and (name redacted).
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
pollutants, (3) to regulate GHGs as designated air pollutants, (4) to regulate under the
international pollution provisions of Section 115, or (5) to regulate under the stratospheric ozone
provisions of Title VI. In addition, any motor vehicle GHG standards resulting from pending
regulatory action would lead EPA and state permitting authorities to require permits for stationary
sources: language in the act triggers permitting under the Prevention of Significant Deterioration
(PSD) program and Title V of the act whenever a pollutant is “subject to regulation” under any of
the act’s authorities.
Both bills contain provisions to limit EPA’s authority to regulate greenhouse gas emissions as
criteria air pollutants, hazardous air pollutants, or under the international pollution provisions of
the Clean Air Act. However, with respect to exemptions from the permitting requirements of the
PSD program and Title V, the bills differ in the extent of their exemptions. With respect to the
PSD program, the H.R. 2454 provision would prevent new or modified stationary sources from
coming under the Clean Air Act’s New Source Review solely because they emit greenhouse
gases. In contrast, the Senate bill’s provision would simply raise the threshold for regulation
under PSD from the current 100 or 250 short tons to 25,000 tons with respect to any greenhouse
gas or combination of greenhouse gases. Likewise, with respect to Title V permitting, the H.R.
2454 provision would prevent any source (large or small) from having to obtain a state permit
under Title V of the Clean Air Act solely because they emit greenhouse gases. In contrast, the
exemption under the Senate bill is restricted to sources that emit under 25,000 tons of any
greenhouse gas or combination of greenhouse gases.
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Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
Appendix. Comparison of the Cap-and-Trade Provisions in the American
Clean Energy and Security Act (H.R. 2454) as Passed by the House and the
Clean Energy Jobs and American Power Act (S. 1733), as Ordered Reported
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Title VII—Global Warming Pollution Reduction
Program”
“Title VII—Global Warming Pollution Reduction and
Investment Program”
“Part A—Global Warming Pollution Reduction Goals
and Targets”
“Part A—Global Warming Pollution Reduction Goals
and Targets”
“Sec. 701. Findings and Purpose”
Identifies threats posed by global warming. Highlights scientific
studies that find links between manmade greenhouse gas (GHG)
emissions and global warming. Determines that GHG emission
control is vital to the mitigation of global warming and its
impacts, some of which are listed. Finds that U.S. action is
critical to engage other nations in international efforts. Names
purpose as prevention, reduction, and mitigation of global
warming and its impacts, to be accomplished by establishing an
emissions trading market and advancing clean energy and
efficiency technologies.
“Sec. 701. Findings”
Basically identical provisions, except that the Senate bill does
not contain any statements regarding purpose.
“Sec. 702. Economy-Wide Reduction Goals”
Lists GHG emission reduction goals as:
“Sec. 702. Economywide Reduction Goals”
Basically identical provisions.
in 2012, U.S. GHG emissions not to exceed 97% of 2005 GHG
emissions
in 2020, U.S. GHG emissions not to exceed 80% of 2005 GHG
emissions
in 2030, U.S. GHG emissions not to exceed 58% of 2005 GHG
emissions;
in 2050, U.S. GHG emissions not to exceed 17% of 2005 GHG
emissions.
CRS-10
Comments
Under both bills, the 2012 goal is less
stringent than targets (7% below 1990 levels
by 2012) imposed by the Kyoto Protocol,
which the United States did not ratify.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 703. Reduction Targets for Specified Sources”
Clarifies that the emissions cap imposed by Sec. 721 would
reduce GHG emissions from capped sources in relation to the
economy-wide emission reduction goals in Sec. 702. However,
the 2020 target for capped sources is 17% below 2005 levels,
differing from the 2020 economy-wide goal of 20% below 2005
levels (in Sec. 702).
“Sec. 703. Reduction Targets for Specified Sources”
Basically identical provisions, except that the 2020 target for
capped sources is 20% below 2005 levels.
Neither bill would achieve its GHG emission
reduction goals through the cap-and-trade
program alone; the bills include
complementary policies—international
forestry efforts, performance standards,
energy efficiency—that are intended to
provide reductions in addition to those
imposed by the GHG emissions cap.
“Sec. 704. Supplemental Pollution Reductions”
Instructs EPA to allot emission allowances to support
international deforestation reduction efforts. Between 2012 and
2025, EPA is to transfer (per Sec. 781) up to 5% of each year’s
emission allowances to nations that enter into and implement
agreements (pursuant to Part E) relating to reduction of
deforestation. The allotted percentage decreases to 3% between
2026 and 2030 and 2% between 2031 and 2050. The section’s
objective is to support emission reductions (through avoided
deforestation) that are outside of and additional to those
required by the U.S. emissions cap. For example, the 2020 goal
is to achieve reductions of 720 million metric tons, roughly
equivalent to 10% of U.S. emissions in 2005.
“Sec. 704. Supplemental Pollution Reductions”
Basically identical provisions.
The bills’ drafters are counting on emission
reductions from this section to help meet the
overall GHG emission reduction goals that
the cap will not achieve by itself.
“Sec. 705. Review and Program Recommendations”
Directs EPA to prepare periodic reports to Congress—starting
in 2013 and every four years thereafter—that provide (1) the
latest scientific information on various climate change issues, (2)
an analysis of GHG emission monitoring and verification
capabilities in the United States and abroad, and (3) an
assessment of both U.S. and worldwide GHG emission
reduction efforts. Instructs EPA to include recommendations
relevant to the three categories listed above.
“Sec. 705. Review and Program Recommendations”
Basically identical provisions. Also directs the Department of
Energy to prepare a report on technology feasibility.
CRS-11
International deforestation reduction
activities are also part of the international
offsets program. Deforestation reduction
projects motivated by this section may limit
to some degree the pool of international
offset opportunities.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 706. National Academy Review”
Establishes process for scientific review to be conducted by the
National Academy of Sciences (NAS). NAS is to prepare a
report by July 1, 2014, and every four years thereafter. The
report will include an analysis of (1) latest climate change
science, (2) technological feasibility of GHG emission mitigation
efforts, and (3) domestic and international efforts to mitigate
climate change. (The first report will examine only the latest
scientific information). This section provides considerable detail
regarding what the NAS is to provide in its reports, including
recommendations and identification of improvements.
“Sec. 706. National Academy Review”
Basically identical provisions.
“Sec. 707. Presidential Response and
Recommendations”
Directs federal agencies ─ by July 1, 2015, and every four years
thereafter ─ to address shortfalls identified in the periodic EPA
(Sec. 705) and/or NAS reports (Sec. 706). If either the EPA or
NAS reports find that emission reduction targets (or
atmospheric concentration or safe temperature thresholds) are
not on schedule, the President is to submit a plan (by July 1,
2015) outlining additional domestic and international reduction
efforts or legislative recommendations that would address these
concerns.
“Sec. 707. Presidential Response and
Recommendations”
Basically identical provisions, except that the Senate bill
requires the President to submit a plan only if the NAS report
(and not the EPA report) finds the targets are not on
schedule.
No similar provision.
“Sec. 708. Consultation with States”
Directs EPA to consult with the states participating in
regional GHG emission reduction programs (e.g., Regional
Greenhouse Gas Initiative) when EPA develops its
implementing regulations.
CRS-12
Comments
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Part B—Designation and Registration of Greenhouse
Gases”
“Part B—Designation and Registration of Greenhouse
Gases”
“Sec. 711. Designation of Greenhouse Gases”
Designates the following gases as GHGs: (1) carbon dioxide, (2)
methane, (3) nitrous oxide, (4) sulfur hexafluoride, (5)
hydrofluorocarbons emitted as a byproduct, (6)
perfluorocarbons, and (7) nitrogen trifluoride. Sets up process
by which EPA can designate other GHGs. Allows for any person
to petition EPA for other manmade gases to be added as GHGs.
Directs EPA to consult with the Science Advisory Board before
making determinations.
“Sec. 711. Designation of Greenhouse Gases”
Basically identical provisions.
“Sec. 712. Carbon Dioxide Equivalent Value of
Greenhouse Gases”
Lists the carbon dioxide equivalents of other GHGs. For
example, one metric ton of methane equals 25 metric tons of
carbon dioxide equivalent. Directs EPA to periodically review,
not later than February 1, 2017, and every five years thereafter,
the carbon dioxide equivalent values. Establishes process by
which EPA can revise the values.
“Sec. 712. Carbon Dioxide Equivalent Value of
Greenhouse Gases”
Identical provisions.
“Sec. 713. Greenhouse Gas Registry”
Directs EPA , no later than six months after enactment, to
establish a federal GHG emission registry. The registry will
include data on (1) GHG emissions, (2) production/importation
of fuels and products that lead to GHG emissions, and (3)
electricity delivered to carbon-intensive industries. Reporting
entities, including covered entities and other entities that EPA
determines will help achieve overall goals of the new Title VII,
must submit 2007-2010 data by March 31, 2011. For calendar
year 2011 and each subsequent year, reporting entities will
submit quarterly data. In creating the registry, EPA is to consider
best practices from ongoing state and regional efforts. EPA is to
disseminate the data to states and tribes and publish the data
online as soon as practicable.
“Sec. 713. Greenhouse Gas Registry”
Basically identical provisions.
[Sec. 713(a)(2)(E) includes a reference to Sec. 764 that may be
incorrect, likely citing a reference in the as-reported version of the
bill.]
CRS-13
Comments
It is unclear to which advisory board the bills
refer.
Senate bill covers perfluorocarbons, “except as provided in
Sec. 714.”
EPA issued a final rulemaking (signed
September 22, 2009) that would require
mandatory emission reporting from facilities
that emit 25,000 metric tons or more per
year of GHG emissions. The applicability of
these regulations may be broader than Sec.
713 requirements, but EPA has authority to
expand coverage under Sec. 713(a)(2)(C).
Some stakeholders may worry that emission
reporting requirements may lead to coverage
under an emissions cap (assuming their
industries are not already identified as
covered), because if a source’s emissions are
amenable to reporting, some may make a
case—for efficiency or equity reasons—for
that source’s inclusion under the “economywide” emissions cap.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
No similar provision.
“Sec. 714. Perfluorocarbon Regulation and Other
Nonhydrofluorocarbon Fluorinated Substance
Production Regulation.”
Directs EPA to determine (one year after enactment) whether
fluorinated gases emitted during the production of
nonhydrofluorocarbon fluorinated substances should be
covered under the emissions cap with other GHGs or
whether they should addressed through sec. 714(c). This
section would establish a performance-based standard for
gases emitted at covered entities.
“Part C—Program Rules”
“Part C—Program Rules”
“Sec. 721. Emission Allowances”
Instructs EPA to establish a specific quantity of emission
allowances (the cap), starting in 2012, based on the table
provided in Sec. 721(e). Each allowance will have a unique
identification number. From a legal standpoint, neither emission
allowances, compensatory allowances, strategic reserve
allowances, nor offset credits constitutes a property right. EPA
may adjust the annual caps once, if specified assumptions are
subsequently found to be inaccurate, such as 2005 emission
levels and percentage of emissions from covered sources.
Directs EPA to promulgate regulations to establish a process of
providing compensatory allowances for several activities,
including the use of fossil fuels (e.g., asphalt or plastic
manufacturing) that does not lead to emissions.
“Sec. 721. Emission Allowances”
Similar to H.R. 2454, with two key differences:
“Sec. 722. Prohibition of Excess Emissions”
Requires covered entities, starting April 1, 2013, and each year
thereafter, to have one emission allowance for each ton of
carbon dioxide equivalent of GHGs that were either, depending
on the type of covered entity, (1) directly emitted by the entity
in the previous year or (2) emitted downstream in the economy
in relation to a covered entity’s outputs (e.g., fossil fuels) that
were produced or imported for sale or distribution in the
previous year. EPA will retire the held allowances after the
annual deadline has passed. Covered entities (defined in Sec.
700) include electricity generators, various fuel producers and
importers, fluorinated gas producers and importers, geological
sequestration sites, various industrial sources, and local
distribution companies (LDCs) that deliver natural gas.
“Sec. 722. Prohibition of Excess Emissions”
Many of this section’s provisions are identical, with exceptions
noted below:
CRS-14
(1) Between 2017 and 2026, the cap is 2% to 4% lower (i.e.,
more stringent) in the Senate bill than in H.R. 2454, and
remains somewhat lower until 2030, when the cap is equal for
both bills;
Comments
The actual emission results in any year may
not be the same as the emissions limit for
that year because of various flexibility
mechanisms—banking, borrowing, offsets—
designed into the cap-and-trade program.
(2) the Senate bill only explicitly states that allowances are not
property rights, and makes no statements about offsets or
other instruments.
Senate bill would include “qualified R&D facilities” as covered
entities; the House bill would not.
Concerning the applicability of emissions from electricity
generators and industrial fossil-fueled combustion devices, the
House bill would exclude emissions from “petroleum coke or
gas derived from petroleum coke”; the Senate bill would
exclude emissions from “petroleum coke.”
Senate bill would phase-in small business refiners in 2015
(instead of 2014 under the House bill).
When the phase-in schedule concludes (in
2016), and all of the covered entities are
subject to the cap, approximately 85% of the
U.S. GHG emissions would be covered.
Although these sections do not explicitly
exclude specific emission sources, certain
sources do not meet any of the definitions or
thresholds. (In the House bill, Sec. 501(b)
specifically excludes the agriculture and
forestry sectors as “capped sectors” from
requirements under this title. However,
neither “agriculture and forestry sectors” nor
“capped sector” appear in Title III.) These
uncapped sources include: agricultural
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Compliance provisions are phased in by entity: most entities
start compliance in 2012; industrial stationary sources begin
compliance in 2014; natural gas LDCs begin compliance in 2016.
