Order Code RL33846
Greenhouse Gas Reduction:
Cap-and-Trade Bills in the 110th Congress
Updated July 13, 2007
Larry Parker and Brent D. Yacobucci
Specialists in Energy Policy
Resources, Science, and Industry Division
Greenhouse Gas Reduction:
Cap-and-Trade 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.
Although the purpose of these bills is to reduce greenhouse gases (GHGs), the
specifics of each differ greatly. Five bills (S. 280, S. 309, S. 485, H.R. 620 and H.R.
1590) cap greenhouse gas emission from covered entities at 1990 levels in the year
2020. However, S. 317 places its first emissions cap at 2001 levels in 2015 while S.
1766 targets reductions at 2006 levels in 2020. Likewise, five bills (S. 280, S. 317,
S. 485, H.R. 620, and H.R. 1590 would establish cap-and-trade systems to implement
their emission caps. In contrast, S. 1766 provides for two compliance systems — a
cap-and-trade program and an alternative safety valve payment — and allows the
covered entities to choose one or employ a combination of both. Finally, S. 309
provides discretionary authority to EPA to establish a cap-and-trade program to
implement its emission cap.
The differences continue with respect to entities covered under the programs.
Three bills (S. 309, S. 485, H.R. 1590) provide discretionary authority to EPA to
determine covered entities by applying cost-effective criteria to reduction options.
In contrast, S. 317’s emission cap is imposed solely on the electric generating sector.
The other three bills (S. 280, S. 1766, H.R. 620) covered most economic sectors but
not all (e.g., the agricultural sector). Thus, the overall reductions achieved by bills
depends partly on the breadth of entities covered.
Beyond the basics of these bills, each contain other important provisions. For
example, S. 280 contains extensive provisions creating a new innovation
infrastructure, while S. 1766 has several provisions to encourage foreign countries
to undertake comparable control actions and potential consequences if they don’t.
Other provisions include mandatory greenhouse gas standards for vehicles (S. 309,
S. 485, H.R. 1590), and a renewable portfolio standard for the electric generating
sector (S. 309, S. 485, H.R. 1590). All bills contain some provisions for the periodic
review of the program’s adequacy in addressing climate change.
This comparison should be considered a guide to the basic provisions contained
in each bill. It is not a substitute for careful examination of each bill’s language and
provisions.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Proposed Legislation in 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Appendix A. Comparison of Key Provisions of Greenhouse Gas
Reduction Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Appendix B. Common Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Greenhouse Gas Reduction:
Cap-and-Trade 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
Congress should enact legislation establishing a mandatory, market-based program
to slow, stop, and reverse the growth of greenhouse gases 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.
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. (For a review of
additional climate change related bills, see CRS. Report RL34067, Climate Change
Legislation in the 110th Congress, by Jonathan L. Ramseur and Brent D. Yacobucci.
Proposed Legislation in 110th Congress
In the 110th Congress, seven bills have been introduced that would impose or
permit some form of market-based controls on emissions of greenhouse gases, among
their provisions. A comparison of major provisions is provided in Appendix 1.
S. 280, introduced January 12, 2007, 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 January 16, 2007, 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 January 17, 2007, 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
CRS-3
credits obtained from foreign sources and a variety of other activities specified in the
bill.
S. 485, introduced February 1, 2007, by Senator Kerry, 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. After 2020, emissions
economy-wide would be reduced 2.5% annually from their previous year’s level until
2031, when that percentage would increase to 3.5% through 2050. The allowance
trading system includes an allocation scheme that requires an unspecified percentage
of allowances to be auctioned. The bill also includes new mandatory greenhouse gas
emission standards for vehicles, along with a new energy efficiency performance
standard. The bill would establish a renewable portfolio standard (RPS), increase
biofuel mandates under the Renewable Fuels Standard, and mandate new
infrastructure for biofuels. Finally, the bill expands and extends existing tax
incentives for alternative fuels and advanced technology vehicles, and establishes a
manufacturer tax credit for advanced technology vehicle investment.
