Auction of carbon permits and distribution of Healthy Climate Dividends

(a)

In general

The Internal Revenue Code of 1986 is amended by adding at the end the following new subtitle:

Auction of Carbon Permits and Distribution of Healthy Climate Dividends

Chapter 101. Cap and Dividend Program Rules.

Chapter 102. Healthy Climate Dividends.

Chapter 103. Border Adjustments.

101

Cap and Dividend Program Rules

Sec. 9901. Definitions.

Sec. 9902. Carbon permits.

Sec. 9903. Auctions.

Sec. 9904. Compliance obligation.

Sec. 9905. Penalty for noncompliance.

Sec. 9906. Transfers.

Sec. 9907. Banking and borrowing.

Sec. 9908. Environmental justice.

9901.

Definitions

For purposes of this subtitle:(1)

Administrator

The term Administrator means the Administrator of the Environmental Protection Agency.(2)

Carbon permit

The term carbon permit means a carbon permit established by the Secretary under section 9902(a).(3)

Covered entity

The term covered entity means—(A)in the case of crude oil—(i)any producer of crude oil operating in the United States, and(ii)any importer of crude oil, petroleum, or any petroleum product into the United States,(B)in the case of coal—(i)any coal mine operating in the United States, and(ii)any importer of coal into the United States, and(C)in the case of natural gas—(i)any entity required to submit a report to the Energy Information Agency on Form 176 by reason of delivering natural gas to an end user, and(ii)any natural gas processor not described in clause (i) with respect to sales of natural gas in the United States.(4)

Covered fuel

The term covered fuel means crude oil, natural gas, coal, or any other product derived therefrom for use as a combustible fuel offered for sale in United States markets.(5)

Crude oil

The term crude oil includes crude oil condensates, natural gasoline, shale oil, any bitumen or bituminous mixture, any oil derived from a bitumen or bituminous mixture, and any oil derived from kerogen-bearing sources.(6)

Fair market value

The term fair market value means the average auction price for carbon permits during the 4 quarters immediately preceding a failure to surrender, when required under section 9904, the required number of carbon permits under such section.(7)

State

The term State means the several States, the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any other commonwealth, territory, or possession of the United States.(8)

Vintage year

The term vintage year means the calendar year for which a carbon permit is established under section 9902.(9)

Co-pollutant

The term co-pollutant means—(A) any criteria pollutant for which there are national ambient air quality standards under section 109 of the Clean Air Act (42 U.S.C. 7409), and(B)any precursor to such a criteria pollutant which is released in fossil fuel combustion.(10)

Frontline communities

The term frontline communities means locations in which minority populations and low-income populations in the United States and its territories and possessions, the District of Columbia, the Commonwealth of Puerto Rico, and the Commonwealth of the Mariana Islands are exposed to disproportionately high and adverse human health or environmental effects of air pollution.

9902.

Carbon permits

(a)

In general

The Secretary, in consultation with the Administrator, shall establish a separate quantity of carbon permits for calendar year 2025 and each calendar year thereafter, as set forth under subsection (b).(b)

Emissions reduction schedule

(1)

In general

The quantity of carbon permits established by the Secretary, in consultation with the Administrator, under subsection (a) for any calendar year before 2050 that is between the nearest target years specified in paragraph (2) preceding and succeeding such calendar year shall be the quantity of such permits that represents an equal, pro rata reduction from the preceding year to the succeeding year.(2)

Targets

(A)

Initial target

The quantity of carbon permits established for 2025 shall be equal to 15 percent less than the number of metric tons of carbon dioxide emitted in the United States in 2015.(B)

Decadal targets

The quantity of carbon permits established for—(i)2027 shall be equal to 35 percent less than the number of metric tons of carbon dioxide emitted in the United States in 2015,(ii)2030 shall be equal to 50 percent less than the number of metric tons of carbon dioxide emitted in the United States in 2015,(iii)2038 shall be equal to 60 percent less than the number of metric tons of carbon dioxide emitted in the United States in 2015,(iv)2044 shall be equal to 80 percent less than the number of metric tons of carbon dioxide emitted in the United States in 2015, and(v)2050 shall be equal to 90 percent less than the number of metric tons of carbon dioxide emitted in the United States in 2015.(3)

