Publications

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On September 30, 2009, Senators Barbara Boxer (D-CA) and John Kerry (D-MA) introduced climate change legislation, S. 1733, entitled the Clean Energy Jobs & American Power Act. The bill is designed to address what its authors consider four national priorities:

• ensuring the transition to clean energy through investments in efficiency and technologies;
• reasserting American economic leadership and competitiveness; 
•  protecting the country’s health from pollution; and 
• ensuring the national security.

This bill, a Senate counterpart to the American Clean Energy and Security Act (ACES, H.R. 2454) approved by the House of Representatives in June of this year on a largely partisan vote, sets even more aggressive greenhouse gas emission reduction targets than the House bill. Instead of a short-term goal of a 17 percent reduction of greenhouse gas emissions below 2005 levels by 2020, as endorsed by the House legislation, the Senate bill targets a steeper 20 percent reduction by 2020. Both bills call for a 42 percent reduction by 2030 and an 83 percent reduction by 2050.

“Cap-and-Trade” or “Pollution Reduction and Investment”

The Senate’s version of climate change legislation proposes to achieve greenhouse gas reductions through Pollution Reduction and Investment, or PRI. Like the House’s cap-and-trade system, PRI would establish a market-based system to achieve yearly reductions in greenhouse gas emissions through which large-scale emitters – those businesses emitting at least 25,000 tons per year of greenhouse gases – will buy and sell a limited quantity of carbon emission allowances. The number of available emission allowances will be reduced over time.

As in the House legislation, allowances would be allocated and distributed to certain industries to assist in the transition to the PRI system. The House-passed bill gives about 85 percent of allowances free in the early years to utilities, states and other entities to reduce the economic impact of the new cap-and-trade system. However, absent from the Senate legislation are details about which industries would be receiving the allowances and in what amounts. Senator Boxer, chair of the Senate Committee on Environment and Public Works, has indicated that the allocation and distribution issue will be addressed when she releases a revised version of the bill prior to consideration of the legislation by her committee. Her plan is to hold committee hearings on the legislation in mid-October, with a committee vote to come shortly after the hearings.

Consumer Protections

The newly-introduced bill includes a handful of provisions aimed at “consumer protection”. The Clean Energy Jobs & American Power Act would set up a consumer rebate system to offset increased energy costs, an anticipated consequence of the PRI system. It also includes a “carbon collar” provision, which would provide for a market stability fund to protect consumers and businesses from emission allowances price volatility. If prices for allowances reach $28/ton, additional allowances would be made available from a strategic reserve. The trigger price would increase over time (5 percent from the previous year, plus inflation from 2013-17, and 7 percent plus inflation after 2017).

Increased Investment

The Senate bill would provide new opportunities and incentives for those implementing new coal technologies and low-carbon power generation (particularly those projects involving natural gas), as well as for those researching and developing advanced nuclear technology.

Details To Come

Senators Boxer and Kerry intentionally failed to address details about some of the key controversial issues that will have to be considered in any final bill. In addition to deferring on the important questions of how many allowances will be allocated for free, to whom and for how long, the legislation includes only a “sense of the Senate” placeholder regarding border adjustments and import tariffs to protect trade-exposed U.S. manufacturers. The language on offsets and the agricultural and forestry sectors has also been characterized as “place holder”, pending input from the Senate Committee on Agriculture, Nutrition and Forestry.

A “High Water Mark” Which Will Continue to Evolve

The Senate bill is expected to change significantly before being submitted to the full Senate for a vote. Several Senate committees with jurisdiction over these issues have yet to weigh in on the legislation, including the Finance Committee, currently focused on health care legislation. The Finance Committee leadership has indicated that it intends to tackle the allowance allocation and distribution issue in detail. Senate Republicans already have stated that the bill is deficient in its failure to address nuclear energy and that the PRI provisions amount to an open-ended energy tax on the consumer.

At present, informal headcounts within the Senate indicate that the Democratic Leadership does not now have the votes necessary to pass the legislation. The bill has been described as a “high water mark” by its supporters, and it is expected to be modified significantly as the Leadership works to put together a bill which can attract a consensus. Senate hearings could begin as early as the week of October 19.

The Senate bill comes on the heels of a proposal by EPA to establish an emissions threshold under the Clean Air Act’s (CAA’s) Prevention of Significant Deterioration and Title V permitting programs, which would trigger controls and permitting for significant sources of CO2 emissions. According to EPA, the proposal “is necessary because EPA expects soon to promulgate regulations under the CAA to control GHG emissions.” [Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, EPA-HQ-OAR-2009-0517, at 1]. Regulation under the CAA would follow the traditional model of triggering controls when additions or changes at a facility would result in a significant increase in emissions. It is unclear whether the EPA proposal is intended to be a backup or a complement to the impending legislation.