S. 1766, introduced July 11, 2007, by Senator Bingaman, would set emissions
targets on most of the country’s greenhouse gas emissions. Greenhouse gas emitting
activities such as methane emissions from landfills, coal mines, animal waste, and
municipal wastewater projects, along with nitrous oxide emissions from agricultural
soil management, wastewater treatment, and manure management are not included
under the targets, although credits for use by covered entities are available or may be
generated by verified GHG reductions in these areas. Beginning in 2012, covered
entities would have emissions targets set at their 2006 levels in 2020. The emissions
targets would decline steadily until 2030 when the emission target would be set at the
entities’ 1990 levels. Compliance can be secured either through an allowance trading
program or by paying a safety valve price (called a Technology Accelerator Payment
or TAP). Under the trading program, allowances are allocated in categories,
including covered entities, eligible facilities, such as coal mines and carbon-intensive
industries, states, and sequestration activities; initially, 24% of all allowances are
auctioned, a percentage that increases over time. The TAP is set at $12 a metric ton
of carbon dioxide equivalent; it increases 5% annually above the rate of inflation.
The bill also requires countries that do not take comparable action to control
emissions to submit special allowances (or their foreign equivalent) to accompany
exports to the United States of any covered greenhouse intensive gods and primary
products.
H.R. 620, introduced February 7, 2007, 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 credits are limited to
15% of the source’s reduction requirement.
H.R. 1590, introduced March 20, 2007, by Representative Waxman, is similar
to S. 485. H.R. 1590 would cap greenhouse gas emissions on an economy-wide basis
CRS-4
beginning in 2010. Beginning in 2020, the country’s emissions would be capped at
their 1990 levels. After 2020, emissions economy-wide would be reduced by roughly
5% annually from their previous year’s level through 2050, when emissions levels
would be capped at 80% below 1990 levels. The allowance trading system includes
an allocation scheme that requires an unspecified percentage of allowances to be
auctioned. The bill also includes new mandatory greenhouse gas emission standards
for vehicles, along with a new energy efficiency performance standard. The bill
would also establish a renewable portfolio standard (RPS).
CRS-5
Appendix A. Comparison of Key Provisions of Greenhouse Gas Reduction Bills
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Emission
Absolute cap on total
Absolute cap on total
Absolute cap on total
Absolute cap on total
Emissions targets for
Absolute cap on total
Absolute cap on total
reduction/
emissions from all
emissions economy-
emissions from
emissions economy-
all covered entities
emissions from all
emissions economy-
limitation
covered entities in the wide.
covered electric
wide.
that refine petroleum,
covered entities in the wide.
scheme
electric power,
generators.
process natural gas,
electric power,
transportation,
consume coal, or
transportation,
industry, and
import petroleum
industry, and
commercial sectors.
products, coke, natural commercial sectors.
gas. Includes
importers of HFCs,
PFC, SF , N O, or
6
2
products containing
such compounds.
Responsible
Environmental
EPA.
EPA.
EPA.
To determined by the
EPA.
EPA.
agency
Protection Agency
President
(EPA).
Greenhouse
Carbon dioxide,
Same six gases as S.
Same six gases as S.
Same six gases as S.
Same six gases as S.
Same six gases as S.
Same six gases as
gases defined methane, nitrous oxide 280.
280.
280.
280.
280.
S. 280.
(N O),
2
hydrofluorocarbons
(HFCs),
perfluorocarbons
(PFCs), and sulfur
hexafluoride (SF ).
6
CRS-6
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Specific
Beginning in 2012,
Beginning in 2010,
Beginning in 2011,
Beginning in 2010,
In 2012, the emissions Beginning in 2012,
Beginning in 2010,
emissions
emissions from
emissions economy-
emissions from
emissions economy-
target for covered
emissions from
emissions economy-
limits
covered entities are
wide to be reduced 2% affected electric
wide to be reduced by entities is set at 6.652
covered entities are
wide to be reduced by
capped at 6.13 billion annually.
generators capped at
appropriate measures
billion metric tons.
capped at 6.15 billion roughly 2% annually
metric tons, minus
2006 levels.
to cap emissions at
Target is reduced
metric tons, minus
to cap emissions at
2012 emissions from
Beginning in 2020,
1990 levels by 2020.
annually thereafter
2012 emissions from
1990 levels by 2020.
non-covered entities.
emission cap on
Beginning in 2015,
until 2030.
non-covered entities.
economy-wide basis
emissions from
Beginning in 2021,
Beginning in 2021,
Beginning in 2020,
set at 1990 level, with affected electric
emissions economy-
Emission target for
Beginning in 2020,
through 2050,
emission cap declines declining emission
generators capped at
wide to be reduced
covered sources in
emission cap declines emissions economy-
to 5.239 billion metric caps of 26.7% below
their 2001 levels,
2.5% annually from
2020 is 6.188 billion
to 5.232 billion metric wide to be reduced
tons, minus 2020
1990 levels in 2030
declining 1% annually previous year’s level.
metric tons.
tons, minus 2020
roughly 5% annually
emissions from non-
and 53.3% in 2040.
from previous year’s
emissions from non-
from previous year’s
covered entities.
level from 2016 to
Beginning in 2031
Emission target for
covered entities.
level.
