Senators John Kerry and Barbara Boxer Introduce Comprehensive Climate Change and Clean Energy Legislation

On September 30, 2009, Senators John Kerry (D-MA), Chairman of the Foreign Relations Committee, and Barbara Boxer (D-CA), Chairman of the Committee on Environment and Public Works, introduced the Clean Energy Jobs and American Power Act (the Kerry-Boxer bill).  This 821-page bill will be considered in the Environment and Public Works Committee in the weeks ahead.  The Kerry-Boxer bill is the first comprehensive energy and climate bill to be introduced in the Senate since the House’s passage of the American Clean Energy and Security Act (H.R. 2454) in June 2009.  The Kerry-Boxer bill closely mirrors many elements of the House bill, but differs in significant respects as well.

Cap-and-Trade Provisions

Major features of the economy-wide cap-and-trade program in the Kerry-Boxer bill are as follows:

Targets.  The bill would set an emissions cap requiring a 3% reduction in covered emissions below 2005 levels by 2012; a 20% reduction by 2020; a 42% reduction by 2030; and a 83% reduction by 2050.  The bill features a more aggressive 2020 target than the House bill.

Coverage.  The Kerry-Boxer bill would require “upstream” suppliers of fossil fuels and “downstream” emitters of GHGs to surrender emission allowances to the government.  Facilities subject to the program include electricity sources; suppliers of liquid fossil fuels and certain industrial GHGs; major industrial sources; natural gas local distribution companies (LDCs); and GHG sequestration sites.

Allowance Allocation.  The bill provides that 25% of allowances in the cap would be auctioned for deficit reduction in each year of the program, and also provides a gradually increasing allocation of allowances (reaching a maximum of 5%) for an incentive program for deployment of carbon capture and sequestration (CCS) projects.  The bill also has placeholder provisions that would distribute free allowances to a variety of entities and public programs, including: electric and gas LDCs; low- and moderate-income consumers; energy-intensive and trade-exposed industries; and state and local government programs for energy efficiency and renewable energy.  However, the bill does not yet specify the amount of these other allocations. 

Offset Credits.  The bill allows 2 billion offset credits to be surrendered for compliance each year.  No more than 25% of offset credits surrendered may be international offset credits, but EPA has authority to increase this limit by up to 750 million credits if there is an inadequate supply of domestic offset credits. 

Cost Containment.  To mitigate increases in allowance prices, the bill would set aside a pool of allowances known as the “Market Stability Reserve,” which would be made available for auction at a minimum price.  This reserve mechanism allows for a larger quantity of sales than the House bill, and also features a predictable method of determining the minimum price for reserve allowances.

Performance Standards.  The Kerry-Boxer bill would require EPA to defer the issuance of Clean Air Act emission performance standards until 2020 for sources that would otherwise be eligible for offset projects.  This provision appears intended to encourage an adequate supply of domestic offset credits.  This is a key difference from the House bill.    

Preemption.  The Kerry-Boxer bill would preempt state-level cap-and-trade programs from nine months after the first auction of allowances (in 2011) through 2017.  However, states would be free to set their own GHG emission regulations for stationary sources.  The Kerry-Boxer bill does not limit EPA authority to regulate GHG emissions under existing provisions of the Clean Air Act.

Clean Energy and Efficiency Programs

The bill would also establish a number of programs to promote clean energy and energy efficiency, assist communities in adapting to climate change, and provide relief for displaced workers, including:

Renewable Energy and Energy Efficiency: The Kerry-Boxer bill would create EPA grant programs for renewable energy projects in states with mandatory renewable portfolio standards, for states that encourage building retrofits, and for advanced biofuels research projects. 

Performance Standards for New Coal-Fired Power Plants: The bill would impose strict GHG emission standards for coal-fired power plants permitted after January 1, 2009.  As in the House bill, compliance would be required by a date linked to the commercialization of carbon capture and sequestration technology, not later than 2025.

Carbon Capture & Sequestration (CCS):  Like the House bill, the Kerry-Boxer bill would direct EPA to promulgate regulations for certifying geologic carbon sequestration sites; authorize utilities to hold a referendum to finance an early CCS deployment program financed by approximately $1 billion per year in ratepayer surcharges; and establish a per-ton incentive program, financed by allowances, for commercialization of CCS.  Notably, with respect to the CCS incentive program, the Kerry-Boxer bill makes major changes to improve the mechanism in the House bill for distributing bonus allowances to eligible CCS projects.

Incentives for Natural Gas-Fired Electric Generation: Kerry-Boxer bill would authorize a new EPA-administered “incentive payment” program, financed by appropriations, for owners of electric generating units that achieve specified emission reductions relative to the national average for the utility sector.  This provision is expected to promote switching from coal-fired to gas-fired generation.  The bill would also authorize an EPA grant program to fund advanced natural gas generation technologies, including use of CCS.

Transportation Emissions and Planning Standards:  EPA would be required to adopt GHG emissions standards for new heavy-duty and non-road vehicles and engines.  EPA, the Department of Transportation, states, and metropolitan planning organizations would be required to reform transportation planning practices to meet national and regional GHG emissions reduction targets. 

Looking Ahead

The Senate Environment and Public Works Committee (EPW) plans to take up the Kerry-Boxer bill over the next few weeks.  EPW is expected to first hold hearings in the next few weeks, with mark-ups to follow.  Other Committees with jurisdiction over portions of the bill – including the Committees on Agriculture, Energy and Natural Resources, Commerce, and Finance – are likely to weigh in with amendments on key issues, including domestic offset credits, GHG market oversight, and the international trade impacts of the cap-and-trade program.  Both Sen. Max Baucus (D-MT), Chairman of the Senate Committee on Finance, and Sen. Blanche Lincoln (D-AR), Chairman of the Senate Committee on Agriculture, Nutrition, and Forestry, have indicated that their Committees may mark up the bill.  In addition, it remains to be seen whether S. 1462, the energy bill reported by the Committee on Energy and Natural Resources last summer, will be incorporated into the Kerry-Boxer bill before it reaches the Senate floor.

The Senate leadership has not established a timetable for consideration of the Kerry-Boxer bill by these other Committees.  Because the Senate is already expected to take up bills on appropriations, health care, and financial regulatory reform this fall, Senate Majority Leader Harry Reid (D-NV) recently indicated that a floor vote on the bill might not take place until early 2010.