Senate bill includes additional clarification regarding the
ownership and applicability of natural gas liquids, requiring
EPA to develop regulations on this topic.
Upon review, EPA may lower the emission threshold, which
currently stands at 25,000 tons/year, to not less than 10,000
tons/year, after considering various factors, such as costeffectiveness.
Senate bill does not include provision in House version stating:
“any amount less than 1 ton of carbon dioxide equivalent of
emissions or attributable greenhouse gas emissions shall be
treated as 1 ton of such carbon dioxide equivalent.”
Offsets: In 2016, approximately 27% of an entity’s allowance
obligation can be satisfied with offsets; this percentage increases
to 36% by 2030 and 66% by 2050; if all entities maximized their
use of offsets, the aggregate annual number of submitted offsets
would total 2 billion tons. Half of an entity’s offsets can come
from domestic sources and half from international sources (e.g.,
15% domestic and 15% international in 2012); EPA can increase
the allowable percentage for international offsets (up to 1.5
billion), if the agency determines use of domestic offsets will not
be maximized (at current emission allowance prices) in a
particular year. Starting in 2018, international offsets are
discounted: 1.25 offsets equals 1 emission allowance.
While the House bill requires each covered entity to submit
to EPA a certificate of representation designating a designated
representative, the Senate bill requires only the selection of a
designated representative.
Allows entities to use “term offset credits” in lieu of domestic
offsets. Term offset credits expire at the end of its term (no
more than five years) and must then be replaced with (1)
emission allowances; (2) domestic offset credits; or (3)
unexpired term offset credits. To use term offsets, a covered
entity must provide financial assurance to EPA to demonstrate
that the entity has the resources be in compliance when the
term offset expires.
Offset treatment differences: although the Senate bill
would allow covered entities to submit, in aggregate, 2 billion
tons of offsets, the formula used for determining each covered
entity’s allowable percentage differs from H.R. 2454.
Allowable percentages are tied to actual emissions from
covered entities (which would depend upon factors such as
offset use and banking). Based on EPA estimates of covered
entity emissions (ADAGE results for H.R. 2454 analysis),
approximately 35% of an entity’s allowance obligation can be
satisfied with offsets in 2016. Based on the same EPA model,
the percentage increases to 41% in 2030 and 48% in 2050.
Unlike the House bill ratio, only 25% of the offsets can come
from international sources, the remaining 75% would be
domestic. Analogous to the House bill, EPA would have the
authority to increase the percentage of international offsets up
to a certain threshold. Ultimately, the annual volume of
international offsets can not exceed 1.25 billion tons in the
Senate bill, whereas the maximum annual volume in the House
bill would be 1.5 billion tons.
Comments
emissions, residential emissions, commercial
buildings, and stationary sources that emit
less than 25,000 tons/year. The
Congressional Budget Office estimated that a
total of 7,400 entities would be covered by
H.R. 2454 (and, presumably, the Senate bill).
According to recent EPA analysis, lowering
the threshold to 10,000 tons/year would
subject approximately 7,000 additional
facilities to the cap, but would only cover an
additional 0.6% of U.S. emissions (EPA,
Proposed Mandatory GHG Reporting Rule:
Overview, Powerpoint Presentation).
Offsets are expected to play a critical role in
terms of cost containment. For example, EPA
found that if international offsets are
excluded, the emission allowance price under
H.R. 2454 would increase by 96%. Compared
to other cap-and-trade programs and
proposals, the offset percentage limitations
are relatively generous, particularly for
international offsets in the House bill. Many
of the details regarding implementation—
which offsets practices to include and their
methodologies—have been delegated to EPA
(Title III offsets) and USDA (Title V offsets,
domestic agriculture and forestry practices)
in the House bill and to the President in the
Senate bill. For more discussion of offset
issues, see CRS Report RL34436, The Role of
Offsets in a Greenhouse Gas Emissions Cap-andTrade Program: Potential Benefits and Concerns,
by (name redacted).
Term offset credits address concerns
regarding the permanence of particular offset
practices, such as agriculture sequestration
efforts. This mechanism is similar to the
temporary certified emission reductions
(tCER) that are allowed under the Kyoto
Protocol for forestry and agriculture
projects.
CRS-15
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 723. Penalty for Noncompliance”
Establishes penalties for noncompliance. A covered entity must
pay a penalty to EPA for each allowance the entity should have
held at the compliance deadline. The penalty amount equals the
emissions generated in excess to the allowances held multiplied
by twice the auction clearing price for the earliest vintage year
of the most recently conducted auction. In addition, covered
entities must submit, in the following calendar year or other
time period determined by EPA, allowances to cover the excess
emissions from the previous year.
“Sec. 723. Penalty for Noncompliance”
Substantially similar to H.R. 2454, except that the excess
emissions penalty is equal to twice the average “fair market
value” for the year in question (as opposed to the auction
clearing price). Fair market value is defined as the average
daily closing price on registered exchanges.
Comments
Includes noncompliance provisions for “term offset credits” and
their related requirements (per Sec. 722).
“Sec. 724. Trading”
Ensures that emission trading will not be restricted. Allows for
both covered and non-covered entities to hold allowances.
Holders of allowances may ask the EPA to retire the allowance.
Allowance transfers are not effective until EPA receives written
certification in accordance with regulations required by Sec. 721.
“Sec. 724. Trading”
Basically identical provision.
“Sec. 725. Banking and Borrowing”
Allows for unlimited banking of emission allowances, offset
credits, term offset credits, and international allowances for
compliance in future years.
“Sec. 725. Banking and Borrowing”
Basically identical provision, except that the Senate bill refers
to “credits” as opposed to “offset credits.” The bill defines
“offset credits” but does not define “credits.”
Allows entities to borrow (without interest) emission
allowances from the calendar year (vintage) immediately
following the compliance year. For example, vintage 2015
allowances can be used for compliance in 2014. In addition,
covered entities may borrow at interest allowances (limited to
15% of their emissions) from up to five vintage years in the
future.
CRS-16
By allowing covered entities to borrow
allowances (without interest) from the next
calendar year, the bills effectively create a
rolling, two-year compliance period.
Compared to previous cap-and-trade
proposals, this is a new design element
(although the Regional Greenhouse Gas
Initiative—RGGI—program has a three-year
compliance period). This feature may help
alleviate some of the market volatility that
would otherwise exist.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 726. Strategic Reserve”
Directs EPA to create a “strategic reserve” of approximately 2.7
billion allowances by setting aside a small number of allowances
from each vintage year. EPA will conduct quarterly auctions of
allowances from the strategic reserve. Only covered entities
may participate in the auctions. The auctions will have a reserve
price, which in 2012 will be $28/allowance (in 2009 dollars) and
increase annually (by 5% plus inflation) in 2013 and 2014.
Subsequent year reserve prices will be 60% above the 36-month
rolling average allowance price. Entities are limited in the
number of allowances they may purchase at each auction.
Unsold allowances replenish the reserve. EPA is to use the
auction proceeds to purchase international (reduced
deforestation) offsets (with a 1.25 discount rate) that will
replenish the strategic reserve. Under certain conditions,
international (reduced deforestation) offsets may be sold by EPA
at the strategic reserve auction.
“Sec. 726. Market Stability Reserve”
Similar to H.R. 2454, except for five key differences:
“Sec. 727. Permits”
Describes procedural requirements for sources that are also
subject to Title V of the Clean Air Act. Requires an entity’s
designated representative to file a certificate of representation.
Describes procedural process for situations involving multiple
owners or leasing arrangements. Requires EPA to promulgate
implementing regulations within two years of enactment.
“Sec. 727. Permits”
Substantially similar to H.R. 2454, except that the section
provides no deadline for EPA to promulgate regulations
implementing the section.
“Sec. 728. International Emission Allowances”
Lists process by which EPA can designate an international
climate change program as “qualifying.” Only international
allowances from “qualifying” programs can be used by covered
entities for compliance purposes. Requires covered entities to
certify that international allowances used for U.S. compliance
have not been used for compliance with other programs. Allows
EPA to issue a rulemaking that limits the amount of international
allowances a covered entity may use for compliance purposes.
“Sec. 728. International Emission Allowances”
Basically identical provision.
CRS-17
(1) The total size of the reserve pool is roughly 30% larger
(3.5 billion allowances) than in H.R. 2454 (between 2012 and
2019, the Senate bill reserves 2% of the allowances while H.R.
2454 reserves 1%, and between 2020 and 2029, the Senate bill
reserves 3% while H.R. 2454 reserves 2%);
(2) The 2012 reserve price is $28 in real 2005 dollars, as
opposed to 2009 dollars;
(3) For 2013 through 2017, the reserve price grows at 5% real
annually, and 7% real annually from 2018 onward;
(4) H.R. 2454 limits the size of the auction to 5% of the annual
cap for 2012 through 2016, and 10% thereafter, while the
Senate bill raises those limits to 15% and 25%, respectively;
Comments
A strategic reserve (SR) auction is meant to
provide some cost containment, particularly
for emission allowance price spikes. The level
of the reserve price will influence the nature
of the strategic reserve auction. For example,
a SR auction with a relatively high reserve
price may be utilized by entities only during
relatively extreme price spike conditions. A
relatively lower reserve price may alter the
character of the SR auctions, which are held
regardless of market conditions. Some
covered entities may choose to purchase
strategic reserve allowances (at higher than
current prices) and bank the allowances for
future use, in expectation that the emission
allowance price will rise over time.
(5) Sec. 726(j) of the Senate bill establishes a “Market Stability
Reserve Fund,” while the similar “Strategic Reserve Fund” is
established in Sec. 793(1) of H.R. 2454.
International allowances should not be
confused with international offsets.
Allows for linkage between other cap-andtrade programs, such as the European
Union’s Emission Trading Scheme (EU ETS).
See CRS Report RL34150, Climate Change
and the EU Emissions Trading Scheme (ETS):
Kyoto and Beyond, by (name redacted).
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Part D—Offsets”
“Part D—Offsets”
“Sec. 731. Offsets Integrity Advisory Board”
Instructs EPA to create an independent Offsets Integrity
Advisory Board, which will make recommendations that include
(1) which offset types should be eligible for compliance
purposes, and (2) methodologies for evaluating offset projects.
The Board shall by 2017, and every five years thereafter, provide
an analysis to EPA of the offset program and make
recommendations regarding the offset program.
“Sec. 731. Offsets Integrity Advisory Board”
Substantially similar provisions, with differences noted below.
The Board would make recommendations to the President,
not EPA.
Senate bill’s list of Board’s recommendations would include
information regarding whether certain project types are
required by law and/or the extent to which they are common
practices.
Comments
The creation of an offsets board is a new
development compared to previous cap-andtrade proposals. Regardless of the board’s
input, EPA (or the President in the Senate
bill) has ultimate authority in determining
eligible offset types and protocols.
In several instances, the House bill instructs the Board to
conduct activities relating to “Part E,” which concerns
reduced deforestation efforts. The Senate bill does not
contain similar references, although the bill does have an
analogous “Part E.”
“Sec. 732. Establishment of Offsets Program”
Directs EPA, not later than two years after enactment, to
promulgate regulations that establish a program for issuing
offsets for compliance purposes. EPA is to consult with other
federal agencies and consider the Advisory Board’s (Sec. 731)
recommendations. EPA must ensure that offsets are verifiable
and additional, that sequestration projects are permanent, and
that offsets avoid or minimize negative effects. EPA must set up
an offset registry. The agency may collect fees from offset
project representatives to cover administrative costs.
CRS-18
“Sec. 732. Establishment of Offsets Program”
Substantially similar provisions: differences noted below.
Senate bill delegates program to the President instead of EPA.
Senate bill includes instruction to President to establish a
process to accept and respond to comments from third
parties regarding offset program.
Both bills allow for the collection of fees from offset project
developers. House bill refers to the administrative costs of
EPA; the Senate bill refers to the administrative costs of EPA
and the Department of Justice. This is noteworthy,
considering that the Senate proposal delegates the offset
program to the President, not EPA.
Although the bills identify key principles that
EPA (or the President in the Senate bill) must
address, the details are to be developed
through a regulatory process. Some
stakeholders argue that Congress should be
more explicit in legislation regarding offset
implementation. Others contend that the
lack of prescriptive details provides more
flexibility to the agency and the offsets board.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
“Sec. 733. Eligible Project Types”
Directs EPA (through the regulatory process) to develop a list
of eligible offset project types, which can be revised at a later
time. EPA must consider (and give priority to) the Advisory
Board recommendations. Persons may petition EPA to add or
remove offset project types from the list of eligibility.
S. 1733, as Ordered Reported
“Sec. 733. Eligible Project Types”
Many similar provisions: differences noted below.
Senate bill directs the President, instead of EPA, to develop
list of eligible project types.
Provides a list of specific project types that the President is to
consider when developing the ultimate list of eligible projects.
The to-be-considered list includes multiple agricultural and
forestry-related activities, as well as methane abatement at
landfills and underground coal mines.
The Senate bill provides additional authority to the President
to add offset projects to the list within two years of
enactment (without going through a rulemaking process).
“Sec. 734. Requirements for Offset Projects”
Instructs EPA to include certain provisions in its regulations,
including project-specific standards that address additionality,
baseline calculations, measurement, leakage, and uncertainty.
EPA is to develop a process that accounts for offset “reversals,”
including mechanisms such as an offsets reserve and/or
insurance. “An offsets reserve ... is a program under which,
before issuance of offset credits under this part, the
Administrator shall subtract and reserve from the quantity to be
issued a quantity of offset credits based on the risk of reversal.”
EPA will specify the crediting period for each offset type. The
periods must fall between 5 and 10 years, except for
sequestration projects.
“Sec. 734. Requirements for Offset Projects”
Many similar provisions: differences noted below.
Senate bill directs the President, instead of EPA, to implement
this section.