Beginning in 2050,
2020.
through 2050,
covered sources in
Beginning in 2030,
emission cap set at
emissions economy-
2030 is 4.819 billion
Beginning in 2030,
Beginning in 2050,
emission cap declines 80% below 1990
Beginning in 2020,
wide to be reduced
metric tons.
emission cap declines emission cap set at
to 4.1 billion metric
levels.
emission cap declines 3.5% annually from
to 3.858 billion metric 80% below 1990
tons, minus 2030
1.5% annually from
previous year’s level. If the President
tons, minus 2030
levels.
emissions from non-
previous year’s level.
determines that
emissions from non-
covered entities.
scientific,
covered entities.
technological, and
Beginning in 2050,
international
Beginning in 2050,
emission cap further
considerations suggest emission cap further
declines to 2.096
further reductions are
declines to 1.504
billion metric tons,
warranted, his
billion metric tons,
minus annual
recommendations are
minus annual
emissions from non-
to be considered by
emissions from non-
covered entities.
Congress under
covered entities.
expedited procedures.
CRS-7
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Covered
In metric tons of
EPA promulgates rule Any fossil fuel-fired
EPA promulgates rule Regulated fuel
In metric tons of
EPA promulgates rule
entities
carbon dioxide
within two years of
electric generating
within two years of
distributors include
carbon dioxide
within two years of
equivalents: any
enactment that applies facility that has a
enactment that applies petroleum refineries,
equivalents: any
enactment that applies
electric power,
the most cost-effective capacity of greater
the most cost-effective natural gas processing electric power,
the most cost-effective
industrial, or
reduction options on
than 25 megawatts and reduction options on
plants, and imports of industrial, or
reduction options on
commercial entity that sources or sectors to
generates electricity
the largest emitting
petroleum products,
commercial entity that the largest emitting
emits over 10,000
achieve reduction
for sale, including
sources or sectors to
coke, or natural gas.
emits over 10,000
sources or sectors to
metric tons carbon
goals.
cogeneration and
achieve reduction
Regulated coal
metric tons carbon
achieve reduction
dioxide equivalent
government-owned
goals.
facilities are entities
dioxide equivalent
goals.
annually from any
facilities.
that consume more
annually from any
single facility owned
than 5,000 tons of coal single facility owned
by the entity; any
a year. Regulated
by the entity; any
refiner or importer of
nonfuel entities are
refiner or importer of
petroleum products for
importers of HFCs,
petroleum products for
transportation use that,
PFC, SF , N O, or
transportation use that,
6
2
when combusted, will
products containing
when combusted, will
emit over 10,000
such compounds.
emit over 10,000
metric tons annually;
metric tons annually;
and any importer or
and any importer or
producer of HFCs,
producer of HFCs,
PFCs, or SF that,
PFCs, or SF that,
6
6
when used, will emit
when used, will emit
over 10,000 metric
over 10,000 metric
tons of carbon dioxide
tons of carbon dioxide
equivalent.
equivalent.
CRS-8
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
General
A tradeable allowance Tradeable allowance
Tradeable allowance
A tradeable allowance Two compliance
A tradeable allowance A tradeable allowance
allocating and system is established:
system permitted. In
system is established. system is established. systems are provided.
system is established:
system is established.
implementing EPA shall determine
implementing
Allocations to existing The President submits Covered entities may
EPA shall determine
The President submits
strategy
allocations based on
reduction program,
sources based on
to Congress an
choose which one to
allocations based on
to Congress an
several economic,
EPA shall select the
historic electricity
allocation plan within use or employ a
several economic,
allocation plan within
equity, and sector-
most cost-effective
output, and includes
one year of enactment combination of both.
equity, and sector-
one year of enactment
specific criteria,
emission reduction
allowance allocations
that includes a
specific criteria,
that includes a
including economic
strategies.
