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Chairmen Waxman and Markey Release Discussion Draft of New Clean Energy and Climate Change Legislation

April 3, 2009

Chairman Henry A. Waxman (D-CA) of the U.S. House of Representatives Committee on Energy and Commerce, and Chairman Edward J. Markey (D-MA) of the Committee on Energy and Commerce’s Subcommittee on Energy and Environment, released earlier this week, Tuesday, March 31, 2009, a discussion draft of comprehensive clean energy and climate change legislation, titled, “The American Clean Energy and Security Act of 2009.” The discussion draft draws heavily from the discussion draft of climate change legislation released last year, October 7, 2008, by Representatives John Dingell (D-MI) and Rick Boucher (D-VA) and the recommendations of the U.S. Climate Action Partnership (“USCAP”), a coalition of electric utilities, manufacturers, energy companies, automakers and environmental organizations that have come together to call on the federal government to enact strong legislation to require significant reductions in greenhouse gas (GHG) emissions.

The 648-page discussion draft has four titles:

Title 1 — Clean Energy. Includes a renewable electricity portfolio standard that would require retail electricity suppliers to meet 6% of their load with electricity generated from renewable resources by 2012. This number would gradually rise to 25% by 2025. A state could meet five percentage points of this requirement through energy efficiency measures.

The title also contains provisions that would:

  • Encourage the development of carbon capture and sequestration technologies.
  • Impose stringent CO2 emissions standards on new (not modified) coal-fired electric generating units (effectively requiring carbon capture and sequestration).
  • Promote the deployment of a smart grid, including measures to reduce utility peak loads through smart grid and demand response applications and to help promote smart grid capabilities in new home appliances.
  • Direct FERC to reform the regional planning process to modernize the electric grid and provide for new transmission lines to carry electricity generation from renewable sources.
  • Establish a low-carbon transportation fuel standard to promote advanced biofuels and other clean fuels.
  • Authorize grants and loan guarantees to cities, states or private companies for large-scale demonstrations of electric vehicles.
  • Establish a State Energy and Environment Development Fund to provide federal financial assistance for clean energy and energy efficiency projects.
  • Authorize federal agencies to enter into long-term contracts to purchase renewable electricity.

Title 2 — Energy Efficiency. Promotes energy efficiency in new buildings; authorizes funding for retrofitting existing commercial and residential buildings to improve their energy efficiency and directs EPA to develop procedures for rating building energy efficiency; codifies negotiated agreements on energy efficiency for lighting and other appliances; directs the President to work with the relevant agencies and California to harmonize, to the extent possible, the federal fuel economy standards, any GHG emission standards promulgated by EPA and the California standards for light trucks; directs EPA to set emission standards for other mobile sources such as locomotives, marine vessels and nonroad sources. The title also establishes a new energy efficiency resource standard to enlist electricity and natural gas companies in the nation’s energy efficiency effort. Under the new energy efficiency resource standard, each distribution company would have to demonstrate that its customers have achieved a required level of cumulative electricity or natural gas savings relative to business-as-usual projections. The efficiency standard starts with a 1% electricity savings and 0.75% for natural gas in 2012, and gradually increases to a 15% cumulative electricity savings and a 10% cumulative natural gas savings by 2020. 

Title 3 — Climate Change. As noted previously, Chairmen Waxman and Markey acknowledge in their statement accompanying the release of the draft bill that this title’s provisions closely track many of the USCAP recommendations establishing a cap-and-trade program for reducing global warming pollution from electric utilities, oil companies, large industrial sources and other covered entities that collectively are responsible for 85% of U.S. global warming emissions. Under the program proposed in title 3, covered entities must have tradable federal permits, called “allowances,” for each ton of CO2 emitted into the atmosphere. Entities that emit less than 25,000 tons per year of CO2 equivalent are not covered.

 A summary of the title’s provisions is as follows:  

Targets: The program reduces the number of available allowances issued each year to ensure that aggregate emissions from covered entities are reduced by 3% below 2005 levels in 2012, 20% below 2005 levels in 2020, 42% below 2005 levels in 2030, and 83% below 2005 levels in 2050.

Offsets: Allows covered entities to increase their emissions above their allowances if they can obtain “offsetting” reductions at lower cost from other sources. The total quantity of emissions that may be offset in any year cannot exceed two billion tons, with half of that amount coming from domestic offsets and half coming from international offsets. Covered entities using offsets must submit five tons of offset credits for every four tons of emissions being offset. 

Banking and Borrowing: Provides for unlimited banking of allowances for use during future compliance years and establishes a rolling two-year compliance period, effectively allowing covered entities to borrow from one year ahead without penalty. Allowances from two to five years in the future can be borrowed under limited circumstances.

Strategic Reserve: Authorizes a “strategic reserve” of about 2.5 billion allowances by setting aside a small number of allowances authorized to be issued each year thereby creating a cushion in case prices rise faster than expected. The allowances from the strategic reserve are to be made available when allowance prices rise to unexpectedly high levels. The proceeds of the auction will be used to purchase additional offsets that will replenish the strategic reserve.

Carbon Market Assurance and Oversight: FERC is given oversight and regulatory authority of the new markets for carbon allowances and offsets.

Preemption/Relationship to Clean Air Act: Preempts state cap-and-trade programs for five years; prohibits regulation of GHGs as criteria or hazardous air pollutants and would exclude GHGs from the Prevention of Significant Deterioration (PSD) permitting program (i.e., new source review).

Allocation of Allowances: The discussion draft is silent on free allocation or auction of allowances, the details of which will have to be worked out as the legislative process proceeds.

Greenhouse Gases: In addition to carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons and perfluorocarbons, the discussion draft lists nitrogen trifluoride as a GHG, and it requires the Administrator to list other anthropogenic gases (except those used as a substitute for a refrigerant) that make the same or greater contribution to global warming over 100 years as CO2 on a per ton basis. Hydrofluorocarbons and black carbon are separately regulated.

Title 4 — Transition. Includes a rebate program for energy-intensive industries with trade-affected products and provisions to promote green jobs, provide assistance to U.S. consumers, and promote the export of clean technologies to developing countries that have undertaken “nationally appropriate mitigation activities.”

*  *  *  *  *

In a memorandum to the members of the House Committee on Energy and Commerce accompanying the release of the discussion draft, Chairmen Waxman and Markey laid out an ambitious preliminary time table for the consideration of the legislation. The two chairmen asked their colleagues to focus on the discussion draft over the upcoming April congressional recess, April 6-17th, and to share their views with the chairmen and their staff on how best to refine the legislation. As soon as Congress returns from recess, the week of April 20th, the Subcommittee on Energy and Environment intends to hold hearings on the draft legislation. The following week of April 27th, the Subcommittee on Energy and Environment is slated to begin marking-up the legislation. And beginning the week of May 11th, the full Committee on Energy and Commerce intends to begin its mark-up of the legislation with the goal to complete its consideration of the legislation by Memorial Day.

In a statement on the release of the discussion draft, House Speaker Nancy Pelosi (D-CA) stated: “We will continue to hear the best ideas about how to tackle the challenges from a broad range of stakeholders, with the intention of having the legislation on the House floor this year.”

For links to a copy of the March 31, 2009, discussion draft, a summary of the discussion draft and a statement on the release of the draft legislation, visit http://energycommerce.house.gov.

If you have any questions or would like more information, please contact the following lawyers:

Kathryn Taylor, Partner
k.taylor@bingham.com
T 202.373.6015

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