Order Code RL33846
Climate Change: Greenhouse Gas Reduction Bills
in the 110th Congress
January 31, 2007
Larry Parker
Specialist in Energy Policy
Resources, Science, and Industry Division

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Climate Change: Greenhouse Gas Reduction Bills
in the 110th Congress
Summary
A number of congressional proposals to advance programs that reduce
greenhouse gases have been introduced in the 110th Congress. Proposals receiving
particular attention would create market-based greenhouse gas reduction programs
along the lines of the trading provisions of the current acid rain reduction program
established by the 1990 Clean Air Act Amendments. This paper presents a side-by-
side comparison of the major provisions of those bills and includes a glossary of
common terms.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Proposed Legislation in 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Appendix 1. Comparison of Key Provisions of Greenhouse Gas
Reduction Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Appendix 2. Common Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

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Climate Change: Greenhouse Gas
Reduction Bills in the 110th Congress
Introduction
Climate change is generally viewed as a global issue, but proposed responses
generally require action at the national level. In 1992, the United States ratified the
United Nations Framework Convention on Climate Change (UNFCCC), which called
on industrialized countries to take the lead in reducing the six primary greenhouse
gases to 1990 levels by the year 2000.1 For more than a decade, a variety of
voluntary and regulatory actions have been proposed or undertaken in the United
States, including monitoring of power plant carbon dioxide emissions, improved
appliance efficiency, and incentives for developing renewable energy sources.
However, carbon dioxide emissions have continued to increase.
In 2001, President George W. Bush rejected the Kyoto Protocol, which called
for legally binding commitments by developed countries to reduce their greenhouse
gas emissions.2 He also rejected the concept of mandatory emissions reductions.
Since then, the Administration has focused U.S. climate change policy on voluntary
initiatives to reduce the growth in greenhouse gas emissions. In contrast, in 2005, the
Senate passed a Sense of the Senate resolution on climate change declaring that a
mandatory, market-based program to slow, stop, and reverse the growth of
greenhouse gases should be enacted at a rate and in a manner that “will not
significantly harm the United States economy” and “will encourage comparable
action” by other nations.3
A number of congressional proposals to advance programs designed to reduce
greenhouse gases have been introduced in the 110th Congress. These have generally
followed one of three tracks. The first is to improve the monitoring of greenhouse
gas emissions to provide a basis for research and development and for any potential
future reduction scheme. The second is to enact a market-oriented greenhouse gas
reduction program along the lines of the trading provisions of the current acid rain
reduction program established by the 1990 Clean Air Act Amendments. The third
1 Under the United Nations Framework Convention on Climate Change (UNFCCC), those
gases are carbon dioxide (CO ), methane (CH ), nitrous oxide (N O), hydrofluorocarbons
2
4
2
(HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF ). Some greenhouse gases
6
are controlled under the Montreal Protocol on Substances that Deplete the Ozone Layer, and
are not covered under UNFCCC.
2 For further information, see CRS Report RL30692, Global Climate Change: The Kyoto
Protocol, by Susan R. Fletcher.
3 S.Amdt. 866, passed by voice vote after a motion to table failed 43-54, June 22, 2005.

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CRS-2
is to enact energy and related programs that would have the added effect of reducing
greenhouse gases; an example would be a requirement that electricity producers
generate a portion of their electricity from renewable resources (a renewable portfolio
standard). This report focuses on the second category of bills.
Proposed Legislation in 110th Congress
In the 110th Congress, four bills have been introduced that would impose
controls on emissions of greenhouse gases. A comparison of major provisions is
provided in Appendix 1.
S. 280, introduced by Senator Lieberman, would cap emissions of the six
greenhouse gases specified in the United Nations Framework Convention on Climate
Change, at reduced levels, from the electric generation, transportation, industrial, and
commercial sectors — sectors that account for about 85% of U.S. greenhouse gas
emissions. The reductions would be implemented in four phases, with an emissions
cap in 2012 based on the affected facilities’ 2004 emissions (for an entity that has a
single unit that emits more than 10,000 metric tons of carbon dioxide equivalent); the
cap steadily declines until it is equal to one-third of the facilities’ 2004 levels. The
program would be implemented through an expansive allowance trading program to
maximize opportunities for cost-effective reductions, and credits obtained from
increases in carbon sequestration, reductions from non-covered sources, and
acquisition of allowances from foreign sources could be used to comply with 30%
of reduction requirements. The bill also contains an extensive new infrastructure to
encourage innovation and new technologies.
S. 309, introduced by Senator Sanders, would cap greenhouse gas emissions on
an economy-wide basis beginning in 2010. Beginning in 2020, the country’s
emissions would be capped at their 1990 levels, and then proceed to decline steadily
until they were reduced to 20% of their 1990 levels in the year 2050. The EPA has
the discretion to employ a market-based allowance trading program or any
combination of cost-effective emission reduction strategies. The bill also includes
new mandatory greenhouse gas emission standards for vehicles and new powerplants,
along with a new energy efficiency performance standard. The bill would establish
a renewable portfolio standard (RPS) and a new low-carbon generation requirement
and trading program.
S. 317, introduced by Senator Feinstein, would cap greenhouse gas emissions
from electric generators over 25 megawatts. Beginning in 2011, affected generators
would be capped at their 2006 levels, declining to 2001 levels by 2015. After that,
the emission cap would decline 1% annually until 2020, when the rate of decline
would increase to 1.5%. The allowance trading program includes an allocation
scheme that provides for an increasing percentage of all allowances to be auctioned,
with 100% auctioning in 2036 and thereafter. The cap-and-trade program allows
some of an entity’s reduction requirement to be meet with credits obtained from
foreign sources and a variety of other activities specified in the bill.