for incremental
combination of
First, a tradeable
including economic
combination of
efficiency,
nuclear capacity and
auctions and free
allowance system is
efficiency,
auctions and free
competitive effects,
EPA shall allocate to
renewable energy,
allocation of
established. In 2012,
competitive effects,
allocation of
and impact on
various sectors and
along with
allowances. To the
53% of allowances
and impact on
allowances. To the
consumers.
interests any
sequestration and
maximum extent
allocated to covered
consumers.
maximum extent
Allowances are to be
allowances that are not early action
practicable, the
and eligible industrial Allowances are to be
practicable, the
allocated upstream to
allocated to affected
provisions.
allocation and
entities; 23% allocated allocated upstream to
allocation and
refiners and importers entities, including
revenues received
to States and for
refiners and importers revenues received
of transportation fuel,
households, dislocated From 2011 on, an
should maximize
sequestration and
of transportation fuel,
should maximize
along with producers
workers, energy
increasing percentage
public benefits,
early reduction
along with producers
public benefits,
of HFCs, PFCs, and
efficiency and
of all allowances are
promote economic
activities; 24% are
of HFCs, PFCs, and
promote economic
SF , and downstream
renewable energy
to be auctioned, with
growth, assist
auctioned to fund low SF , and downstream
growth, assist
6
6
to electric generation,
activities,
100% of allowances
households and
income assistance,
to electric generation, households and
industrial, and
sequestration
auctioned in 2036 and dislocated workers,
carbon capture and
industrial, and
dislocated workers,
commercial entities.
activities, and
thereafter.
encourage energy
storage, and
commercial entities.
encourage energy
ecosystem protection
efficiency and
adaptation activities.
efficiency and
Allocations to covered activities.
renewable energy
The percentage
Allocations to covered renewable energy
entities are provided at
activities,
auctioned increases
entities are provided at activities,
no cost.
sequestration
steadily, reaching 53% no cost.
sequestration
activities, and assist
by 2030.
activities, and assist
states in addressing
states in addressing
the impact of climate
Second, a Technology
the impact of climate
change. Congress has
Accelerator Payment
change. Congress has
one year to enact an
(i.e., safety valve) may
one year to enact an
alternative to the plan; be paid in lieu of
alternative to the plan;
otherwise, EPA shall
submitting one or
otherwise, EPA shall
implement it.
more allowances.
implement it.
CRS-9
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Public
EPA shall determine
EPA may choose to
From 2011 on, an
The President shall
Beginning in 2012,
EPA shall determine
The President shall
sale/auction
the number of
provide for trustees to increasing percentage
determine the number 24% of available
the number of
determine the number
of allowances allowances allocated
sell allowances for the of all allowances are
of allowances to be
allowances are
allowances allocated
of allowances to be
to the Climate Change benefit of entities
to be auctioned, with
auctioned. The
auctioned to fund low to the Climate Change auctioned. The
Credit Corporation
eligible to receive
100% of allowances
proceeds of the
income assistance,
Credit Corporation
proceeds of the
(CCCC) (established
assistance under the
auctioned in 2036 and auction to be
technology, and
(CCCC) (established
auction to be
by the bill).
proposal (see above).
thereafter.
deposited with the
adaptation activities.
by the bill).
deposited with the
Climate Reinvestment The percentage
Climate Reinvestment
EPA shall allocate to
Revenues from the
Fund created by the
auctioned increases
The CCCC may buy
Fund created by the
the CCCC allowances
auction are to be
Department of the
steadily, reaching 53% and sell allowances,
Department of the
before 2012 to auction
deposited in the
Treasury. (See
by 2030; after that it
and use the proceeds
Treasury. (See
to raise revenue for
Climate Action Trust
“Revenue recycling”
increases 1 percentage to reduce costs borne
“Revenue recycling”
technology
Fund created by the
below.)
point annually through by consumers and
below.)
deployment and
Department of the
2043.
other purposes. (See
dissemination.
Treasury.
“Revenue recycling”
Revenues from the
below.)
The CCCC may buy
auction are to be
and sell allowances,
deposited in one of
and use the proceeds
three funds created by
to reduce costs borne
the Department of the
by consumers and
Treasury: The Energy
other purposes. (See
Technology
“Revenue recycling”
Deployment Fund,
below.)
The Climate
Adaptation Fund, and
The Energy Assistance
Fund.
CRS-10
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Cost-limiting No explicit provision. No explicit provision. No explicit provision. No explicit provision. A Technology
No explicit provision. No explicit provision.
safety valve
Accelerator Payment
However, if the
However, limited
(TAP) (i.e., safety
President determines a borrowing against
valve) may be paid in
national security
future reductions is
lieu of submitting one
emergency exists, the
permitted if EPA
or more allowances.