Senate bill has an extra provision relating to additionality
determinations.
Senate bill requires a further provision in the regulations that
would address reversals: to discourage intentional reversals
the President may assess fees or disqualify project developers
from the offset program.
Senate bill allows any person to submit petition showing that a
reversal has occurred at an offset project.
Senate bill includes different reversal provisions for “term
offset credits.” These provisions are similar to the “term
offset” provisions in Title V (the USDA offset program) of the
House bill.
Senate bill specifically limits the crediting period for forestry
projects to 20 years.
Senate bill requires a public notice and comment opportunity
before a petition for a new crediting period is to be granted.
CRS-19
Comments
Whether or not to include a list of specific
project types and the requirements
associated with such a list (e.g., a mandatory
list versus a to-be-considered list) has been a
subject of some debate. For instance,
stakeholders in the agricultural sector have
raised particular concern regarding the
omission of specific project types in the
legislation.
Compared to the list of potential projects in
Title V of the House bill (the offset program
implemented by the Department of
Agriculture), the Senate bill’s list is similar
and contains a few additional potential
project types.
These provisions provide both flexibility and
some prescription. For example, the bills set
some parameters for crediting periods (some
stakeholders may seek longer periods), with
specific timeframes to be determined through
a regulatory process.
The offsets reserve provisions are a new
concept compared to previous cap-and-trade
proposals. However, EPA (or the President
in the Senate bill) is provided the authority to
address reversals—projects for which an
offset credit was granted, but later lead to
emissions, “reversing” the offset—with this
approach or another mechanism.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
“Sec. 735. Approval of Offset Projects”
Describes the process by which an offset project representative
seeks approval for a particular offset project. The representative
must submit to EPA a petition that includes the information
specified in EPA’s forthcoming rulemaking. EPA must respond in
writing to the petition within 90 days. Both the petition and
EPA’s response are to be made publicly available. Procedures for
an appeal process are to be established by EPA. In addition, EPA
is to establish a voluntary pre-approval review process as an
option for project developers.
S. 1733, as Ordered Reported
“Sec. 735. Approval of Offset Projects”
Many similar provisions: differences noted below.
Senate bill directs the President, instead of EPA, to implement
this section.
Senate bill requires the offset project developer to sign the
petition and certify its accuracy.
Petitions submitted per the Senate bill must also include
“designation of a party who is authorized to provide access to
the appropriate officials or an authorized representative to the
offset project.”
Senate bill requires petition responses to be made publicly
available on the internet.
“Sec. 736. Verification of Offset Projects”
Requires offset project representatives to provide EPA with
verification from an EPA-accredited third-party. EPA is to create
a process to accredit third-parties for this function. Required
information (e.g., tons reduced/avoided/sequestered,
methodologies used) in the verification and the schedule for its
submittal will be determined by EPA.
“Sec. 736. Verification of Offset Projects”
Provisions basically identical: differences noted below.
“Sec. 737. Issuance of Offset Credits”
Directs EPA to make offset issuance determinations no later
than 90 days after receipt of the third-party verification reports.
EPA may issue offset credits only for approved projects (Sec.
735) and only for reductions, avoidance, or sequestration that
have already occurred (i.e., no forward crediting) during the
project’s crediting period. EPA will assign a unique serial number
to each offset credit.
“Sec. 737. Issuance of Offset Credits”
Provisions basically identical: differences noted below.
“Sec. 738. Audits”
Authorizes EPA to conduct random audits of offset projects,
credits, and practices of third-party verifiers. EPA is required to
annually audit, at minimum, a representative sample of project
types and geographic areas. EPA may delegate this duty to a
state or tribal government.
“Sec. 738. Audits”
Provisions basically identical: differences noted below.
CRS-20
Senate bill directs the President, instead of EPA, to implement
this section.
Senate bill requires regulations concerning third-party verifiers
to include provisions for revoking a party’s accreditation.
Senate bill directs the President, instead of EPA, to implement
this section.
Senate bill requires verification reports be made publicly
available on the internet.
Senate bill directs the President, instead of EPA, to implement
this section.
Senate bill includes specific provisions that should be
regulations concerning audit procedures.
Comments
In general, there are two approaches to
issuing offsets in a cap-and-trade system: a
project-by-project assessment and a
standards scheme. These bills take elements
from both strategies. Although EPA (or the
President) would establish methodologies for
eligible projects, each project must be
submitted to, and approved by, EPA/the
President. Some question whether the
government would be able to process offset
petitions in a timely manner. On the other
hand, some argue that this level of oversight
is important to ensure the integrity of offset
projects.
Many consider third-party verification to be a
necessary element in an offsets program.
However, some question whether this
requirement will create a bottleneck for
issuing offsets, particularly if the supply of
accredited third-parties is limited (especially
in the early years).
Some sequestration offset projects may
provide offsets for decades, but both bills
would prevent project developers from
receiving credit for sequestration that will
occur in the future.
A tracking system with serial numbers is used
to avoid situations of double-counting.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 739. Program Review and Revision”
Requires EPA to review various components ─ methodologies,
reversal policies, accountability measures ─ of its offset program
at least once every five years.
“Sec. 739. Program Review and Revision” Provisions
basically identical. The only difference is that the Senate bill
directs the President, instead of EPA, to implement this
section.
“Sec. 740. Early Offset Supply”
Directs EPA to issue offset credits, if specific conditions are met,
for offsets issued under other regulatory or voluntary offset
programs. The following are highlights of some of the
conditions:
“Sec. 740. Early Offset Supply”
Provisions basically identical: differences noted below.
Senate bill requires public notice and opportunity for
comment before issuance of offsets.
An offset project must have started after January 1, 2001.
EPA can only issue offset credits for reduction/avoidance/
sequestration tons that occur after January 1, 2009, and only for
a limited period of time (three years after enactment or effective
date of regulation, whichever is sooner).
The other-program offsets must have been issued under a
program that was established by state (or tribal) law or
regulation, or a program specifically approved by EPA.
The offset standards must have been developed through a public
consultation process.
All projects must have been or will be verified by a state
regulatory agency or accredited third-party.
Comments
Allowing offsets to be generated from preexisting state or voluntary programs would
increase the available supply, which may be
an issue in the early years of the program.
Thus, the purpose of these sections is largely
one of transition, providing opportunity for
the offset pool to increase (under existing
programs), while EPA/President develops
offset regulations. Some may be concerned
that offsets created under other systems are
developed with less stringent standards, thus
imposing some uncertainty about their
legitimacy. As with the offsets program in
general, this section would delegate the
decision to EPA/President regarding whether
other programs, such as the Chicago Climate
Exchange, could contribute offsets during the
transition period and beyond.
Offsets are ineligible if used for compliance with a state law.
“Sec. 741. Environmental Considerations”
Instructs EPA, if it lists forestry or other relevant land
management-related projects as eligible offset types, to develop
regulations that address concerns particular to these offset
types. The list of concerns includes biodiversity, invasive species,
and non-native species.
CRS-21
“Sec. 741. Environmental Considerations”
Provisions basically identical: select differences noted below.
Senate bill includes two additional provisions in regulations:
(1) ensure that project land was not converted (within
specified timeframe) from a native ecosystem to generate
offsets; and (2) ensure offsets satisfy U.S. commitments in
international agreements.
This section supplements the requirement in
Sec. 732(c) of both bills.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 742. Trading”
States that Sec. 724 shall apply to offsets.
“Sec. 742. Trading”
Identical provision.
This would allow any party to hold and trade
offset credits.
No similar provision.
“Sec. 743. Office of Offsets Integrity”
Establishes within the Department of Justice an Offsets
Integrity Unit, which would be headed by a Special Counsel
(appointed by the President per the advice and consent of the
Senate). Responsibilities include: conducting investigations and
civil enforcement efforts regarding the offsets program;
ensuring that federal law is used to the fullest extent
authorized to enforce the offsets program; and making sure
that adequate resources are made available for investigations
and enforcement activities.
This type of provision was not found in
previous cap-and-trade proposals.
“Sec. 744. International Offset Credits”
Many similar provisions (EPA is the lead agency for
international offsets): select differences noted below.
Regarding the first offset category (not
provided in the Senate bill unless a price
trigger is met), the details—including eligible
project types—are largely delegated to EPA
to determine through regulation.
“Sec. 743. International Offset Credits”
Authorizes EPA to issue (in consultation with Department of
State) international offset credits. EPA may only issue
international offset credits if (1) the United States is a party to a
bilateral or multilateral agreement that includes the nation
hosting the offset project; and (2) the host nation is a
“developing country” (defined in Sec. 700).
EPA may issue international offset credits from four possible
source categories: (1) project types on the list created per
Section 733; (2) offset credits generated on a sectoral basis in
developing nations; (3) offset credits that originate from
international bodies established by the United Nations
Framework Convention on Climate Change (UNFCCC), a
UNFCCC protocol, or a treaty that succeeds the UNFCCC; (4)
offset credits for projects that reduce deforestation.
Regarding deforestation projects, the United States must be a
party to a bilateral or multilateral agreement that includes the
nation hosting the offset project. A national deforestation
baseline must be established in accordance with an appropriate
agreement (details for developing baselines are provided).
Credits can only be issued after deforestation reduction has
been demonstrated using “ground-based inventories, remote
sensing technology, and other methodologies” to ensure carbon
stocks are measured. EPA must make country-specific
adjustments, such as discounting. EPA, working with
Department of State, is to prepare (within two years of
enactment) a list of developing nations that are eligible, based on
the nation’s ability to monitor/measure carbon fluxes from
CRS-22
Senate bill provides that the offset project developer be
“eligible to receive service of process in the United States for
the purpose of all civil and regulatory actions in Federal
courts.... ”
Senate bill allows offsets from source categories 2,3, and 4
(listed in left-hand column), but omits the authority for EPA to
issue international offsets from project types on the list
created by Sec. 733. However, Senate bill includes a provision
authorizing EPA to allow additional offset types, if (1) the
emission allowance auction price reaches a certain level for
two consecutive years and (2) EPA determines that covered
entities have not exceeded the quantity limit for international
offsets. The additional offset types must satisfy further
conditions.
Senate bill contains additional provisions regarding the
development of sectoral offset credits.
House bill would not allow category 3 offsets (e.g., from the
CDM) if the offsets came from a country and sector identified
by EPA in its sectoral offsets program; the Senate bill would
allow such offsets, if they satisfied the provisions of the
sectoral offsets program.
Senate bill has additional provisions (e.g., transparency,
oversight, and information dissemination) regarding
A primary concern with offsets is whether or
not they represent real emission reductions.
The objective of this section is likely to
provide an additional layer of offset oversight
and strengthen the credibility of the program.
The second method is a novel approach for
cap-and-trade proposals, likely stemming
from the 2008 international negotiations in
Bali. It is unclear how U.S. parties would
participate through this method (and the
Copenhagen discussions may influence this
concept).
The third method, allowing EPA to issue
offsets originating from a UNFCCC protocol
(e.g., the Kyoto Protocol), suggests that
Clean Development Mechanism (CDM)
offsets would be available for compliance
purposes. Although offsets generated
through the CDM undergo a relatively
rigorous evaluation, the CDM has received
criticism on several fronts (see GAO,
Lessons Learned from the European Union’s
Emissions Trading Scheme and the Kyoto
Protocol’s Clean Development Mechanism,
2008), but this may be partially due to its high
profile.
The fourth method provides the most
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
deforestation and its institutional capacities and governance. EPA
may issue offsets for state- or province-level activities, but this
option is phased-out after 5 years. In certain countries, EPA may
issue offsets for program or project-level activities. This
mechanism is phased-out after 5 years (with the possibility of an
8 year extension). EPA is to consult with USDA regarding the
implementation of international offset credits for projects that
reduce deforestation.
development of offsets from avoided deforestation. National
baseline is to include a “spatially explicit land use plan.” Senate
bill does not set a 2-year schedule for developing a list of
eligible nations, and the list provisions are more
comprehensive (e.g., more leakage monitoring). Includes 8
year phase-out timeline for program or project-level activities
(with 5-year extension). No provision regarding USDA
consultation.
prescriptive details in the legislative text.
Although this offset category offers
enormous potential, implementation of this
offset category would likely pose substantial
challenges.
“Part E ─ Supplemental Emissions Reductions from
Reduced Deforestation”
Sec. 322. Emission Reduction from Reduced
Deforestation
“Part E ─ Supplemental Emissions Reductions from
Reduced Deforestation”
“Sec. 751. Definitions”
Includes definitions of five terms relevant to Part E.
“Sec. 751. Definitions”
Senate bill provides definitions not found in the House bill,
including “deforestation,” and “degradation.” Senate bill omits
definitions for “national deforestation reduction activities” and
“‘subnational deforestation reduction activities.”
“Sec. 752. Findings”
States that (1) deforestation amounts to approximately 20% of
global GHG emissions, (2) reducing deforestation is costeffective compared to other GHG emission mitigation efforts,
and (3) reducing deforestation yields secondary benefits, such as
biodiversity.
No similar provision.
No similar provision.
“Section 752. Purposes”
States that the purposes of this section are for the United
States to assist developing countries in establishing policies
that would reduce deforestation or conserve or restore
forest ecosystems, while taking local, vulnerable, and forestdependent communities into consideration.
“Sec. 753. Supplemental Emissions Reductions Through
Reduced Deforestation”
Directs EPA , in consultation with the Departments of State and
Agriculture, to promulgate regulations that create a program to
allot emission allowances for supporting reduced deforestation
efforts. Identifies objectives as (1) achieving 720 million tons of
reductions in 2020 and a cumulative emission reduction of 6
billion tons by 2025, (2) building institutional capacities in
developing nations, and (3) preserving intact, native forests.
“Sec. 753. Emission Reductions from Reduced
Deforestation”
Provisions largely similar: select differences noted below.