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CRS-3
H.R. 620, introduced by Representative Olver, is a substantially modified
version of S. 280. Using the same basic structure as S. 280, the emission caps under
H.R. 620 are more stringent. Reductions from affected sectors (electric generation,
transportation, industrial, and commercial) would be set at 2004 levels in 2012 and
then steadily decline until the cap is equal to about one-fourth of facilities’ 2004
levels. Although H.R. 620 permits affected entities to comply with the reduction
requirements with credits from foreign sources, sequestration, and reductions from
non-covered entities, these sources are limited to 15% of the source’s reduction
requirement.

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CRS-4
Appendix 1. Comparison of Key Provisions of Greenhouse Gas Reduction Bills
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Emission reduction/
Absolute cap on total emissions from Absolute cap on total
Absolute cap on total
Absolute cap on total emissions
limitation scheme
all covered entities in the electric
emissions economy-wide.
emissions from covered
from all covered entities in the
power, transportation, industry, and
electric generators.
electric power, transportation,
commercial sectors.
industry, and commercial sectors.
Specific emissions
Beginning in 2012, emissions from
Beginning in 2010, emissions
Beginning in 2011, emissions Beginning in 2012, emissions from
limits
covered entities are capped at 6.13
economy-wide to be reduced
from affected electric
covered entities are capped at 6.15
billion metric tons, minus 2012
2% annually.
generators capped at 2006
billion metric tons, minus 2012
emissions from non-covered entities.
levels.
emissions from non-covered
Beginning in 2020, emission
entities.
Beginning in 2020, emission cap
cap on economy-wide basis set Beginning in 2015, emissions
declines to 5.239 billion metric tons, at 1990 level, with declining
from affected electric
Beginning in 2020, emission cap
minus 2020 emissions from non-
emission caps of 26.7% below generators capped at their
declines to 5.232 billion metric
covered entities.
1990 levels in 2030 and 53.3% 2001 levels, declining 1%
tons, minus 2020 emissions from
in 2040.
annually until 2020.
non-covered entities.
Beginning in 2030, emission cap
declines to 4.1billion metric tons,
Beginning in 2050, emission
Beginning in 2020, emission Beginning in 2030, emission cap
minus 2030 emissions from non-
cap set at 80% below 1990
cap declines 1.5% annually.
declines to 3.858 billion metric
covered entities.
levels.
tons, minus 2030 emissions from
non-covered entities.
Beginning in 2050, emission cap
further declines to 2.096 billion
Beginning in 2050, emission cap
metric tons, minus annual emissions
further declines to 1.504 billion
from non-covered entities.
metric tons, minus annual
emissions from non-covered
entities.