Reports

(A)

Calendar year 2050

In 2050 the Secretary, after consultation with the Administrator, shall submit a report to Congress making recommendations concerning the program established under this subtitle for years after 2050, including the quantity of carbon permits to be established and any reductions that may be necessary to ensure a net zero carbon economy and a healthy climate.(B)

Averting catastrophic climatic impact

Not later than 4 years after the date of the enactment of this section, and every 4 years thereafter, the Secretary shall report to Congress on any recommended revisions to the decadal targets under paragraph (2) and the basis for those recommendations if the Secretary, after consultation with the Administrator, determines the emissions reductions targets under this subsection should be further tightened in order to—(i)reach a net-zero carbon economy by 2050, or(ii)avert catastrophic climate impacts. (c)

Identification numbers

The Secretary shall assign to each carbon permit established under subsection (a) a unique identification number that includes the vintage year for that carbon permit.(d)

Legal status of carbon permits

(1)

In general

A carbon permit does not constitute a property right.(2)

Termination or limitation

Nothing in this subtitle or any other provision of law shall be construed to limit or alter the authority of the United States, including the Secretary acting pursuant to statutory authority, to terminate or limit a carbon permit.(3)

Other provisions unaffected

Nothing in this subtitle relating to carbon permits issued under this section shall affect the application of any other provision of law to a covered entity (including the Clean Air Act), or the responsibility for a covered entity to comply with any such provision of law. Regional and State greenhouse gas initiatives are not preempted by this subtitle.(e)

Regulations

Not later than December 31, 2025, the Secretary shall promulgate regulations to carry out the provisions of this subtitle.

9903.

Auctions

(a)

Periodic auctions

The Secretary shall conduct periodic public auctions of carbon permits established under section 9902(a). The Secretary shall conduct at least 1 such auction in each calendar quarter of each year for which carbon permits are established, and shall distribute the available permits for each such year pro rata among the quarters of such year.(b)

Auction rules

The Secretary shall—(1)limit auction participation only to covered entities,(2)establish a limit on the amount of carbon permits that can be purchased by a single entity at each auction and an aggregate limit on the total amount of permits that can be held by a single entity at any one time that—(A)reflects anticipated sector and participant demand,(B)prevents speculation, manipulation, or hoarding of permits, and(C)does not interfere with normal market competition, and(3)set a minimum permit price at the initial auction of $40 per ton of carbon dioxide that will be released when the covered fuel is burned, increase this minimum price by $10 in each successive year and adjust for inflation, and have the authority to set higher minimum permit prices. (c)

Unsold permits

Any carbon permit unsold at the auction at which it is offered shall expire.

9904.

Compliance obligation

(a)

In general

Not later than April 1, 2025, and April 1 of each year thereafter, each covered entity shall surrender to the Secretary a quantity of carbon permits at least as great as the number of metric tons of carbon dioxide that the Secretary, in consultation with the Administrator, determines would be emitted by the combustion of covered fuels with respect to which the covered entity made the first sale in United States markets during the previous calendar year.(b)

Use treated as sale

For purposes of subsection (a), consumption for an emitting use by the covered entity of covered fuels produced by the covered entity shall be treated as a first sale.

9905.

Penalty for noncompliance

(a)

In general

Any covered entity that fails for any year to surrender, by the deadline described in section 9904, one or more of the carbon permits due pursuant to such section shall be required to surrender permits in order to meet this past due obligation and shall be liable for payment to the Secretary of a penalty in the amount described in subsection (b).(b)

Amount

The amount of a penalty required to be paid under subsection (a) shall be equal to the product obtained by multiplying—(1)the number of carbon permits that the covered entity failed to surrender by the deadline, by(2)3 times the fair market value of carbon permits issued for emissions occurring in the calendar year for which the carbon permits were due.(c)

Timing

A penalty required under this section shall be immediately due and payable to the Secretary, without demand, in accordance with regulations promulgated by the Secretary, which shall be issued not later than 1 year after the date of enactment of this subtitle.(d)

No effect on liability

A penalty due and payable by the covered entity under this section shall not diminish the liability of the covered entity for any fine, penalty, or assessment against the covered entity for the same violation under any other provision of law.(e)

Penalty not deductible

No deduction shall be allowed under subtitle A for a penalty paid under this section.