CRS-23
Directs the Administrator of the United States Agency for
International Development (USAID), in consultation with EPA,
USDA, and other relevant agencies, to implement the
program.
The bills’ drafters are counting the
supplemental reductions projected from
avoided deforestation efforts toward their
overall emission reduction goals, particularly
in the first 10-15 years.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 754. Requirements for International
Deforestation Reduction Program”
Authorizes EPA to support efforts only in developing nations
whose forest carbon stock presents a deforestation risk and
have entered a bilateral or multilateral agreement with the
United States. EPA may support projects directly or distribute
allowances to established international funds. EPA (in
consultation with the Administrator of USAID) must promulgate
regulations to ensure emission reductions from reduced
deforestation are additional, measureable, verifiable, permanent,
monitored, and account for leakage and uncertainty. National
baselines for deforestation must be established. EPA must
develop a publicly available registry of the supplemental emission
reductions.
Senate bill does not contain a similar section, but the
clarification statement regarding offsets is found in Sec. 753 of
the Senate bill.
Clarifies that activities supported under this part would not be
eligible as offsets.
“Sec. 755. Reports and Reviews”
Directs EPA to submit, by January 1, 2014, a report that lists the
quantity of emission reductions under the program, a
breakdown of allowances provided, and the activities supported
by the supplemental reduction program. EPA is to conduct a
review of the supplemental emission reduction program four
years after enactment and every five years thereafter. The
review will include an assessment of emission reductions
achieved per participating nation and an examination of related
factors, such as governance, biodiversity, and leakage.
No similar provision.
“Sec. 756. Legal Effect of Part E”
States that Part E does not supersede, limit, or affect restrictions
imposed by federal law on any interaction between an entity in
the United States and an entity in another country.
No similar provision.
CRS-24
Comments
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Sec. 312. Definitions
Amends Title VII of the Clean Air Act (created by this
legislation) by adding a definitions section before Part A.
Sec. 102. Definitions
Identical provision.
“Sec. 700. Definitions”
Provides definitions for terms relevant to Title VII.
“Sec. 700. Definitions”
For the most part, definitions are identical: select differences
noted below.
In definition of covered entities, Senate bill includes
“beneficiation or other processing (including agglomeration) of
metal ores” within the list of potentially covered industrial
sectors (sec. 700(13)(H)).
Unlike the House bill, the Senate definition of “emission
allowance” does not include a reference to emission
allowances established through the auctioning of international
offset credits. However, this may be an oversight, because Sec.
726(h)(1)(A) of the Senate bill, which concerns auctioning
international offset credits, would also establish emission
allowances.
Defines “high conservation priority land,” a phrase relevant to
the Senate bill’s “renewable biomass” definition, which is
different from the definition in the House bill.
Within the definition of “natural gas liquid,” the Senate bill
adds the phrase “ready for commercial sale or use” after the
list of natural gases.
Defines “qualified R&D facility,” as being part of a covered
entity. Defines “research and development.”
Comments
Among other terms, in both bills this section
defines covered entity, the applicability of
which determines whether an emission
source is subject to the cap. Some have
voiced concern that the covered entity
definition does not specifically exclude
certain emission sources, particularly
agriculture. (Sec. 501(b) of Title V—in the
House bill only—does specifically exclude the
agriculture and forestry sectors from the
definition of “capped sectors” under the cap
and trade program. However, the phrase
“capped sector” does not appear in Title III.)
In both bills, the three categories of
stationary sources within the covered entity
definition identify specific industrial sectors
that are subject, if they meet or exceed the
25,000 ton annual threshold. The definition
does not include a provision for EPA to add
additional sources, but (per Sec. 722(g) of
both bills) EPA may lower the threshold to
10,000 tons in 2020, based on certain
conditions.
Defines “repeated intentional reversals” as least 3 intentional
reversals.
Includes definition of “small business refiner.”
No similar provision.
CRS-25
Sec. 103. Offset Reporting Requirements
Establishes a recordkeeping requirement (within Section 114
of the Clean Air Act). Offset project developers (and
potentially third-party verifiers, per EPA discretion) would
need to keep relevant records for a period not less than a
project’s crediting period plus 5 years.
Although the Senate bill’s offset program
delegates implementation to the President,
this section delegates some authority to EPA.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
No similar provision.
Sec. 127. Forestry Sector Greenhouse Gas Accounting
Directs EPA (in consultation with Departments of Agriculture
and Interior) to provide an annual accounting of sequestration
and GHG emissions from forests and forest products. The
accounting would cover federal, other public, tribal, and
private land over 5,000 acres (“on which forestry is regularly
practiced.”) Accounting must come from existing sources
information gathering; EPA is not authorized to require new
data generation from forest landowners.
“Part H—Disposition of Allowances”
“Part H—Disposition of Allowances”
Sec. 321. Disposition of Allowances for Global Warming
Pollution Reduction Program
Adds Part H to the new Title VII of the Clean Air Act.
Sec. 111. Disposition of Allowances for Global
Warming Pollution Reduction Program
Adds Part H to the new Title VII of the Clean Air Act.
“Sec. 781. Allocation of Allowances for Supplemental
Reductions”
Instructs EPA to allot particular percentages of emission
allowances to support supplemental reduction efforts, i.e.,
including the avoided deforestation projects described in Part E.
For vintage years 2012 through 2025 the program receives 5%
of each year’s allotment; for 2026 through 2030, 3%; for 2031
through 2050, 2%. Directs EPA to modify these percentages as
necessary to meet the 2020 reduction objective (720 million
metric tons of reductions in 2020, which is equivalent to 10% of
U.S. emissions in 2005) and the cumulative 2025 objective
(achieve total reduction of 6 billion tons). Unused allowances
are to be distributed for other purposes (e.g., deficit reduction,
consumer rebate, or low-income assistance) per Section 782(s).
In the subsequent year, the allotment for supplemental
reduction will increase by the unused quantity from the
preceding year, with a corresponding decrease in allotment for
the other purposes (listed above) for that year.
Allowance allocation for all purposes contained in Sec. 771 of
the Senate bill (see next section). The percentage allocations
are identical for both bills, but the Senate bill takes a larger
share of allowances off the top for deficit reduction and other
purposes, effectively reducing the allowances allocated to
international forestry projects relative to H.R. 2454.
CRS-26
There is no provision for EPA to modify this allocation.
Comments
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
“Sec. 782. Allocation of Emission Allowances”
Directs the EPA Administrator to distribute emission allowance
value (which can include auction revenue or no-cost allowances)
to a range of parties, both covered and non-covered entities, to
support a range of policy objectives. The distribution changes
over time. In 2016, allowance value is allotted in the following
manner (in some cases, the percentages are estimates):
30% (at minimum) to electricity local distribution companies
(LDCs); 0.5% for small electric LDCs; 9% to natural gas local
distribution companies; 1.5% to states for home-heating oil
consumers; 15% directly to low-income consumers;
13.4% to energy-intensive, trade-exposed industries; up to 3.5%
to merchant coal units; 2% to petroleum refineries plus 0.25%
for small business refineries; up to 1.5% for certain long-term
power contract operators;
7.1% to states to support renewable energy and energy
efficiency efforts;
6% to promote technological advances;
0.2% for deficit reduction; and
roughly 10% to further other objectives.
In 2030, allotments are as follows:
S. 1733, as Ordered Reported
“Sec. 771. Allocation of Emission Allowances”
Directs the EPA Administrator to distribute allowances
directly and through auctions. The introduced version of S.
1733 generally did not define the number or percentage of
allowances allocated to various purposes, but the current
Senate bill provides a detailed allocation scheme.
The bill generally allocates allowances three ways: (1) off-thetop allocations for various purposes (most notably deficit
reduction); (2) direct allocation of allowances to various
entities; and (3) auction of allowances with the proceeds
directed to various purposes.
In 2016, allowance value is allotted in the following manner (in
some cases, the percentages are estimates):
25.8% (at minimum) to electricity local distribution companies
(LDCs); 0.94% for small electric LDCs; 7.7% to natural gas
local distribution companies; 1.3% to states for home-heating
oil consumers; 12.9% directly to low-income consumers;
12.1% to energy-intensive, trade-exposed industries; up to
3.0% to merchant coal units; 0.64% to petroleum refineries
plus 0.86% for small business refineries and 0.43% for medium
refineries; up to 1.3% for certain long-term power contract
operators;
30% for consumer rebate; 15% for low-income consumers;
5.97% to states to support renewable energy and energy
efficiency efforts;
6.7% for trade-exposed industries;
5.6% to promote technological advances;
6.5% for technology;
5% energy efficiency;
1.92% for greenhouse gas reductions in the transportation
sector;
8% for adaptation;
10.3% for deficit reduction; and
12% for other objectives; and
roughly 8% to further other objectives.
17% of the 2030 allowances were sold in prior years to support
consumer rebate or deficit reduction.
In 2030, allotments are as follows:
If allowances that are conditionally allotted for various objectives
(e.g., avoided deforestation efforts or carbon capture and
storage activities) are not distributed in a given year, EPA may
redistribute the allowances for deficit reduction, consumer
7.4% for trade-exposed industries;
CRS-27
30.1% for consumer rebate; 13.7% for low-income consumers;
5% for technology;
4% energy efficiency;
Comments
Under H.R. 2454, In 2016, 16.5% of the
allowances are sold through an auction; in
2030, 65.3% are auctioned. Under the Senate
bill, those numbers are 32.2% and 75.1% in
2016 and 2030, respectively. The most
significant difference is that throughout the
program the Senate bill would auction a
much larger share of allowances for deficit
reduction (10% in 2012 through 2029, 22% in
2030 thorough 2039, and 25% thereafter).
This off-the-top allocation reduces the share
of allowances available for other purposes.
Another key difference between the two bills
is H.R. 2454’s use of carry-forward
allocations. This provision directs EPA to sell
a portion of future vintage-year allowances at
earlier dates. For example, a percentage of
vintage-2026 allowances are sold in 2015.
Although covered entities can only use the
2026 allowances for compliance in 2026 or
later, the government would collect the value
of 2026 allowance (as auction revenue) in
2015, and apply that value in 2015. While this
creates additional funds early in the program,
which are applied to deficit reduction and
then to consumer rebates (in 2021), it
depletes the number of allowances (and
potentially the total allowance value) available
for distribution in later years. The outcome
of this provision may have unforeseen effects.
The Senate bill does not contain this
provision.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
rebate, low-income assistance, or a combination thereof.
8.4% for adaptation;
In 2012, the bill allots 1% for (documented) emission reduction
efforts that occurred before 2009.
2.6% for reductions in transportation emissions;
Comments
22.7% for deficit reduction; and
6% for other objectives.
If allowances that are conditionally allotted for various
objectives (e.g., avoided deforestation efforts or carbon
capture and storage activities) are not distributed in a given
year, EPA may redistribute the allowances for deficit
reduction, consumer rebate, low-income assistance, or a
combination thereof.
In 2012, the bill allots 1% for (documented) emission
reduction efforts that occurred before 2009.
“Sec. 783. Electricity Consumers”
Outlines process by which EPA is to distribute allowance value
to electricity consumers, which includes both households and
commercial entities. Recipients of no-cost allowances would
include: electricity local distribution companies (LDCs), small
electric LDCs, merchant coal units; and specifically defined
power production facilities that have entered into long-term
power contracts.
Instructs EPA, based on specific parameters, to allot a portion of
the percentages listed for electricity consumers in Sec. 782 to
merchant coal generators and facilities in long-term power
contracts; the remainder (which would represent the vast
majority of the allotment) would go to LDCs.
Directs EPA to distribute allowances to LDCs by formula: 50%
of the distribution would be based on the CO2 emissions
associated with the electricity delivered to customers and 50%
would be based on the quantity of electricity delivered (or sold).
However, the bill prohibits LDCs from receiving a greater
quantity of allowances than is necessary to address any
increased electricity costs to ratepayers.
Requires LDCs to use allowances “exclusively for the benefit of
retail ratepayers.” EPA will develop regulations with specific
implementation guidelines. If LDCs choose to provide rebates,
the rebates cannot be based solely upon the quantity of
electricity delivered.
CRS-28
“Sec. 772. Electricity Consumers”
Substantially similar to H.R. 2454, except that in addition to
requiring the EPA Administrator to audit a sample of LDCs to
ensure that allowance value is distributed by LDCs in
accordance with the section, the Senate bill also requires:
(1) an evaluation by the Government Accountability Office
(GAO) of energy efficiency and other investments made under
the section; and
(2) a report by the EPA Administrator evaluating the
disposition of allowance value and ways to use that value to
reduce costs of the program.
Sec. 772 of the Senate bill also contains several definitions
included in other sections of H.R. 2454 (e.g., CHP Savings,
Qualified Hydropower).
This section is intended to alleviate the
electricity price increases that would be
expected under a cap-and-trade program.
LDCs are different from the industrial sector
that generates electricity. In general, LDCs
control the wires that deliver electricity to
homes and businesses. Unlike electric
generating facilities, some of which are
(price) regulated and some of which are not,
all LDCs are regulated by a state agency (or
are cooperatives) that controls the price of
delivered electricity.
The 50/50 formula for allowance allotment to
LDCs is an attempt to address regional
differences in energy use. For example, some
parts of the country use a higher percentage
of coal than others, and these areas are
expected to experience relatively higher
electricity price increases from the legislation
than areas that use less-carbon-intensive
energy (e.g., hydropower). Some argued that
LDCs selling less-carbon-intensive electricity
would potentially receive a windfall under
this formula. To address this concern,
allowances that would have gone to these
LDCs are to be redistributed to LDCs that
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
sell more carbon-intensive electricity.