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CRS-5
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Greenhouse gases
Carbon dioxide, methane, nitrous
Same six gases as S. 280.
Same six gases as S. 280.
Same six gases as S. 280.
defined
oxide (N O), hydrofluorocarbons
2
(HFCs), perfluorocarbons (PFCs),
and sulfur hexafluoride (SF ).
6
Covered entities
In metric tons of carbon dioxide
EPA promulgates rule within
Any fossil fuel-fired electric In metric tons of carbon dioxide
equivalents: any electric power,
two years of enactment that
generating facility that has a equivalents: any electric power,
industrial, or commercial entity that
applies the most cost-effective capacity of greater than 25
industrial, or commercial entity
emits over 10,000 metric tons carbon reduction options on sources or megawatts and generates
that emits over 10,000 metric tons
dioxide equivalent annually from any sectors to achieve reduction
electricity for sale, including carbon dioxide equivalent annually
single facility owned by the entity;
goals.
cogeneration and
from any single facility owned by
any refiner or importer of petroleum
government-owned facilities. the entity; any refiner or importer
products for transportation use that,
of petroleum products for
when combusted, will emit over
transportation use that, when
10,000 metric tons annually; and any
combusted, will emit over 10,000
importer or producer of HFCs, PFCs,
metric tons annually; and any
or SF that, when used, will emit over
importer or producer of HFCs,
6
10,000 metric tons of carbon dioxide
PFCs, or SF that, when used, will
6
equivalent.
emit over 10,000 metric tons of
carbon dioxide equivalent.
Responsible agency
Environmental Protection Agency
Environmental Protection
Environmental Protection
Environmental Protection Agency
(EPA).
Agency (EPA).
Agency (EPA).
(EPA).

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CRS-6
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
General allocating
A tradeable allowance system is
Tradeable allowance system
Tradeable allowance system A tradeable allowance system is
and implementing
established: EPA shall determine
permitted. In implementing
is established. Allocations to established: EPA shall determine
strategy
allocations based on several
reduction program, EPA shall
existing sources based on
allocations based on several
economic, equity, and sector-specific select the most cost-effective
historic electricity output,
economic, equity, and sector-
criteria, including economic
emission reduction strategies.
and includes allowance
specific criteria, including
efficiency, competitive effects, and
allocations for incremental
economic efficiency, competitive
impact on consumers. Allowances
EPA shall allocate to various
nuclear capacity and
effects, and impact on consumers.
are to be allocated upstream to
sectors and interests any
renewable energy, along with Allowances are to be allocated
refiners and importers of
allowances that are not
sequestration and early
upstream to refiners and importers
transportation fuel, along with
allocated to affected entities,
action provisions.
of transportation fuel, along with
producers of HFCs, PFCs, and SF ,
including households,
producers of HFCs, PFCs, and SF ,
6
6
and downstream to electric
dislocated workers, energy
From 2011 on, an increasing and downstream to electric
generation, industrial, and
efficiency and renewable
percentage of all allowances generation, industrial, and
commercial entities.
energy activities, sequestration are to be auctioned, with
commercial entities.
activities, and ecosystem
100% of allowances
Allocations to covered entities are
protection activities.
auctioned in 2036 and
Allocations to covered entities are
provided at no cost.
thereafter.
provided at no cost.

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CRS-7
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Public sale/auction of EPA shall determine the number of
EPA may choose to provide for From 2011 on, an increasing EPA shall determine the number of
allowances
allowances allocated to the Climate
trustees to sell allowances for
percentage of all allowances allowances allocated to the Climate
Change Credit Corporation (CCCC)
the benefit of entities eligible
are to be auctioned, with
Change Credit Corporation
(established by the bill).
to receive assistance under the 100% of allowances
(CCCC) (established by the bill).
proposal (see above).
auctioned in 2036 and
EPA shall allocate to the CCCC
thereafter.
The CCCC may buy and sell
allowances before 2012 to auction to
allowances, and use the proceeds to
raise revenue for technology
Revenues from the auction
reduce costs borne by consumers
deployment and dissemination.
are to be deposited in the
and other purposes. (See “Revenue
Climate Action Trust Fund
recycling” below.)
The CCCC may buy and sell
created by the Department of
allowances, and use the proceeds to
the Treasury.
reduce costs borne by consumers and
other purposes. (See “Revenue
recycling” below.)

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CRS-8
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Cost-limiting safety
No explicit provision.
No explicit provision.
No explicit provision.
No explicit provision.
valve
However, if the President
However, limited borrowing
determines a national security
against future reductions is
emergency exists, the President permitted if EPA determines
may temporarily adjust,
allowance prices have
suspend, or waive any
reached and sustained a level
regulation promulgated under
that is or will cause
this program (subject to
significant harm to the U.S.
judicial review).
economy. Also, EPA may
increase to 50% the share of
international credits that can
be used in such cases.