9906.

Tracking

The regulations promulgated under section 9902(e) shall include a system for issuing, recording, holding, and tracking carbon permits that shall specify all necessary procedures and requirements for an orderly and competitive functioning of the carbon permit system. Such regulations shall provide for appropriate publication of the information in the system on the internet.

9907.

Banking

(a)

Banking

A carbon permit may be used to meet the compliance obligation requirements of section 9904 for emissions only in the permit’s vintage year, the year prior, or the year following. At least 80 percent of permits used by an entity to meet its compliance obligation for a year must be of that year’s vintage. The Secretary shall have the authority to establish stricter requirements for the percentage of the compliance obligation for a year that must be met with permits of that year’s vintage, and to establish penalties for failure to comply.(b)

Expiration

A carbon permit shall expire when—(1)it is surrendered to the Secretary under section 9904,(2)it has been held by a covered entity and has not been surrendered to the Secretary under section 9904 within 18 months after the end of its vintage year, or(3)the Secretary determines by regulation that expiration is necessary to ensure the authenticity and integrity of carbon permits or the carbon permit tracking system.

9908.

Environmental justice

(a)

In general

This chapter shall be implemented to the extent practicable to ensure that reductions in carbon emissions are accompanied by commensurate reductions in emissions of co-pollutants from fossil fuel combustion that impact frontline communities.(b)

Report on Air Quality Methods Development

Not later than 1 year after the date of enactment of this section, the Administrator shall submit to Congress a report detailing efforts to increase air quality monitoring deployment and technical assistance at the Federal, State, local, and tribal level.(c)

Air quality monitoring in frontline communities

The Administrator (or the Administrator's delegate) is authorized to provide for trends monitoring of ambient air quality in frontline communities and monitoring of co-pollutant emissions from sources located in or near such communities that impact their pollution burden. Not later than 3 years after the date of the enactment of this section, any information from such monitors shall be recorded and reported at the level of monitor and pollutant, and made available to the public to support effective community participation in the making of environmental policies.(d)

Environmental justice guarantee

In cases where co-pollutant emissions impacting frontline communities have not declined at a rate equal to the carbon dioxide emissions targets established in section 9902(b)(2), the Administrator is authorized to implement or promulgate additional regulatory measures to ensure such reductions.(e)

Environmental justice review

Not later than 4 years after the date of enactment of this section, and annually thereafter, the Administrator shall implement an annual review to determine frontline communities, evaluate the effects of the enactment of this chapter on environmental justice, and recommend further corrective measures if needed.(f)

Appropriations

Out of any money in the Treasury not otherwise appropriated, there shall be appropriated such sums as are necessary to carry out the purposes of this section, to remain available until expended.

102

Healthy Climate Dividends

Sec. 9911. Healthy Climate Trust Fund.

Sec. 9912. Healthy Climate Dividend Payments.

Sec. 9913. Transparency.

9911.

Healthy Climate Trust Fund

(a)

Establishment

There is established in the Treasury of the United States a trust fund to be known as the Healthy Climate Trust Fund, consisting of such amounts as may be appropriated to such trust fund as provided for in this section.(b)

Transfers

(1)

Proceed amounts

There are appropriated to the Healthy Climate Trust Fund amounts equivalent to funds received as proceeds under section 9903.(2)

Penalty amounts

There are appropriated to the Healthy Climate Trust Fund amounts equivalent to funds received as penalties under section 9905.(c)

Expenditures

(1)

Administrative expenses

Out of any amounts in the Treasury not otherwise appropriated, there shall be appropriated such sums as are necessary to pay the administrative expenses necessary to carry out this chapter. (2)

Healthy Climate Dividend Payments

Amounts in the Healthy Climate Trust Fund not used under paragraph (1) for any month shall be available for making Healthy Climate Dividend Payments under section 9912.