Some have argued that if merchant coal-fired
generators receive no-cost allowances, the
facilities would simply pass along the
opportunity cost of the allowances to
consumers and thus gain so-called “windfall
profits.” (See e.g., comments and testimony
from the National Association of Regulatory
Utility Commissioners, at
http://www.naruc.org). Indeed, this section
requires EPA (in 2014) to examine this issue
and authorizes EPA to make adjustments to
the merchant coal generators’ allocations.
Moreover, these entities would receive
allowances based on an output-based
formula, which some argue would create a
perverse incentive to generate electricity in
order to receive more allowances.
The bills allocate allowances to small electric
LDCs, approximately half of which would be
rural electric cooperatives. These no-cost
allowances would be in addition to the share
these LDCs would receive under the
allotment to LDCs generally.
“Sec. 784. Natural Gas Consumers”
Outlines process by which EPA is to distribute allowance value
to natural gas consumers, which includes both households and
commercial entities. To meet this objective, EPA is to allot all of
the no-cost allowances (per Sec. 782) to natural gas local
distribution companies (LDCs). LDCs would receive a portion
of allowances based on annual natural gas deliveries from each
LDC (i.e., quantity sold).
Requires natural gas LDCs to use the allowances “exclusively for
the benefit of retail ratepayers.” Includes rebate provisions that
are similar to electricity LDCs. Directs natural gas LDCs to use,
at minimum, 33% of the allowances to support energy efficiency
programs for natural gas consumers.
CRS-29
“Sec. 784. Natural Gas Consumers”
Similar to H.R. 2454, except that while H.R. 2454 precludes
those industrial ratepayers who are also covered entities from
receiving benefits under this section, the Senate bill contains
no such prohibition. Further, the Senate bill has more
extensive auditing and reporting requirements that parallel
those in the above section on electricity LDCs.
Similar to the previous section, this section is
intended to alleviate the natural gas price
increases that would be expected under a
cap-and-trade program.
Both bills compel LDCs to use at least 33%
of allowances for energy efficiency.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 785. Home Heating Oil, Propane, and Kerosene
Consumers”
Outlines process by which EPA is to distribute allowance value
to home heating oil, propane, and kerosene consumers, which
includes both households and commercial entities. To meet this
objective, EPA would distribute no-cost allowances (per Sec.
782) to states. States would receive allowances based on a ratio
of each state’s carbon emissions associated with home heating
oil sales compared to a similar national value.
“Sec. 774. Home Heating Oil and Propane
Consumers”
Similar to H.R. 2454, except that kerosene consumers are not
included.
Similar the previous two sections, this
section is intended to alleviate the heating oil,
propane, and kerosene (in the case of H.R.
2454) price increases that would be expected
under a cap-and-trade program.
Both bills compel states to use at least 50%
of the allowances for energy efficiency
purposes.
States may use allowances for either energy efficiency programs
or financial assistance (rebates) to customers, but at least 50% of
the allowances must be used for energy efficiency.
“Sec. 787. Allocations to Refineries”
Outlines process by which EPA is to distribute no-cost
allowances (per Sec. 782) to petroleum refineries and small
business refiners. Within three years of enactment, EPA must
promulgate regulations to establish an appropriate distribution
formula.
“Sec. 775. Domestic Fuel Production”
Basically identical provision.
“Sec. 788. Supplemental Agriculture and Renewable
Energy Incentives Programs”
Instructs EPA to distribute allowances for agricultural renewable
energy programs (per Sec. 782) at the direction of DOE and
USDA. At least 50% of the allowances should be allotted to a
newly established USDA program that would support
agriculture-related GHG mitigation efforts. The supported
activities would reduce, avoid, or sequester GHG emissions, but
not qualify as offsets.
Sec. 155. Supplemental Agriculture, Abandoned Mine
Land, and Forestry Greenhouse Gas Reduction and
Renewable Energy Program
A similar program to H.R. 2454 is established, but with
several key differences:
Allowances could also be used to support a newly created EPA
and DOE program that would support the deployment of
renewable energy infrastructure in the states.
(1) USDA and the Department of the Interior are the lead
agencies;
(2) the Senate bill includes activities undertaken on public and
private abandoned mine land and on forest land;
(3) despite the title of the section, the Senate bill does not
include renewable energy deployment;
(4) the Senate bill has a longer list of eligible project types and
considerations for funding, as well as potential forms of
assistance (e.g., grants, grazing contracts, land management
contracts, conservation easements); and
(5) a separate section (Sec. 214) directs the EPA administrator
to deposit the proceeds of auctions under Sec. 771(b)(9) into
a new Supplemental Agriculture, Abandoned Mine Land,
Renewable Energy, and Forestry Fund.
CRS-30
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 789. Climate Change Consumer Refunds”
Directs the President (or an agency designated by the President)
to annually distribute monies from the Consumer Climate
Change Rebate Fund (per Sec. 782) to each household—on a
per capita basis—in the United States.
“Sec. 776. Consumer Protection”
Establishes two different funds: the Consumer Rebate Fund
and the Energy Refund Account. Both would be funded from
auction revenues per Sec. 771(b)(2).
The House bill is considerably more specific
on how funds would be used—only for per
capita rebates—while the Senate bill would
give the President the authority to determine
how those funds are distributed.
Starting in 2026, the Consumer Rebate Fund would be used
(in accordance with Federal statutory authority) to provide
relief to consumers impacted by the statute.
The Energy Refund Account is analogous to allocation in the
House bill that would distribute 15% of the allowance value to
low-income consumers on an annual basis. The Senate bill
would provide a similar percentage (but the absolute number
of allowances would be smaller). The President is to use funds
from this account (in accordance with Federal statutory
authority) to offset energy cost impacts on low- and
moderate-income households.
“Sec. 790. Exchange for State-Issued Allowances”
Instructs EPA to promulgate regulations that would establish a
process by which any person can exchange emission allowances
issued before December 31, 2011, by California, the Western
Climate Initiative, or the Regional Greenhouse Gas Initiative
(RGGI) for emission allowances under this title.
Allowances allotted for this purpose will be deducted from the
allowances to be auctioned for low-income consumers (Section
782(d)).
“Sec. 777. Exchange for State-Issued Allowances”
Basically identical to the House provision, except that to
qualify, emissions allowances must be issued by the later of
December 31, 2011 or 9 months after the first auction under
Sec. 778 of the Senate bill.
This section relates to Sec. 861 (of both
bills), which effectively pre-empts
state/regional cap-and-trade programs (until
2018). The exchange will not necessarily be a
one-to-one swap. EPA’s regulations will
provide that a person exchanging a “state
allowance” receive a Title III allowance that is
“sufficient to compensate” for the cost of
obtaining (this is specifically defined) and
holding a state allowance.
It is difficult to assess the quantity of state
emission allowances that will be exchanged.
A rough calculation: assuming RGGI entities
(the only state program in operation) would
need to exchange a year’s amount of
allowances (188 million tons), this would
account for about 4% of the 2012 federal cap.
However, RGGI allowance prices have
hovered around $3.50/ton. Assuming an
exchange based solely on price (assuming a
$15/ton price for federal allowances) would
thus reduce the 2012 allowance pool by 1%.
CRS-31
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 791. Auction Procedures”
Establishes auction format and procedures. Directs EPA to
promulgate regulations, within 12 months of enactment, that
govern allowance auctions. Auctions will be held quarterly,
starting no later than March 31, 2011. The auctions will include a
reserve price, starting at $10/allowance (in 2009 dollars) and
increasing by 5% plus inflation each year. At each auction, EPA
will offer both current and some proportion of future vintage
allowances. Auctions will follow a single-round, sealed-bid,
uniform price format. Auctions will be open to any person. EPA
may require demonstrations of financial assurance as a condition
of participation. Persons may not purchase more than 5% of
allowances offered in any auction. EPA may revise auction design
(through the regulatory process) if the agency determines an
alternative design is more effective.
“Sec. 778. Auction Procedures”
Basically identical provision, except that the minimum initial
reserve price is $10/allowance in 2005 dollars, or roughly
$11/allowance in 2009 dollars.
The auction format largely follows the
auction scheme used in RGGI, which has held
five auctions, all of which have been
successful. However, a federal emission
allowance auction would be both larger in
scale and broader in scope. Although this
section is relatively prescriptive regarding the
auction design, EPA has authority to alter the
format.
A reserve price may help alleviate market
volatility to some degree and provide
assurance to parties making emission
reductions that the reductions will have
some value in the allowance market.
The small business refiner reserve would
provide this subset of covered entities with
some protection against emission allowance
price spikes.
Directs EPA to issue regulations that would establish a small
business refiner (defined in Section 787(b)) allowance reserve.
EPA would set aside varying percentages of allowances allocated
for auction (e.g., between 2016 and 2024, 4.9% of the total
allowances) that could be purchased by small business refiners at
a price equaling the average auction price from the previous 12
months. These allowances would not be a separate allocation,
but would come from the pool of allowances to be auctioned
for all purposes under Section 782 (e.g., deficit reduction,
consumer rebates, etc.).
“Sec. 792. Auctioning Allowances for Other Entities”
Allows for any holder of emission allowances to request that
EPA auction their allowances. EPA will sell the allowances during
one of the quarterly auctions per Sec. 791. EPA may permit
allowance holders to set a reserve price for their allowances.
However, allowance holders from foreign nations (selling
allowances received per avoided deforestation projects) may not
request a reserve price. EPA is to promulgate regulations to
implement this section within 24 months of enactment. Any
unsold allowances must be returned to the allowance holder.
CRS-32
“Sec. 779. Auctioning Allowances for Other Entities”
Substantially similar provision, except that there is no
requirement to return unsold allowances to the allowance
holder.
Without this section, parties that receive
allowances at no cost would need to sell the
allowances in the secondary market, either
through a market exchange or an over-thecounter transaction. This activity may involve
some level of transaction cost. This section
provides the opportunity for parties to
effectively let EPA conduct the transaction
(through an auction). It is uncertain whether
parties would receive a higher price through
the latter route. Indeed, there is some
evidence (from RGGI) that the market price
dips right before an auction event.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 793. Establishment of Funds”
Establishes the Strategic Reserve Fund; the Climate Change
Consumer Refund Account; and the Climate Change Worker
Adjustment Assistance Fund.
“Sec. 793. Establishment of Deficit Reduction Fund”
Establishes the Deficit Reduction Fund.
Auction proceeds or allowance allocations
are to be deposited in these funds.
Other funds are established in various sections:
Sec. 201—Clean Vehicle Technology Development Fund;
Sec. 467—Climate Change Health Protection and Promotion
Fund;
Sec. 208—Energy Efficiency and Renewable Energy Worker
Training Fund;
Sec. 480—Natural Resources Climate Change Adaptation Fund;
and
Sec. 209—Worker Transition Fund;
Sec. 782—Energy Efficiency and Renewable Energy Worker
Training Fund.
Other funds are established in various sections:
Sec. 210—State Climate Change Transportation Fund and
State Climate Change Response Account;
Sec. 211—Climate Change Health Protection and Promotion
Fund;
Sec. 212—Natural Resource Climate Change Adaptation
Account;
Sec. 213—Nuclear Worker Training Fund;
Sec. 214—Supplemental Agriculture, Renewable Energy, and
Forestry Fund.
“Sec. 794. Oversight of Allocations”
Directs the Comptroller General (by 2014 and every two years
thereafter) to conduct a review of the programs administered by
the federal government that distribute allowances or auction
revenue. The review must examine various aspects, including as
the effectiveness of the programs and the performance of
activities receiving assistance from the programs. The
Comptroller General must submit a report to Congress with
the findings.
CRS-33
“Sec. 781. Oversight of Allocations”
Basically identical to the House provision.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 795. Exchange for Early Action Offset Credits”
Directs EPA to promulgate regulations that would distribute
emission allowances (in 2012 only) to persons who engaged in
emission reduction activities between 2001 and 2008. This
would include (unretired) offset credits from pre-existing state
or voluntary programs that were issued before 2009 (75% of the
allocation), as well as other documented efforts that meet
specific conditions (25% of the allocation). The allowance
exchange would be based on the monetary value of the offset
credits between 2006 and 2008 (adjusted for inflation).
“Sec. 782. Early Action Recognition”
Substantially similar to the House provision except that local
programs and reductions by local governments would also be
included.
There may be a high demand for these
allowances. The bills do not specify how EPA
would determine which persons would
receive the allowances if the demand exceeds
supply.
Subtitle C—Additional Greenhouse Gas Standards
Subtitle C – Additional Greenhouse Gas Standards
Sec. 331. Greenhouse Gas Standards
Amends the Clean Air Act to include a new Title VIII at the end
of the new Title VII.
Sec. 121 Greenhouse Gas Standards.
Similar provision.
“Sec. 801. Definitions”
Provides that terms under this title (Title VIII) are the same as
under Title VII except for the definition of “stationary source.”
“Sec. 801. Definitions”
Identical provision.
“Part A—Stationary Source Standards”
“Part A—Stationary Source Standards”
“Sec. 811. Standards of Performance”
Generally provides that EPA promulgate New Source
Performance Standards (NSPS) under Sec. 111 of the Clean Air
Act for categories of uncapped stationary sources that emit
more than 10,000 tons of carbon dioxide equivalent annually.
Stipulates the schedule for promulgation of the NSPS for various
categories that is not subject to judicial review. Sources of
enteric fermentation are expressly exempted from these
provisions. In setting the appropriate NSPS, EPA is to take into
account projections of allowance prices to ensure that the
marginal costs imposed by such standards are not expected to
exceed those projected allowance prices.
“Sec. 811. Standards of Performance”
Defines “uncapped” greenhouse gas emissions as those to
which the Title VII cap-and-trade program does not apply.
EPA can not promulgate New Source Performance Standards
before January 1, 2020, for any stationary source that: (1)
emits uncapped greenhouse gases, and (2) qualifies as an
eligible offset project.