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CRS-9
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Other market trading Up to 30% of required reductions
Market trading systems
Up to 25% (50% for new
Up to 15% of required reductions
system features
may be achieved through credits
incorporated into Renewable
affected units) of required
may be achieved through credits
obtained through pre-certified
Portfolio Standard and new
reductions may be achieved
obtained through pre-certified
international emissions trading
low-carbon generation
with credits obtained through international emissions trading
programs, approved reduction
requirement.
EPA-approved foreign
programs, approved reduction
projects in developing countries,
government programs
projects in developing countries,
domestic carbon sequestration, and
developed under United
domestic carbon sequestration, and
reductions from non-covered entities.
Nations Framework
reductions from non-covered
Convention on Climate
entities.
Borrowing against future reductions
Change (UNFCCC)
is permitted.
protocols.
Borrowing against future
reductions is permitted.
Limited borrowing against
future reductions is permitted
if EPA determines allowance
prices have reached and
sustained a level that is
causing or will cause
significant harm to the U.S.
economy. Also, EPA may
increase to 50% the share of
international credits that can
be used in such cases.
Banking
Banking of allowances is permitted;
No specific prohibition on
Banking of allowances is
Banking of allowances is
allowances may be saved for use in
banking.
permitted; allowances may
permitted; allowances may be
future years.
be saved for use in future
saved for use in future years.
years.

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CRS-10
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Early reduction
Entities with registered emission
Reductions previously
Entities with reductions
Entities with registered emission
credits and bonus
reductions achieved before 2012 may achieved under state programs achieved from 2000 through reductions achieved before 2012
credits
receive allowances for them,
that are at least as stringent as a 2010 shall receive credits
may receive allowances for them.
including reductions achieved under
federal trading program may be under specific criteria,
more stringent mandatory state
recognized by the federal
including EPA rules that
For the time period 2012-2017,
programs.
program.
ensure reductions are real,
entities that have entered into an
additional, verifiable,
agreement with EPA to reduce
For the time period 2012-2017,
Entities that demonstrate
enforceable, and permanent, emissions to 1990 levels by 2012
entities that have entered into an
reductions achieved early (but
and that they were reported
are entitled to additional
agreement with EPA to reduce
not before 1992) that are as
under either 1605(b) of the
allowances to cover their additional
emissions to 1990 levels by 2012 are verifiable as reductions under a 1992 Energy Policy Act, or
reductions and are allowed to
entitled to additional allowances to
federal trading program may be according to a state or
achieve 35% of their reduction
cover their additional reductions and recognized by the federal
regional registry. Quantity
requirement (as opposed to 15%;
are allowed to achieve 40% of their
program.
of credits given is limited to
see above) through international
reduction requirement (as opposed to
10% of the 2011 allowance
emissions trading and projects,
30%; see above) through
allocation.
sequestration, or reductions by
international emissions trading and
non-covered entities.
projects, sequestration, or reductions
by non-covered entities.

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CRS-11
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Revenue recycling
Revenues generated by allowance
Allowances may be allocated
Revenues generated from the Revenues generated by allowance
auctions and trading proceeds are
by EPA to households,
auction are to be deposited in auctions and trading proceeds are
received by a new Climate Change
dislocated workers, energy
the Climate Action Trust
received by a new Climate Change
Credit Corporation (CCCC).
efficiency and renewable
Fund created by the
Credit Corporation (CCCC).
Activities to be funded include
energy activities, sequestration Department of the Treasury. Activities to be funded include
mechanisms to reduce consumer
activities, and ecosystem
Activities to be funded
mechanisms to reduce consumer
costs and to assist dislocated
protection activities.
include an Innovative Low-
costs and to assist dislocated
workers, low-income persons, and
and Zero-emitting Carbon
workers and affected communities,
affected communities, along with
Technologies Program, a
along with programs to encourage
programs to encourage deployment
Clean Coal Technologies
deployment of new technology and
of new technology and wildlife
Program, and an Energy
wildlife restoration.
restoration. Allocations to the CCCC
Efficiency Technology
are to be determined by EPA based
Program, along with research
on the funding needs of the advanced
and development.
technologies demonstration and
deployment programs. Further, at
Adaption and mitigation
least 50% of revenue received must
activities to be funded
be used for technology deployment.
include affected workers and
communities, and fish and
wildlife habitat.