President may
determines allowance
For 2012, the TAP
temporarily adjust,
prices have reached
price is set at $12 per
suspend, or waive any and sustained a level
metric ton, rising 5%
regulation
that is or will cause
above inflation
promulgated under
significant harm to the
annually thereafter.
this program (subject
U.S. economy. Also,
to judicial review).
EPA may increase to
If the President
50% the share of
determines The TAP
international credits
should be increased or
that can be used in
eliminated to achieve
such cases.
the Act’s purposes, his
recommendations are
to be considered by
Congress under
expedited procedures.
Penalty for
Excess emission
Existing enforcement
$100 per excess ton
Excess emission
Excess emissions
Excess emission
Excess emission
non-
penalties are equal to
provisions of Section
indexed to inflation
penalties are equal to
penalties are equal to
penalties are equal to
penalties are equal to
compliance
three times the market 113 of the Clean Air
plus a 1.3 to 1 offset
twice the market price three times the TAP
three times the market twice the market price
price for allowances
Act are extended to
from future
for allowances as of
price for that calendar price for allowances
for allowances as of
on the last day of the
program.
allowances. If the
December 31 of the
year. In addition, civil on the last day of the
December 31 of the
year at issue.
market price for an
year at issue, plus a 1
penalties are $25,000
year at issue.
year at issue, plus a 1-
allowance exceeds
to 1 offset from next
a day for violating
to-1 offset from next
$60, the penalty is
year’s allowance
provisions of the Act.
year’s allowance
$200 per excess ton,
allocation.
allocation.
adjusted for inflation.
CRS-11
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Other market Up to 30% of required Market trading
Up to 25% (50% for
Market trading
If the President
Up to 15% of required Market trading
trading
reductions may be
systems incorporated
new affected units) of systems incorporated
determines that
reductions may be
systems incorporated
system
achieved through
into Renewable
required reductions
into Renewable
emission credits issued achieved through
into new energy
features
credits obtained
Portfolio Standard,
may be achieved with
Portfolio Standard and under foreign
credits obtained
efficiency
through pre-certified
new energy efficiency credits obtained
new energy efficiency programs or foreign
through pre-certified
performance standard.
international
performance standard, through EPA-
performance standard. offset projects are
international
emissions trading
and new low-carbon
approved foreign
comparable to U.S.
emissions trading
No explicit provision
programs, approved
generation
government programs No limit on use of
ones, he may
programs, approved
on use of domestic or
reduction projects in
requirement.
developed under
domestic biological
promulgate rules
reduction projects in
international offsets to
developing countries,
United Nations
sequestration to meet
allowing such credits
developing countries,
meet reduction
domestic carbon
No limit on use of
Framework
reductions
or offsets to be used to domestic carbon
requirements.
sequestration, and
domestic biological
Convention on
requirements.
meet the Act’s
sequestration, and
However, one goal of
reductions from non-
sequestration to meet
Climate Change
emission targets.
reductions from non-
program is to
covered entities.
reductions
(UNFCCC) protocols.
No more than 10% of
covered entities.
encourage
requirements.
an entity’s emissions
sequestration of
Borrowing against
Limited borrowing
target can be met
Borrowing against
carbon in the forest
future reductions is
against future
through foreign offset future reductions is
and agricultural
permitted.
reductions is permitted
project credits.
permitted.
sectors.
if EPA determines
allowance prices have
Establishes program to
reached and sustained
provide credits
a level that is causing
obtained through
or will cause
verified reductions
significant harm to the
from non-covered
U.S. economy. Also,
activities. No limit on
EPA may increase to
their use to meet
50% the share of
reduction targets.
international credits
that can be used in
such cases.
Banking
Banking of allowances No specific
Banking of allowances Banking of allowances Banking of allowances Banking of allowances Banking of allowances
is permitted;
prohibition on
is permitted;
is permitted;
is permitted;
is permitted;
is permitted;
allowances may be
banking.
allowances may be
allowances may be
allowances may be
allowances may be
allowances may be
saved for use in future
saved for use in future saved for use in future saved for use in future saved for use in future saved for use in future
years.
years.
years.
years.
years.
years.