CRS-34
For H.R. 2454, the provision focuses on
categories of stationary sources that are
responsible for at least 20% of uncapped
greenhouse gases (or 10% of uncapped
methane emissions). EPA is not required to
make an “endangerment finding” under these
provisions to promulgate the necessary
NSPS. Also, stationary sources controlled
under the Title VII emissions cap would not
be subject to a greenhouse gas NSPS under
these provisions.
For the Senate bill, the use of “and” to link
the two criteria for exemption from NSPS
effectively limits the scope of that exemption
to eligible offset projects. Also, unlike the
House provision, there is no lower threshold
for inclusion under NSPS.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Part C—Exemptions from Other Programs”
Sec. 128(g). Amendments Clarifying Regulation of
Greenhouse Gases Under Clean Air Act
“Sec. 831. Criteria Pollutants”
Provides that a greenhouse gas can not be listed as a criteria air
pollutant under Sec. 108(a) of the Clean Air Act on the basis of
its effect on climate change.
Sec. 128(g)(1). Air Quality Criteria and Control
Techniques
Similar provision.
Comments
The provision would prevent EPA from
regulating greenhouse gases via a National
Ambient Air Quality Standard (NAAQS)
because of their climate impacts.
For more information on stationary sources
of greenhouse gases and the Clean Air Act,
see CRS Report R40585, Climate Change:
Potential Regulation of Stationary Greenhouse
Gas Sources Under the Clean Air Act, by (name
redacted) and (name redacted).
“Sec. 832. International Air Pollution”
Provides that Sec. 115 of the Clean Air Act shall not apply to a
greenhouse gas because of its climate impact.
Sec. 128(g)(3). International Air Pollution
“Sec. 833. Hazardous Air Pollutants”
Provides that a greenhouse gas can not be added to the list of
hazardous air pollutants under Sec. 112 of the Clean Air Act
unless such gas meets the listing criteria of Sec. 112(b) on a basis
other than its climate change effects.
Sec. 128(g)(2). Hazardous Air Pollutants
“Sec. 834. New Source Review”
Provides that a greenhouse gas can not be subject to the New
Source Review provisions of the Prevention of Significant
Deterioration (Part C of the Clean Air Act) program solely on
the basis of its effect on climate change or its regulation under
Title VII.
Sec. 128(g)(4). Definition of Major Emitting Facility
CRS-35
Similar provision.
Similar provision.
Redefines a “major emitting facility” under Sec. 169(1)
(Prevention of Significant Deterioration) with respect to a
greenhouse gas or combination of greenhouse gases to
sources that emit over 25,000 tons.
The provision would prevent EPA from
regulating greenhouse gases via the
international air pollution provisions of the
Clean Air Act because of their climate
impacts.
The provision would prevent EPA from
regulating greenhouse gases via the
hazardous air pollution provisions of the
Clean Air Act because of their climate
impacts.
The provisions of the two bills differ
significantly with respect to how major
emitting sources would be treated under Part
C (Prevention of Significant Deterioration) of
the existing Clean Air Act. The H.R. 2454
provision would prevent new or modified
stationary sources from coming under the
Clean Air Act’s New Source Review
provisions (including the requirement to
install best available control technology or
BACT) solely because they emit greenhouse
gases. In contrast, the Senate bill’s provision
would simply raise the threshold for
regulation under Part C from the current 100
or 250 short tons to 25,000 tons with
respect to any greenhouse gas or
combination of greenhouse gases.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 835. Title V Permits”
Provides that no source is covered under the permitting
provisions of Title V of the Clean Air Act, solely because the
source emits any greenhouse gases that are regulated solely
because of their climate effects.
Sec. 128(g)(5). Permits
Sec. 332. HFC Regulation
Amends Title VI of the Clean Air Act to add a new program to
reduce hydrofluorocarbons (HFCs).
Sec. 122. HFC Regulation
Identical provision.
CRS-36
Provides that no source emitting less than 25,000 tons of any
greenhouse gas or combination of greenhouse gases is
covered under the permitting provisions of Title V of the
Clean Air Act solely because the source emits any greenhouse
gases that are regulated solely because of their climate effects.
Comments
The provisions of the two bills differ
significantly. The H.R. 2454 provision would
prevent any source (large or small) from
having to obtain a state permit under Title V
of the Clean Air Act solely because they emit
greenhouse gases. In contrast, the exemption
under the Senate bill is restricted to sources
that emit under 25,000 tons of any
greenhouse gas or combination of
greenhouse gases.
HFCs are very powerful greenhouse gases. A
common use for HFCs (specifically HFC134a) is as a refrigerant in automobile air
conditioning systems.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 619. Hydrofluorocarbons (HFCs)”
Creates a separate cap-and-trade program to reduce emissions
of hydrofluorocarbons (HFCs). Basically, the section puts 20
HFC substances in a new class II, group II category to be
regulated under Title VI of the Clean Air Act. Beginning in 2012,
producers and importers of any class II, group II substance are
required to hold a consumption allowance or destruction offset
credit for each CO2-equivalent ton of class II, group II substance.
The consumption allowances available are capped and that cap is
steadily reduced from 90% of the average annual consumption
during a 2004-2006 baseline to 15% of that baseline after 2032.
Allowances may be banked for future use.
“Sec. 619. Hydrofluorocarbons (HFCs)”
Basically identical provision, with three notable differences.
First, any allowances allocated for essential uses are to come
from allowances withheld from auction or nonauction sale
under subsection (b)(4) (E). Second, Sec. 619(d)(1) provides
that EPA shall determine whether to allocate allowances
withheld from auction or nonauction sale to medical devices
determined by the Commissioner of Food and Drugs within
20 months of enactment to be essential. Third, explicit
provisions are included for providing withheld allowances for
fire suppression, and national security.
The cap-and-trade program for HFCs under
Title VI is completely separate from the capand-trade program for other greenhouse
gases set up under the new Title VII.
Consumption allowances are divided into two pools: a
producer-importer pool with 80% of available allowances and a
secondary pool with 20% of available allowances. In the
producer-importer pool, 10% of available consumption
allowances are auctioned in 2012, increasing steadily to 90% in
2020 and thereafter. Only covered entities may participate in
the auction. The remaining consumption allowances are to be
offered for sale by EPA at a set price for the years 2012-2017,
and at the auction clearing price thereafter.
For the secondary pool, EPA provides for the sale of available
consumption allowances at the same price as the un-auctioned
allowances above. Covered entities and specific other entities
that have taken significant steps to purchase or import any class
II, group II substance, or produced or imported any such
substance in 2004-2006 are eligible for this pool.
Program provides that EPA may provide an exception to the
reduction program for specific essential uses: medical devices,
aviation safety, natural security (fire suppression, etc.) and
exports to developing countries.
EPA regulations are to provide offset credits for the destruction
of chlorofluorocarbons (CFCs) equal to 80% of the carbon
dioxide equivalent reduction achieved by the destruction.
Other provisions include the regulation of small containers of
class II, group II substances used to refill motor vehicle air
conditioners.
CRS-37
The set price for the pool of consumption
allowances not auctioned (and for the
secondary pool) is set at $1 an allowance in
2012, rising to the average of $1.40 and the
2016 auction clearing price in 2017. The
allowances in the producer-importer pool
are available to covered entities based on
their share of production, importation, or
acquisitions, minus exports.
Auctions are to be held once a year and
follow a single-round, sealed-bid uniform
price format.
With respect to essential uses, H.R. 2454
provides that EPA may provide an exception
to the reduction program for specific
essential uses, while the Senate bill requires
such allowances to be allocated from
allowances withheld from auction or
nonauction sale. There are several other
differences with respect to essential uses,
particularly with respect to medical devices.
All proceeds from auctions and sales are
deposited in a Stratospheric Ozone and
Climate Protection Fund for various
purposes, including to encourage the
recovery, recycling, and reclamation of any
Class II substance (subject to appropriations)
in order to reduce emissions.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
Sec. 333. Black Carbon
Requires EPA to submit a report to Congress on black carbon
abatement within one year of enactment.
Sec. 123. Black Carbon
Requires EPA to conduct a four-phase study of black carbon.
A report to Congress on the results of the first two phases is
required 180 days after enactment. Those phases establish
definitions and summarize available scientific and technical
information. A report to Congress on the results of the third
phase is required 270 days after enactment. That phase
summarizes international assistance the United States provides
to reduce black carbon and its impacts, and identifies
opportunities to reduce emissions in foreign countries. A
report to Congress on recommendations resulting from the
fourth phase is required 1 year after enactment. Those
recommendations include research strategies for costeffective approaches to reduce black carbon emissions in the
United States and abroad, and actions the government could
take to encourage or require additional reductions.
The black carbon provisions of H.R. 2454 and
the Senate bill are structured differently,
although they contain many common themes.
Also amends the new Title VIII of the Clean Air Act to provide
for black carbon mitigation (see below).
Includes identical language to H.R. 2454 amending the new
Title VIII of the Clean Air Act to provide for black carbon
mitigation (see below).
“Sec. 851. Black Carbon”
Authorizes EPA to propose a finding that existing Clean Air Act
regulations adequately address black carbon emissions or to
propose a regulation to reduce black carbon emissions within 18
months of enactment. Final regulations or finding is required
within 24 months of enactment.
Requires EPA to submit a report to Congress on U.S. efforts
internationally to reduce, mitigate, and abate black carbon
emissions. The report shall also identify opportunities and
recommendations to achieve significant emission reductions in
foreign countries through technical and other assistance.
“Sec. 851. Black Carbon”
Requires EPA to propose a similar rule or finding within 2
years of enactment. A finding that existing Clean Air Act
regulations are adequate may be based on economic,
technological, and other criteria specified in the provision.
The third and fourth phase of the black carbon study required
under Sec. 123 generally includes the same elements required
by the Sec. 851 report to Congress.
Sec. 334. States
Amends Sec. 116 of the Clean Air Act ─ which allows states to
implement more stringent air pollution standards for stationary
sources than the federal government ─ to clarify that the phrase
“standard or limitation respecting emissions of air pollutants”
includes provisions relating to GHG emission controls.
Sec. 124. States
Basically identical provision, except for minor conforming
language.
Sec. 335. State Programs
Amends Title VIII of the Clean Air Act by adding Part F ─
“Miscellaneous.”
Sec. 125. State Programs
Provision is similar.
CRS-38
Authorizes such sums as necessary to fund
this section.
This section should be read in conjunction
with Sec. 335/Sec. 125 (“Sec. 861”) below,
which effectively pre-empts state/regional
cap-and-trade programs for a specific period
of time.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 861. State Programs”
Prohibits states from implementing or enforcing a GHG
emission cap that covers any (federally) capped emissions during
the years 2012 through 2017. Clarifies that a cap does not
include fleet-wide motor vehicle emission requirement or lifecycle fuel standards. This section is “notwithstanding section
116.” Sec. 116 allows states to implement more stringent
standards at stationary sources, including (per Sec. 334 of the
bill) GHG emission controls.
“Sec. 861. State Programs”
Provision is similar except for a provision that conditions the
beginning of the moratorium on the start-up of auctions
under Sec. 778. If the scheduled March 31, 2011 auction is not
delayed, the moratorium begins in 2012. If it is delayed, states
can not enforce a GHG cap that covers any (federally) capped
emissions “emitted during the period that commences at least
9 months from the date of the first auction as set out in
section 778, through 2017.”
Effectively provides federal pre-emption of
state cap-and-trade programs for covered
entities from 2012 through 2017. However, it
does not pre-empt state programs that
reduce greenhouse gas emissions by means
other than a cap-and-trade program (e.g.,
fleet-wide motor vehicle emissions
requirements).
“Sec. 862. Grants for Support of Air Pollution Control
Programs”
Authorizes the EPA to make grants to air pollution control
agencies for purposes of providing implementation assistance in
terms of this act.
“Sec. 862. Grants for Support of Air Pollution Control
Programs”
Basically identical provision except for minor conforming
language.
Sec. 336. Enforcement
Amends Sec. 307 of the Clean Air Act to provide that (1) in
cases where the EPA is found to have erred in an action, the
court may remand that action, without vacatur, if vacatur would
impair or delay protection of the environment or public health
or timely achievement of the purposes of the Clean Air Act; (2)
if a court remands an EPA decision, EPA shall complete final
action within an expeditious time period, (3) a petition for
reconsideration shall be considered denied for the purpose of
judicial review if EPA does not take final action on such petition
within 150 days; and (4) that the party denied the petition may
seek judicial review in the appropriate court of appeals.
Sec. 126. Enforcement
Basically identical provisions except for the addition of a
provision entitled, “Petition for Review” that states that “any
person may file a petition for review of action by the
Administrator as provided in this subsection.”
Attempts to prevent delays in environmental
regulation through three means: (1) permits
the courts to remand an EPA regulation back
for reconsideration without requiring the
court to vacate the entire rule if doing so
would harm public health or the
environment; (2) requires EPA to respond
expeditiously to any remand; and (3)
attempts to prevent EPA from delaying
consideration of petitions for reconsideration
by putting a 150-day limit on EPA’s review
process before the petition would be
automatically denied and the petitioner could
then seek a judicial remedy.
Sec. 337. Conforming Amendments
Makes various conforming amendments to existing laws.
Sec. 128. Conforming Amendments
Basically identical provision except for a minor conforming
amendment to eliminate a numbering error in the current
Clean Air Act (currently, there are two Title IVs in the act),
and two major changes to the Clean Air Act. First, it amends
the Clean Air Act to prevent EPA from regulating greenhouse
gases under Sec. 108 (National Ambient Air Quality
Standards), Sec. 112 (Hazardous Air Pollutants), or Sec. 115
(International Air Pollution) of the act. Second, it redefines a
“major emitting facility” under Sec. 169(1) (Prevention of
Significant Deterioration) and Title V (Permits) with respect to
greenhouse gases to sources that emit over 25,000 tons.