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CRS-12
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Penalty for
Excess emission penalties are equal
Existing enforcement
$100 per excess ton indexed Excess emission penalties are equal
non-compliance
to three times the market price for
provisions of Section 113 of
to inflation plus a 1.3 to 1
to three times the market price for
allowances on the last day of the year the Clean Air Act are extended offset from future emissions
allowances on the last day of the
at issue.
to program.
allowances. If the market
year at issue.
price for an allowance
exceeds $60, the penalty is
$200 per excess ton, adjusted
for inflation.

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CRS-13
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
H.R. 620 (Olver)
Other key provisions Provisions include studies of research Provisions include mandatory
Establishes program to
Provisions include studies of the
on abrupt climate change and impact greenhouse gas emission
encourage offsets from the
impact of climate change on
of climate change on the world’s
standards for vehicles by 2010, agricultural sector. Offset
coastal ecosystems and
poor, among others, and creation of a for new electric powerplants
credits available for
communities, and the world’s poor,
national greenhouse gas database.
that begin operation after
agricultural, forestry,
among others; assessment of
December 31, 2011, and a new grazing, and wetlands
adaptation technologies; and
A new Innovation Infrastructure is
energy efficiency performance management, sequestration
creation of a national greenhouse
created, along with program
standard.
projects, or practices that
gas database.
initiatives to promote less carbon-
meet specific criteria in the
intensive technology, adaption,
Establishes a Renewable
proposal.
Requires periodic review of target
sequestration, and related activities.
Portfolio Standard and credit
adequacy by the Under Secretary
program.
Offset credits also available
of Commerce for Oceans and
Requires periodic review of target
for approved emission
Atmosphere.
adequacy by the Under Secretary of
Establishes a new low-carbon
reduction offset projects
Commerce for Oceans and
generation requirement and
from a variety of activities
Atmosphere.
trading program.
listed in the proposal.
Requires periodic review of
Requires periodic review of
target adequacy by the
target adequacy by EPA
National Academy of Sciences. taking into account the
recommendations of a newly
established Climate Science
Advisory Panel.

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CRS-14
Appendix 2. Common Terms
Allocation schemes (upstream and downstream). Regulatory approaches to
allocating allowances (as opposed to auction schemes) can choose different points
and participants along the production process to assign allowances and the resulting
compliance responsibility. Upstream allocation schemes establish emission caps and
assign allowances at a production, importation, or distribution point of products that
will eventually produce greenhouse emissions further down the production process.
For example, in the natural gas sector, emission caps could be established and
allowances assigned at processing facilities where facilities and participants shrink
from about 400,000 wells and 8,000 companies to 500 plants and 200 companies.
In contrast, downstream allocation schemes establish emission caps and assign
allowances at the point in the process where the emissions are emitted. In the case
of the natural gas industry, to achieve the same coverage as the upstream scheme, this
would involve assigning allowances to natural gas-fired electric generators, industry,
and even residential users. Thus, some downstream proposals choose either to
exempt certain sectors (such as residential use) from a cap-and-trade program or to
employ a hybrid allocation scheme where some of the allowances are allocated
upstream and others downstream (such as the electric generators).
Allowance. An allowance is generally defined as a limited authorization by the
government to emit 1 ton of pollutant. In the case of greenhouse gases, an allowance
generally refers to a metric ton of carbon dioxide equivalent. Although used
generically, an allowance is technically different from a credit. A credit represents
a ton of pollutant that an entity has reduced in excess of its legal requirement.
However, the terms tend to be used interchangeably, along with others, such as
permits.
Auctions. Auctions can be used in market-based pollution control schemes in
several different ways. For example, Title IV of the 1990 Clean Air Act
Amendments uses an annual auction to ensure the liquidity of the credit trading
program. For this purpose, a small percentage of the credits permitted under the
program are auctioned annually, with the proceeds returned to the entities that would
have otherwise received them. Private parties are also allowed to participate. A
second possibility is to use an auction to raise revenues for a related (or unrelated)
program. For example, the Regional Greenhouse Gas Initiative (RGGI) is exploring
an auction to implement its public benefit program to assist consumers or pursue
strategic energy purposes. A third possibility is to use auctions as a means of
allocating some, or all, of the credits mandated under a GHG control program.
Obviously, the impact that an auction would have on cost would depend on how
extensively it was used in any GHG control program, and to what purpose the
revenues were expended.
Banking. Although allowances are generally allocated on an annual basis, most
cap-and-trade programs do not require participants to either use the allowance that
year or else lose it. Under many proposals, allowances can be banked by the
receiving participant (or traded to another participant who can use or bank it) to be
used or traded in a future year. Banking reduces the absolute cost of compliance by
making annual emission caps flexible over time. The limited ability to shift the