CRS-12
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Early
Entities with
Reductions previously Entities with
Recognizing and
One percent of
Entities with
Recognizing and
reduction
registered emission
achieved under state
reductions achieved
rewarding early
allowances available
registered emission
rewarding early
credits and
reductions achieved
programs that are at
from 2000 through
reductions is a stated
from 2012 through
reductions achieved
reductions is a stated
bonus credits before 2012 may
least as stringent as a
2010 shall receive
goal of the program.
2020 are allocated to
before 2012 may
goal of the program.
receive allowances for federal trading
credits under specific
early reductions
receive allowances for
them, including
program may be
criteria, including
reported under the
them.
reductions achieved
recognized by the
EPA rules that ensure
1992 Energy Policy
under more stringent
federal program.
reductions are real,
Act’s 1605(b)
For the time period
mandatory state
additional, verifiable,
program, EPA’s
2012-2017, entities
programs.
Entities that
enforceable, and
Climate Leaders
that have entered into
demonstrate
permanent, and that
Program, or a State-
an agreement with
For the time period
reductions achieved
they were reported
administered or
EPA to reduce
2012-2017, entities
early (but not before
under either 1605(b)
privately administered emissions to 1990
that have entered into
1992) that are as
of the 1992 Energy
registry.
levels by 2012 are
an agreement with
verifiable as
Policy Act, or
entitled to additional
EPA to reduce
reductions under a
according to a state or
Geologic sequestration allowances to cover
emissions to 1990
federal trading
regional registry.
projects built from
their additional
levels by 2012 are
program may be
Quantity of credits
2008 through 2030
reductions and are
entitled to additional
recognized by the
given is limited to
receive bonus
allowed to achieve
allowances to cover
federal program.
10% of the 2011
allowances for the first 35% of their reduction
their additional
allowance allocation.
10 years of operation. requirement (as
reductions and are
opposed to 15%; see
allowed to achieve
above) through
40% of their reduction
international
requirement (as
emissions trading and
opposed to 30%; see
projects, sequestration,
above) through
or reductions by non-
international
covered entities.
emissions trading and
projects, sequestration,
or reductions by non-
covered entities.
CRS-13
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Revenue
Revenues generated
Allowances may be
Revenues generated
Revenues generated
A new Energy
Revenues generated
Revenues generated
recycling
by allowance auctions allocated by EPA to
from the auction are to by allowance auctions Technology
by allowance auctions by allowance auctions
and trading proceeds
households, dislocated be deposited in the
and penalties are
Deployment Fund is
and trading proceeds
and penalties are
are received by a new workers, energy
Climate Action Trust
received by a new
funded by TAPs
are received by a new received by a new
Climate Change Credit efficiency and
Fund created by the
Climate Reinvestment received and some
Climate Change Credit Climate Reinvestment
Corporation (CCCC).
renewable energy
Department of the
Fund created by the
auction proceeds.
Corporation (CCCC).
Fund created by the
Activities to be funded activities,
Treasury. Activities to Department of the
Activities to be funded Activities to be funded Department of the
include mechanisms to sequestration
be funded include an
Treasury. Activities to include zero- or low-
include mechanisms to Treasury. Activities to
reduce consumer costs activities, and
Innovative Low- and
be funded include
carbon energy,
reduce consumer costs be funded include
and to assist dislocated ecosystem protection
Zero-emitting Carbon mechanisms to reward advanced coal and
and to assist dislocated mechanisms to reward
workers, low-income
activities.
Technologies
early reductions,
sequestration,
workers and affected
early reductions,
persons, and affected
Program, a Clean Coal maximize public
cellulosic biomass,
communities, along
maximize public
communities, along
Technologies
benefits, promote
and advanced
with programs to
benefits, promote
with programs to
Program, and an
economic growth,
technology vehicles.
encourage deployment economic growth,
encourage deployment
Energy Efficiency
assist households and
of new technology and assist households and
of new technology and
Technology Program, dislocated workers,
A new Climate
wildlife restoration.
dislocated workers,
wildlife restoration.
along with research
encourage energy
Adaptation Fund is
encourage energy
Allocations to the
and development.
efficiency and
funded by some
efficiency and
CCCC are to be
renewable energy
auction proceeds.
renewable energy
determined by EPA
Adaption and
activities,
Activities to be funded
activities,
based on the funding
mitigation activities to sequestration
include coastal, arctic,
sequestration
needs of the advanced
be funded include
activities, and assist
and fish and wildlife
activities, and assist
technologies
affected workers and
states in addressing
impacts.
states in addressing
demonstration and
communities, and fish the impact of climate
the impact of climate
deployment programs.
and wildlife habitat.
change.