H.R. 2454 amendments to the Clean Air Act
are contained in “Part C – Exemptions
from Other Programs.”
CRS-39
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Sec. 338. Davis-Bacon Compliance
Recipients of emission allowances are required to provide
reasonable assurances that all laborers and mechanics employed
by contractors and subcontractors on funded projects, including
the Carbon Storage Research Corporation, will be paid wages at
rates not less than those prevailing on projects of a character
similar in the locality.
Sec. 129. Davis-Bacon Compliance
Identical provision except for minor conforming language.
Sec. 339. National Strategy for Domestic Biological
Carbon Sequestration
Requires EPA, in consultation with other agencies, to submit to
Congress within one year of enactment a comprehensive plan to
address barriers to maximizing the potential for sustainable
biological carbon sequestration.
Biological sequestration approaches and technologies are
included in a National Academy of Sciences review required
under Sec. 706. The review must be updated every four years.
Sec. 340. Reducing Acid Rain and Mercury Pollution
Requires EPA, within 18 months of enactment, to submit to
Congress a report that analyzes the effect of various carbon
reduction strategies and technologies on emissions of mercury,
sulfur dioxide, and nitrogen oxide, identifies the barriers to costeffective multi-pollutant control technologies and strategies, and
makes appropriate recommendations.
“Sec. 863. Reducing Acid Rain and Mercury Pollution”
Subtitle D—Carbon Market Assurance
Subtitle D—Carbon Market Assurance
Sec. 341. Carbon Market Assurance
Amends the Federal Power Act to include a new Part IV at the
end entitled “Carbon Market Assurance.”
Sec. 131. Carbon Market Assurance
Provides a sense of the Senate that there shall be a single,
integrated carbon market oversight program with 12 specific
purposes.
Comments
Provision is similar.
The provision in H.R. 2454 provides for the
regulation of trading in “regulated
instruments,” which are defined as regulated
allowances and regulated allowance
derivatives.
The Senate provision is basically a
placeholder to be filled in by the appropriate
committee of jurisdiction.
CRS-40
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
“Sec. 401. Oversight and Assurance of Carbon Markets”
Provides for the Federal Energy Regulatory Commission (FERC)
to regulate the cash market in emission allowances. Within 18
months of enactment, FERC shall issue regulations to provide
for effective and comprehensive market oversight; prohibit
fraud, market manipulation, and excess speculation; and provide
measures to limit unreasonable fluctuation in the prices of
regulated allowances. If necessary, rules will include margin
requirements and position limitations for individual market
participants. To provide for the formation and operation of a
fair, orderly, and liquid national market system for allowances,
FERC shall establish qualification standards for operation of
trading facilities and clearing organizations for regulated
allowances. FERC will have the authority to issue cease and
desist orders and to suspend or revoke the registration of any
trading entity violating any rule or order issued under this
subsection.
S. 1733, as Ordered Reported
Comments
No similar provision.
Under H.R. 2454, regulation of derivatives
contracts (futures, options, etc.) based on
allowances would fall to the Commodity
Futures Trading Commission (CFTC) under
current law.
No similar provision.
This section of H.R. 2454 would mean that
allowance derivatives could not be traded in
the over-the-counter (OTC) market without
a specific regulatory exemption from the
CFTC.
Taking into consideration the recommendations of an
interagency working group created under the bill, the
Commodity Futures Trading Commission is to promulgate
regulations for the establishment, operation, and oversight of
markets for regulated allowance derivatives. The purposes of
the derivatives provisions are similar to those above for the cash
market. The interagency working group shall also make
recommendations to Congress regarding legislative changes
needed to ensure that allowance derivatives markets are
transparent, fair, stable, and efficient.
The CFTC shall collect information and report periodically on
the operation of the allowance derivatives markets.
Sec. 342. Carbon Derivative Markets
Amends the Commodity Exchange Act to place allowance
derivatives on the same regulatory basis as derivatives based on
agricultural commodities.
CRS-41
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
Sec. 351. Regulation of Certain Transactions in
Derivatives Involving Energy Commodities
Amends Section 1a and other sections of the Commodity
Exchange Act to increase oversight of carbon markets. Under its
provisions energy commodities (as defined) are taken out of the
“exempt commodity” category, meaning that energy derivatives
must be traded on a CFTC-regulated exchange unless the CFTC
issues a specific exemption.
S. 1733, as Ordered Reported
No similar provision.
Comments
The Commodity Exchange Act (CEA)
currently provides a statutory exemption for
over-the-counter (OTC) derivatives based on
non-agricultural commodities. This means
that legislation is necessary to give CFTC
power to regulate OTC derivatives.
CFTC currently has authority to set position
limits, but delegates that authority to the
exchanges. There are no position limits
applicable to OTC derivatives.
The section would also restrict CFTC’s authority to issue such
exemptions—the CFTC must provide 60 days’ advance notice
and take public comments. Limits on CFTC’s exemptive
authority would apply not only to prospective OTC energy
contracts, but also to contracts listed on a foreign futures
exchange that involve delivery in the United States or that are
traded over a computer located in the United States.
Index trading—strategies that generate
returns replicating an index of commodity
prices—by pension funds and others was
blamed by some observers for the run up in
oil prices in 2008.
In addition, the CFTC is required to establish position limits
setting ceilings on the number of energy contracts that any
person could hold, and creates a Position Limit Energy Advisory
Group to make recommendations to the CFTC regarding
appropriate levels for position limits. Exemptions from the
position limits would be available only for “bona fide hedging
transactions,” defined as either traders directly involved in
physical energy markets, or financial intermediaries who are
dealing with such traders.
Finally, the CFTC is required to publish data on positions of
swap dealers and index traders (such as institutional investors
and financial intermediaries that deal in derivatives). This
provision would apply to all commodities, not just energy.
Sec. 352. No Effect on Authority of the Federal Energy
Regulatory Commission
Amends Section 2 of the Commodity Exchange Act to provide
that the act does not affect FERC’s regulatory jurisdiction.
No similar provision.
Sec. 353. Inspector General of the Commodity Futures
Trading Commission
Amends the Commodity Exchange Act to make the Inspector
General (IG) of the CFTC a presidential appointee.
No similar provision.
CRS-42
Under current law, the IG is appointed by
the CFTC chairman.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
Sec. 354. Settlement and Clearing Through Registered
Derivatives Clearing Organizations
Amends the Commodity Exchange Act to require that over-thecounter (OTC) derivative contracts, such as swaps, be settled
and cleared through a derivatives clearing organization (DCO)
registered with the CFTC. DCOs would be required to disclose
information about the terms and conditions of contracts, the
methodology for determining margin requirements, and data
regarding prices, volume, and open interest. In addition, DCOs
would have to adopt fitness standards for directors and certain
other parties.
S. 1733, as Ordered Reported
Comments
No similar provision.
Clearing houses are a standard feature of the
futures exchanges. They are a central point
for collection of data on all traders’ positions;
the CFTC currently obtains daily figures from
exchange clearing houses on large trader
positions.
Sec. 355. Limitation on Eligibility to Purchase a Credit
Default Swap
Amends Section 4c of the Commodity Exchange Act to set new
eligibility requirements for trading credit default swaps.
Participation in that market would be limited to those who (1)
own the credit instrument that the credit swap was insuring, (2)
would experience financial loss if the credit event that triggers
the swap insurance payment were to occur, or (3) met capital
adequacy standards to be established by the CFTC in
consultation with the Federal Reserve.
No similar provision.
The collapse of AIG in 2008 was attributed
to trading in “naked” credit swaps—basically
insurance contracts sold to speculators who
did not have an insurable interest in the
bonds for which the swaps provided
insurance against default.
Sec. 356. Transaction Fees
Amends Section 12 of the Commodity Exchange Act to
authorize the CFTC to set and collect fees from registered
clearing organizations at a rate calculated to cover the cost of
derivatives regulation (with the exception of costs directly
related to enforcement). Fee rates would be adjusted annually
so that amounts collected would approximate the CFTC’s
budget authority for non-enforcement activities.
No similar provision.
The Securities and Exchange Commission and
the federal bank regulators have long been
funded by fees and assessments on the
financial institutions and markets they
regulate. Every administration since President
Reagan’s has proposed similar fees for the
futures market, but none has been enacted.
Sec. 357. No Effect on Antitrust Law or Authority of the
Federal Trade Commission
The subtitle does not affect FERC jurisdiction to obtain
information, carry out enforcement activities or other
responsibilities under either the Federal Trade Commission Act,
EISA, or the antitrust laws.
No similar provision.
The H.R. 2454 provision specifies that
nothing in this act diminishes the jurisdiction
or authority of the Federal Trade
Commission.
CFTC would be authorized to issue exemptions from the
clearing requirement for certain OTC contracts that are not
standardized instruments, but contracts so exempted would still
have to be reported to the CFTC.
CRS-43
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
Sec. 358. Effect of Derivatives Regulatory Reform
Legislation
Upon passage of derivatives regulatory reform legislation,
Sections 351, 352, 354, 355, 356, and 357 of this act shall be
repealed, and regulations issued pursuant to those sections shall
be null and void.
No similar provision.
See CRS Report R40646, Derivatives
Regulation in the 111th Congress, by (name
redacted) and (name redacted), for information on
other derivatives reform legislation.
Sec. 359. Cease-and-Desist Authority
Amends Section 20 of the Natural Gas Act to authorize FERC
to issue cease-and-desist orders for violations. Provides for
administrative and judicial review of such orders.
No similar provision.
Market regulators such as the CFTC and SEC
already have such authority.
Sec. 360. Presidential Review of Regulations
Not less than 24 months after enactment, the President shall
review offset and derivatives regulations issued pursuant to this
act, and shall determine whether they adequately protect the
U.S. financial system from systemic risk.
No similar provision.
A major purpose of derivatives reform
proposals is to reduce the possibility that
derivatives losses can spill over into other
markets, generating systemic instability.
Title IV—Transitioning to a Clean Energy Economy
Subtitle E—Ensuring Real Reductions in Industrial
Emissions
Subtitle E—Ensuring Real Reductions in Industrial
Emissions
Sec. 401. Ensuring Real Reductions in Industrial
Emissions
Amends Title VII of the Clean Air Act by inserting a new “Part
F—Ensuring Real Reductions in Industrial Emissions.”
Sec. 141. Ensuring Real Reductions in Industrial
Emissions
Provision similar to that in H.R. 2454
“Part F—Ensuring Real Reductions in Industrial
Emissions”
“Part F—Ensuring Real Reductions in Industrial
Emissions”
“Sec. 761. Purposes”
Lists seven environmental and economic purposes for the
provisions of Part F.
“Sec. 761. Purposes”
Similar provision except it deletes two purposes contained in
H.R. 2454 that related to that bill’s International Reserve
Allocation (IRA) scheme that the Senate proposal doesn’t
have (although it does include a sense of the Senate provision
to include a border adjustment scheme).
CRS-44
For further information on trade and carbon
leakage, see CRS Report R40100, “Carbon
Leakage” and Trade: Issues and Approaches, by
(name redacted) and (name redacted).
The purpose of the new Part F is both
environmental in terms of reducing potential
carbon leakage resulting from potential shifts
of production and investment from the
United States to countries without carbon
controls, and economic in terms of
preventing the associated job loss from such
a shift.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
“Sec. 762. Definitions”
The new Part F generally uses the same definitions as those used
in Title VII above, with some specific additions here with respect
to defining terms such eligible sectors and products.
S. 1733, as Ordered Reported
“Sec. 762. Definitions”
Similar provision except it doesn’t include definitions of a
“covered good” or of an “item manufactured for
consumption” (terms used in H.R. 2454’s IRA scheme).
Comments
As passed by the House, potential product
coverage with respect to the subpart 2
international reserve allowance system
includes primary products, such as iron, steel,
aluminum, and cement, and “manufactured
item for consumption”—i.e., finished goods,
which could involve items ranging from
aluminum cans to automobiles. Such a
potentially broad definition may be difficult to
implement and create conflicts with
commitments the United States has under
the World Trade Organization (WTO) and
various free trade treaties (such as NAFTA).
The Senate proposal does not include such a
term because it currently doesn’t have an
IRA scheme.
“Sec. 763. Eligible Industrial Sectors”
Requires EPA to publish a list of eligible industrial sectors and
amount of allowances to be rebated per unit of production for
the next two years by June 30, 2011 (revised every four years
thereafter). As determined by EPA, presumptively eligible
sectors, based on six-digit NAICS classification, are those who
meet energy or greenhouse gas intensity criteria (specifically,
that energy or greenhouse gas costs are at least 5% of the value
of their shipments) and trade exposure criteria (specifically, a
trade intensity of at least 15%); or have very high energy or
greenhouse gas intensity (at least 20%). The bill specifies data
sources to be used in these determinations and, specifically,
annual average data for 2004-2006 time period, unless
unavailable. However, the bill provides that EPA shall determine
additional sectors eligible if they (1) meet the greenhouse gas or
energy intensity criteria at the time the rule is promulgated and
(2) meet trade intensity criteria based on post-2006 data. The
bill also has provisions allowing individual entities to petition for
inclusion of their subsector under the program.
CRS-45
“Sec. 763. Eligible Industrial Sectors”
Identical provision except for minor conforming language.
This new Part F creates a rebate program
directed at energy/greenhouse gas-intensive,
trade-exposed industries harmed by the
direct emissions reduction costs and indirect
increased electricity input costs from
implementing Title VII.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
“Sec. 764. Distribution of Emission Allowance Rebates”
Based on the best data available, EPA is to provide the rebate to
eligible companies based on a two-part formula: (1) 100% of the
industry’s annual average emissions per unit of output over the
most recent four years times the company’s annual average
output over the preceding two years (direct emissions); and (2)
average emissions per kilowatt-hour of electricity purchased by
the company times the industry average electricity used per unit
of output over the preceding two years times an electricity
efficiency factor to be determined by EPA (indirect emissions).
