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        Early Look at Senate Climate Bill

        05.11.10

        Tomorrow afternoon (Wed, May 12th) Senators John Kerry (D-MA) and Joseph Lieberman (I-CT) are expected to introduce their long-awaited energy bill.

        The bill contains provisions to encourage nuclear power generation, share revenues from oil and gas drilling in the Outer Continental Shelf (OCS), develop carbon capture and sequestration (CCS) technology, and promote renewable energy and energy efficiency.

        We've received a copy of the bill's outline, and below you will find an overview of the major climate change provisions. We will provide a more detailed overview of the bill when text is made available tomorrow:

        Climate Change Provisions

        Program Overview

        • Program starts in 2013 with a 4.75% reduction in emissions from 2005 levels.
        • Ramps up to 17% reduction from 2005 levels by 2020, 42% reduction from 2005 levels by 2030, and an 83% reduction from 2005 levels by 2050.
        • Establishes annual tonnage limit on GHG emissions from specified sources, with penalties for non-compliance.

        Allowance Auction

        • Quarterly auction of allowances.
        • Limits on amount a single entity can purchase at auction.
        • $12 reserve price for 2013, increasing at 3% over CPI each year.
        • Set aside of allowances for refining sector (see below).

        Banking/Borrowing

        • Permits unlimited banking of allowances for use during future compliance years.
        • Two-year rolling compliance period allows for one-year forward borrowing.
        • Compliance entities can borrow allowances for up to 15% of their compliance obligation.
          • Entities can borrow with interest for up to five years.
          • 8% "premium" in allowances borrowed.

        Exchange of State Allowances/Early Action

        • EPA Administrator has one year to set rules for the exchange of state allowance for allowances under the Federal program.

        International Linkage

        • Provides parameters for use of allowances from foreign programs.

        Transportation Fuels

        • Establishes a process for refiners to pay a fee to "demonstrate compliance" for refined products.

        Cost Containment Reserve

        • Establishes a reserve of allowances for use by compliance entities.

        Offsets (Domestic)

        • Government will set up an offset program and requires credits be "additional, measurable, verifiable, and enforceable."
        • Requires standardized methodologies for determining additionality, setting baselines, measuring performance, and accounting for leakage.
        • Lists project types for consideration under the program, including:
          • fugitive methane emissions from coal mines, landfills, and oil and gas distribution facilities;
          • agricultural, grassland, and rangeland sequestration and management practices; and
          • changes in carbon stocks attributed to land use change and forestry activities.
        • Ensure early supply of offset credits by allowing for issuance of offset credits from programs that meet a specified criteria.

        Offsets (International)

        • Establishes an International Offsets Integrity Advisory Committee to provide recommendations on scientific and quantification issues.
        • Directs the EPA, State Department, and USAID to establish an international offsets program and requires credits be "additional, measurable, verifiable, and enforceable."
        • Provides a list of categories for international offset credits, including sector-based, credits issued by an international body, or REDD.

        Market Oversight

        • CFTC given clear jurisdiction over carbon markets.
        • Participation in auction and primary cash markets is restricted to compliance entities and "market makers".
        • Participation in the secondary market will be open to all participants, but all transactions will be cleared.

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