A new Energy
change.
Further, at least 50%
Assistance Fund is
of revenue received
funded by some
must be used for
auction proceeds.
technology
Activities to be funded
deployment.
include low-income
and rural energy
assistance, and
weatherization.
CRS-14
S. 1766
H.R. 1590
Topic
S. 280 (Lieberman)
S. 309 (Sanders)
S. 317 (Feinstein)
S. 485 (Kerry)
H.R. 620 (Olver)
(Bingaman)
(Waxman)
Other key
Provisions include
Provisions include
Establishes program to Provisions include
Provisions include
Provisions include
Provisions include
provisions
studies of research on
mandatory greenhouse encourage offsets
mandatory greenhouse periodic review of the studies of the impact
mandatory greenhouse
abrupt climate change gas emission standards from the agricultural
gas emission standards activities of the
of climate change on
gas emission standards
and impact of climate
for vehicles by 2010,
sector. Offset credits
for vehicles by 2010,
nation’s 5 largest
coastal ecosystems
for vehicles by 2010,
change on the world’s for new electric
available for
and a new energy
trading partners, an
and communities, and and a new energy
poor, among others,
powerplants that begin agricultural, forestry,
efficiency standard
NAS assessment of
the world’s poor,
efficiency standard
and creation of a
operation after
grazing, and wetlands beginning in 2009.
the status of the
among others;
beginning in 2010.
national greenhouse
December 31, 2011,
management,
Establishes a
science and control
assessment of
Establishes a
gas database.
and a new energy
sequestration projects, Renewable Portfolio
technologies, and
adaptation
Renewable Portfolio
efficiency
or practices that meet
Standard and credit
energy security
technologies; and
Standard.
A new Innovation
performance standard. specific criteria in the
program.
implications.
creation of a national
Infrastructure is
proposal.
greenhouse gas
Requires periodic
created, along with
Establishes a
Increases biofuel
Beginning in 2019,
database.
review of target
program initiatives to
Renewable Portfolio
Offset credits also
mandates under the
requires foreign
adequacy by the NAS.
promote less carbon-
Standard and credit
available for approved Renewable Fuels
countries that do not
Requires periodic
intensive technology,
program.
emission reduction
Standard, and
take comparable
review of target
adaption,
offset projects from a
mandates
emission reduction
adequacy by the
sequestration, and
Establishes a new low- variety of activities
infrastructure for
actions to submit
Under Secretary of
related activities.
carbon generation
listed in the proposal.
biofuels.
international reserve
Commerce for Oceans
requirement and
allowances (or foreign and Atmosphere.
Requires periodic
trading program.
Requires periodic
Expands and extends
equivalents) to
review of target
review of target
existing tax incentives accompany exports of
adequacy by the
Requires periodic
adequacy by EPA
for alternative fuel and any covered
Under Secretary of
review of target
taking into account the advanced technology
greenhouse gas
Commerce for Oceans adequacy by the
recommendations of a vehicles, and
intensive goods and
and Atmosphere.
National Academy of
newly established
establishes
primary products to
Sciences (NAS).
Climate Science
manufacturer tax
the U.S. Least
Advisory Panel.
credit for advanced
developed nations or
technology vehicle
those that contribute
investment.
no more than 0.5% of
global emissions are
Establishes new
excluded. Proceeds
National Climate
from the sale of such
Change Vulnerability
reserve allowances are
and Resilience
to be deposited in a
Program.
International Energy
Deployment Fund to
Requires periodic
encourage and finance
review of target
international
adequacy by the NAS. technology
development.
CRS-15
Appendix B. 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
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.
CRS-16
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 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 (CH ) nitrous oxide (N O), sulfur
2
4
2
hexafluoride (SF ), hydrofluorocarbons (HFC), and perfluorocarbons (PFC).
6
Hybrid Program. Generally a greenhouse gas reduction program that allows emitters to
choose between complying with the reduction requirement of a cap-and-trade program or paying a
set price (safety valve price) to the government in lieu of making reductions.
Leakage. Decreases in greenhouse gas-related reductions or benefits outside the boundaries
set for defining a project’s or program’s net greenhouse gas impact resulting from mitigation
CRS-17
activities. For example, emissions could be reduced in an area with greenhouse gas controls by
moving an emitting industry to an area without such controls.
“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.