Entities not covered by Title VII are eligible for the indirect
emissions rebate. If these formulas result in more allowance
needs than provided under the bill, the allocations to entities
would be reduced on a pro rata basis to match the allowances
available.
“Sec. 764. Distribution of Emission Allowance
Rebates”
Generally similar provision, except for three major
differences. First, there are no provisions permitting the
President to modify the phase-out schedule. Second, the
calculations of average greenhouse gas intensity is made using
an average of the 5 most recent years of the best available
data, from up to 7 years prior to the year in which such
calculations are made (highest and lowest emitting years are
excluded from the calculation). Third, a new subsection is
added mandating that EPA calculate a sector’s direct emissions
and electricity efficiency averages, to the extent practicable,
based upon the product produced, the process employed, and
use of combined heat and power technologies.
Comments
Unless modified by the President, the allowance rebates are
phased out over a 10-year period, beginning in 2026. Facilities
that ceased to engage in qualifying activities would lose their
allocations at the point they ceased those activities.
Provides that iron and steel made with different processes and
metal, soda ash, or phosphate production classified under more
than one NAICS code be treated as different categories under
the section; and that differences in use of combined heat and
power technologies be taken into account.
“Sec. 765. International Negotiations”
Requires the President as soon as practicable after enactment to
notify all non-exempted countries that the United States (1)
seeks international agreements that commit all major emitting
nations to contribute equitably to reducing greenhouse gas
emissions; (2) requests the country take appropriate measures
to limit its greenhouse gas emissions, and (3) may apply the
international reserve requirements of this subpart to a covered
good beginning on January 1, 2020.
No similar provision.
“Sec. 766. United States Negotiating Objectives with
respect to Multilateral Environmental Negotiations”
States four negotiating objectives of the United States under this
subpart.
No similar provision.
CRS-46
The H.R. 2454 provision lists the
environmental and economic elements the
United States would seek in negotiating an
international greenhouse gas reduction
agreement.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
“Sec. 767. Presidential Reports and Determinations”
Requires the President by January 1, 2017 (and biannually
thereafter), to submit a report to Congress on the effectiveness
of the emission rebates under Subtitle 1 at mitigating carbon
leakage and recommendations on improving the subtitle’s
purposes.
If there is no multilateral agreement on reducing greenhouse
gases in force by January 1, 2018, the President shall establish an
international reserve allowance program for all eligible sectors
unless the President determines and the Congress concurs that
the program, or inclusion of a sector within that program, would
not be in the Nation’s economic or environmental interests.
Beginning June 30, 2018, and every four years thereafter, the
President shall determine for each eligible industrial sector
whether more than 85% of U.S. imports for that sector is from
countries that are either (1) parties to international agreements
requiring economy-wide binding national commitments at least
as stringent as those of the United States; (2) have annual energy
or greenhouse gas intensities for the sector comparable or
better than the equivalent U.S. sector; or (3) parties to an
international or bilateral emission reduction agreement for that
sector. If not, the President shall no later than June 30, 2018
(and every four years thereafter) assess the effectiveness of
Subpart 1 rebates and the international reserve allowance
program in mitigating or potentially mitigating the carbon
leakage in that sector, and respond by (1) modifying the rebate
formula under Subpart 1, and (2) implementing (or continuing to
implement) an international reserve allowance program with
respect to imports of covered goods from that sector.
CRS-47
S. 1733, as Ordered Reported
No similar provision.
Comments
Under H.R. 2454, the international reserve
allowance program would be implemented
unless the Congress either (1) ratifies an
multilateral agreement reducing greenhouse
gases or (2) votes to concur with a
Presidential determination that the program
would not be in the Nation’s economic or
environmental interest. Likewise, the
program must cover each eligible industrial
sector unless the Congress votes to concur
with a Presidential determination that
including that sector would not be in the
Nation’s economic or environmental interest.
The Senate proposal has a sense of the
Senate motion on including a border measure
in its bill, but no provisions.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
“Sec. 768. International Reserve Allowance Program”
Requires EPA to promulgate rules establishing an international
reserve allowance system for covered goods from the eligible
industrial sector, including allowance trading, banking, pricing,
and submission requirements. Allowances will be required for
importation into the United States of any covered good of an
eligible industrial sector from a covered country. Exemptions
are provided for (1) least developed countries, (2) countries
who emit less than 0.5% of global greenhouse gas emissions, and
(3) countries meeting the criteria of Sec. 767.
“Sec. 765. International Trade”
Provision states: “It is the sense of the Senate that this Act
will contain a trade title that will include a border measure
that is consistent with our international obligations and
designed to work in conjunction with provisions that allocate
allowances to energy-intensive and trade-exposed industries.”
The Senate provision is basically a
placeholder to be filled in by the appropriate
committee of jurisdiction
The program must be consistent with U.S. commitments under
international agreements, and in a manner that minimizes the
likelihood of carbon leakage resulting from costs differentials
resulting from compliance by U.S. companies with the U.S.
reduction program compared with compliance by foreign
companies with their nation’s reduction program.
The EPA shall adjust the international reserve allowance
requirement based on the value of allowances allocated free
under Subpart 1 and under Sec. 782(a) (electricity providers),
including reducing the requirement to zero.
The international reserve allowances issued under this program
may not be used by covered entities to comply with the
emissions cap under Title VII. Also, this program may not begin
before January 1, 2020.
“Sec. 769. Iron and Steel Sector”
For this subpart, iron and steel produced by different processes
shall be considered as one eligible industrial sector.
CRS-48
No similar provision.
Whether any proposed border measure can
be designed in a manner that would survive a
challenge before the World Trade
Organization (WTO) is a hotly debated topic.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Comments
Subtitle C—Consumer Assistance
Sec. 431. Energy Refund Program
Amends the Social Security Act (42 U.S.C. 201) by adding Title
XXII.
No similar provision.
“Sec. 2201. Energy Refund Program”
Directs the Secretary of Health and Human Services to establish
and administer a program to reimburse (via monthly cash
payments) eligible low-income households for their loss of
purchasing power resulting from the bill’s enactment. Defines
eligible households as (among other potential criteria) those
with gross incomes not exceeding 150% of the poverty line.
“Sec. 776. Consumer Protection”
Establishes the Energy Refund Account, which would be
funded from auction revenues per Sec. 771(b)(2).
Directs EIA to annually provide an estimate of the total
purchasing power loss that low-income households would
experience in the next fiscal year. Provides a formula for
calculating each household’s monthly refund, based on
household size and the EIA estimate.
The Energy Refund Account is analogous to allocation in the
House bill that would distribute 15% of the allowance value to
low-income consumers on an annual basis. The President is to
use funds from this account (in accordance with Federal
statutory authority) to offset energy cost impacts on low- and
moderate-income households. Further details are not
provided.
In the House bill, households with gross
incomes below 150% of the poverty line
would be eligible for the full refund. The
refund would decrease for households with
incomes above this level, and is estimated to
phase out completely near 160% of the
poverty line.
Requires state agencies to assume administrative responsibilities,
including the certification of household applicants, the issuance
of refunds, and related accounting.
Stipulates that the refund shall not be considered income under
federal, state, or local laws. Further, states cannot decrease
assistance that would otherwise be provided because of the
receipt of the energy refunds.
Sec. 432. Modification of Earned Income Credit Amount
for Individuals
Amends Section 32 of the Internal Revenue Code to expand the
Earned Income Tax Credit for individuals who work but have no
qualifying children.
CRS-49
No explicit provision, however Sec. 776 provides broad
Presidential authority.
Relief under Section 431of H.R. 2454 is
projected to leave out this particular group.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
Sec. 433. Protection of Social Security and Medicare
Trust Funds
Amends Section 201 of the Social Security Act (42 U.S.C. 401)
to require the Secretary of the Treasury to transfer (“from time
to time”) funds from the Treasury (not otherwise appropriated)
to the Federal Old-Age and Survivors Insurance Trust Fund and
the Federal Disability Insurance Trust Fund, so that these trust
fund amounts would account for changes brought on by H.R.
2454.
S. 1733, as Ordered Reported
Comments
No explicit provision, however Sec. 776 provides broad
Presidential authority.
Subtitle F—Deficit Neutral Budgetary Treatment
Sec. 496. Deficit Neutrality
Instructs Treasury to use different accounts for funds
established under Secs. 422, 467, and 480. Funds may only be
used for the purposes set forth in this bill. Receipts and
appropriations from the Funds are to be attributed explicitly to
the act. Appropriations from these funds may not exceed
amounts deposited into the respective Fund during the previous
year.
No similar provision.
Title V—Agriculture and Forestry Related Offsets
Subtitle A—Offset Credit Program for Domestic
Agricultural and Forestry Sources
Sec. 501. Definitions
Provides definitions relevant for this title.
Subsection 501(b) states that agricultural and forestry sectors
are not considered “capped sectors” for the purposes of Titles
III (the cap-and-trade provisions) or V. However, the phrase
“capped sector” appears nowhere else in the bill.
CRS-50
Unlike the House bill, which delegates offset
program authority to both EPA and USDA,
the Senate bill delegates the offset program
to the President and is found in only one part
of the bill (Part D of Title VII to the Clean
Air Act, added by Title I of the bill). A
comparison between the EPA program in the
House bill and the program delegated to the
President is found above.
No similar provision.
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
Sec. 502. Establishment of Offset Credit Program from
Domestic Agricultural and Forestry Sources
Directs the Secretary of Agriculture to establish an offsets
program within one year of enactment of Title V. Instructs
USDA to issue rulemakings that would include offset
methodologies, provisions to address leakage and/or reversals,
third-party verification requirements, and audit procedures.
S. 1733, as Ordered Reported
No similar provision.
Provides technical assistance to offset project developers from
funds appropriated to the Conservation Operations account.
Sec. 503. List of Eligible Domestic Agricultural and
Forestry Offset Practice Types
Directs USDA within one year of enactment to publish in the
Federal Register a list of eligible offset practice types. When
preparing the list, USDA shall consider the recommendations of
the Advisory Committee. The list “shall include” practices that
reduce/sequester GHG emissions, “such as” altered tillage,
reduced fertilizer use, afforestation, and manure management,
among other examples. Because the text includes the phrase
“such as” instead of “including,” USDA is not required to include
on the list the practices specifically identified.
Provides for procedures for USDA to add practices to the list
or revise the list. Allows parties to petition USDA to add
practices to the list.
CRS-51
No similar provision.
Comments
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
Sec. 504. Requirements for Domestic Agricultural and
Forestry Practices
Directs USDA to establish methodologies (per a regulatory
rulemaking process) for the offset practices listed per Sec. 503.
For each eligible practice type, USDA is to develop standardized
methodologies that address additionality, baseline calculations,
measurement, leakage, and uncertainty.
S. 1733, as Ordered Reported
No similar provision.
USDA is to develop a process that accounts for offset
“reversals,” including mechanisms such as an offsets reserve
and/or insurance. An offsets reserve “is a program under which,
before issuance of offset credits under this part, the Secretary
shall subtract and reserve from the quantity to be issued a
quantity of offset credits based on the risk of reversal.”
USDA may issue “term offset credits” in lieu of offset credits for
offset practices with crediting periods of five years or less.
Requires USDA to implement different reversal requirements
for term offset credits.
USDA will specify the crediting period for each offset practice.
Crediting periods will not exceed 5 years for agriculture
sequestration; 20 years for forestry sequestration; and 10 years
for other practices.
Sec. 505. Project Plan Submission and Approval
Describes the process by which an offset project developer
seeks approval for a particular offset project. Requires offset
project developers to submit for approval to USDA an offset
project plan. Directs USDA within 90 days to either approve or
deny the plan. If approved, USDA must provide an estimate of
offset credits that would be earned (subject to third-party
verification). Includes appeals process. Clarifies that a project
plan need only be submitted once in a crediting period.
No similar provision.
Sec. 506. Verification of Offset Practices
Requires offset project developer to provide USDA with
verification from a USDA-accredited third party. USDA is to
create a process to accredit third parties for this function.
Required information (e.g., tons reduced/avoided/sequestered,
methodologies used) in the verification and the schedule for its
submittal will be determined by USDA.
No similar provision.
CRS-52
Comments
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Sec. 507. Certification of Offset Credits
Directs USDA to make offset issuance determinations no later
than 90 days after receipt of the third-party verification reports.
After making the determination, USDA is to issue credits within
14 days. Offsets will be assigned unique serial numbers provided
by EPA.
No similar provision.
Sec. 508. Ownership and Transfer of Offset Credits
Clarifies that the initial owner of an offset credit would be the
project developer. Allows offset credits to be sold, traded, or
transferred until they are retired or expired.
No similar provision.
Sec. 509. Program Review and Revision
Requires USDA to review various components—methodologies,
reversal policies, accountability measures—of its offset program
at least once every five years.
No similar provision.
Sec. 510. Environmental Considerations
Instructs USDA, if it lists forestry projects as eligible offset
types, to develop regulations that address concerns particular to
forestry offsets. The list of concerns includes biodiversity,
invasive species, and non-native species.
No similar provision.
Sec. 511. Audits
Authorizes USDA to conduct random audits of offset projects,
credits, and practices of third-party verifiers. Requires USDA to
annually audit, at minimum, a representative sample of project
types and geographic areas.
No similar provision.
CRS-53
Comments
Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733
H.R. 2454, as Passed by the House
S. 1733, as Ordered Reported
Subtitle B—USDA Greenhouse Gas Emission Reduction
and Sequestration Advisory Committee
Sec. 531. Establishment of USDA Greenhouse Gas
Emission Re
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