On the afternoon of May 12, 2010, U.S. Senators Kerry (D‑MA), and Lieberman (I‑CT), jointly introduced their “discussion draft” of the American Power Act (“the APA”), as a Senate version of comprehensive climate change regulation. The U.S. House of Representatives passed its comprehensive climate change bill, the Waxman-Markey, American Clean Energy and Security Act, H.R. 2454, in June 2009. The Kerry-Lieberman bill is the result of negotiations ongoing since Fall 2009, attempting to develop a bipartisan climate change bill, with support from both industry and environmental groups. The 987-page bill unveiled on May 12 intends to reduce U.S. industry-wide GHG emissions from a 2005 baseline by 17% in 2020 and by 80% in 2050, through a cap-and-trade scheme. As currently structured, the APA has six substantive, somewhat overlapping, sections.
The six substantive sections in the APA are:
Title I-Domestic Clean Energy Development, addressing nuclear power, offshore oil and gas drilling, coal (including performance standards for coal-fired power plants), renewal energy, energy efficiency, and transportation; Title II-Global Warming Pollution Reduction, which establishes the cap-and-trade program through new Titles VII and VIII of the Clean Air Act; Title III-Consumer Protection, providing economic protection for energy consumers through allowance distribution and revenue funds; Title IV-Job Protection and Growth, addressing the potential negative international competitive consequences to industries from the new cap-and-trade program, i.e., carbon leakage, and investment in clean energy technology and jobs; Title V-International Climate Change Activities, developing government programs to study deforestation and international climate change activities; and Title VI-Community Protection From Global Warming Impacts, addressing the development of natural resource adaption plans by federal agencies and states.
The bill’s new federal GHG cap-and-trade program would apply to those GHG sources that emit more than 25,000 tons of carbon dioxide equivalents annually, but covered entities would be economy-wide. At first, emission allowances would be provided to sources based on pre-set formulae, but, over time, an increasing percentage of allowances would be available only by auction. To control energy price impacts potentially caused by the cap-and-trade program, the legislation imposes an introductory price floor and ceiling for GHG emission allowances; a price collar binding future allowance prices, and the potential for consumer refunds of allowance revenues. The auction and primary cash markets would be limited to regulated entities and a limited number of market makers, as part of the APA’s measures to maintain the integrity and transparency of this new commodity to be regulated by the Commodity Futures Trading Commission. Regulation of GHGs for climate change purposes under existing Clean Air Act programs, other than through these new measures, would be prohibited. The federal cap-and-trade program would preempt states’ programs, although states and regulated industries that already began cap-and-trade programs are promised compensation for lost revenues. While farmers would be exempt from carbon regulation, they could receive incentives to reduce GHG emissions, as participants in a carbon offset credit system tied to the cap-and-trade program.
The APA also addresses energy issues beyond the cap-and-trade system. It provides investment and/or tax incentives for mass transportation, highway, clean natural gas vehicle conversions, “advanced” cars and batteries, renewable energy and other clean technology, and carbon capture and sequestration technology (“CCS”). To address the off-shore drilling issues, rather than prohibiting drilling, the APA allows states to prohibit off-shore drilling up to 75 miles from their shorelines, and those states that allow drilling will receive revenues for protecting shorelines and ecosystems. Domestic coal production would receive funds for clean coal technology and for CCS. Protections and incentives are provided for the natural gas power sector. The nuclear industry receives regulatory risk insurance for 12 new projects, licensing efficiency, tax benefits, loan guarantees, and other incentives.
The Kerry-Lieberman bill’s progress through the Senate this term is uncertain. Although President Obama has endorsed the Act and the Senate’s work on climate change, others, including Senator Linsey Graham (R-SC) who once worked closely with Senators Kerry and Lieberman on the bill’s development, expressed doubt that energy and climate change legislation could be appropriately considered by the Senate at this time.
Click here for the full text of the American Power Act discussion draft.