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CRS-15
reduction requirement across time allows affected entities to better accommodate
corporate planning for capital turnover, allow for technological progress, control
equipment construction schedules, and respond to transient events such as weather
and economic shocks.
Bubble. A bubble is a regulatory device that permits two or more sources of
pollutants to be treated as one for the purposes of emission compliance.
Cap-and-trade program. A cap-and-trade program is based on two premises.
First, a set amount of pollutant emitted by human activities can be assimilated by the
ecological system without undue harm. Thus, the goal of the cap-and-trade program
is to impose a ceiling (i.e., an emissions cap) on the total emissions of that pollutant
at a level below the assimilative capacity. Second, a market in pollution licenses
(i.e., allowances) between polluters is the most cost-effective means of reducing
emissions to the level of the cap. This market in allowances is designed so that
owners of allowances can trade those allowances with other emitters who need them
or retain (bank) them for future use or sale. In the case of the sulfur dioxide program
contained in the 1990 Clean Air Act Amendments, most allowances were allocated
free by the federal government to utilities according to statutory formulas related to
a given facility’s historic fuel use and emissions; other allowances have been
reserved by the government for periodic auctions to ensure market liquidity.
Carbon tax. A carbon tax is generally conceived as a levy on natural gas,
petroleum, and coal according to their carbon content, in the approximate ratio of 0.6
to 0.8 to 1, respectively. However, proposals have been made to impose the tax
downstream of the production process when the carbon dioxide is actually released
to the atmosphere. In contrast to a cap-and-trade program, in which the quantity of
emissions is limited and the price is determined by an allowance marketplace, with
a carbon tax, the price is limited and the quantity of emissions is determined by the
participants based on the cost of control versus the cost of the tax.
Coverage. Coverage is the breadth of economic sectors covered by a particular
greenhouse gas reduction program.
Emissions cap. A mandated limit on how much pollutant (or greenhouse gases)
an affected entity can release to the atmosphere. Caps can be either an absolute cap,
where the amount is specified in terms of tons of emissions on an annual basis, or a
rate-based cap, where the amount of emissions produced per unit of output (such as
electricity) is specified but not the absolute amount released. Caps may be imposed
on an entity, sector, or economy-wide basis.
Generation performance standard (GPS). Also called an output-based
allocation, allowances are allocated gratis to entities in proportion to their relative
share of total electricity generation in a recent year.
Grandfathering. Grandfathering generally refers an allocation scheme in
which allowances are distributed to affected entities on the basis of historic
emissions. These allowances are generally distributed free-of-charge by the
government to the affected entities. Grandfathering can also refer to entities that

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CRS-16
because of age or because they have met an earlier standard, or other factors, are
exempted from a new regulatory requirement.
Greenhouse gases. The six gases recognized under the United Nations
Framework Convention on Climate Change are carbon dioxide (CO ), methane
2
(CH ) nitrous oxide (N O), sulfur hexafluoride (SF ), hydrofluorocarbons (HFC), and
4
2
6
perfluorocarbons (PFC).
“No regrets” policy. A “no regrets” policy is one of establishing programs for
other purposes that would have concomitant greenhouse gas reductions. Therefore,
only those policies that reduce greenhouse gas emissions at no cost are considered.
Offsets. Offsets generally refer to emission credits achieved by activities not
directly related to the emissions of an affected source. Examples of offsets would
include forestry and agricultural activities that absorb carbon dioxide, and reduction
achieved by entities that are not regulated by a greenhouse gas reduction program.
Revenue recycling. Some greenhouse gas reduction programs create revenues
through auctions, compliance penalties, or imposition of a carbon tax. Revenue
recycling refers to how a program disposes of those revenues. How a program
handles revenues received can have a significant effect on the overall cost of the
program to the economy.
Safety valve. Devices designed to prevent or to respond to unacceptably high
compliance costs for greenhouse gas reductions. Generally triggered by prices in the
allowance markets, safety valve approaches can include (1) a set price alternative to
making reductions or buying allowances at the market price, (2) a slowdown in
tightening the emissions cap, and (3) lengthening of the time allowed for compliance.
Depending on the interplay between the emissions cap and safety valve and actual
compliance costs, a safety valve can affect the integrity of the emissions cap.
Sequestration. Sequestration is the process of capturing carbon dioxide from
emission streams or from the atmosphere and then storing it in such a way as to
prevent its release to the atmosphere.

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