9912.

Healthy Climate Dividend Payments

(a)

In general

For purposes of this section:(1)

Healthy Climate Dividend Payment

The term Healthy Climate Dividend Payment means the individual pro rata share, as determined by the Secretary, of amounts available for any quarter in the Healthy Climate Trust Fund under section 9911(c)(2). The amounts so available for any quarter shall be equal to the proceeds from auctions conducted under section 9903 in the preceding calendar quarter.(2)

Eligible individual

(A)

In general

The term eligible individual means, with respect to any quarter, any individual with a valid social security number (other than a nonresident alien individual) who is lawfully present in the United States for such quarter, as determined and verified by the Secretary in consultation with any other Federal entity the Secretary determines appropriate.(B)

Opt out

An individual may elect not to be treated as an eligible individual.(b)

Payment of Healthy Climate Dividend

From amounts made available under section 9911(c)(2), the Secretary shall make a Healthy Climate Dividend Payment not later than the end of the calendar quarter following the calendar quarter in which such amounts are appropriated to the Healthy Climate Trust Fund under section 9911 to each eligible individual for that quarter. Such payments shall be made by electronic means to the maximum extent practicable.(c)

Exclusion from gross income

Gross income shall not include any Healthy Climate Dividend paid under this section.(d)

Regulations

The Secretary shall prescribe such regulations and other guidance as may be necessary or appropriate to carry out this section.

9913.

Transparency

(a)

Report to Congress

Not later than June 30, 2026, and at least annually thereafter, the Secretary shall transmit to Congress a report accounting for the disposition of amounts in the Healthy Climate Trust Fund in the previous calendar year.(b)

Healthy Climate Trust Fund Website

Not later than 90 days after the date of the enactment of this subtitle, the Secretary shall establish and maintain a website to provide the public with information on the disposition of any amounts in the Healthy Climate Trust Fund.

103

Border Adjustments

Sec. 9921. Carbon equivalency fee.

Sec. 9922. Definitions.

Sec. 9923. Sense of Congress.

9921.

Carbon equivalency fee

(a)

Imports

The Secretary shall impose carbon equivalency fees to be collected by the Commissioner responsible for U.S. Customs and Border Control on imports of carbon-intensive goods. The amount of the carbon equivalency fee shall be equal to the cost that domestic producers of a comparable carbon-intensive good incur as a result of—(1)prices paid in the acquisition of carbon permits by covered entities under this subtitle, and(2)carbon equivalency fees paid by importers of carbon-intensive goods used in the production of the comparable carbon-intensive good.(b)

Payments to Exporters

The Secretary shall pay without interest to entities exporting from the United States carbon-intensive goods produced in the United States. The amount of the payment shall be equal to the cost that domestic producers of the carbon-intensive good incur as a result of—(1)prices paid in the acquisition of carbon permits by covered entities under this subtitle, and(2)carbon equivalency fees paid by importers of carbon-intensive goods used in the production of the comparable carbon-intensive good.(c)

Expiration

This section shall cease to have effect at such time as and to the extent that—(1)an international agreement requiring countries that emit greenhouse gases and produce carbon-intensive goods for export markets to adopt equivalent measures comes into effect, or(2)the country of export has implemented equivalent measures, as determined by the Secretary, in consultation with the Secretary of State.

9922.

Definitions

In this chapter:(1)

Carbon-intensive good

The term carbon-intensive good means a good that, as identified by the Secretary, in consultation with the Administrator, by rule—(A)is a primary product, or(B)is a manufactured item in which one or more primary products are inputs and the cost of production of which in the United States is significantly increased by reason of the requirements under this subtitle.(2)

Primary product

The term primary product means—(A)iron, steel, steel mill products (including pipe and tube), aluminum, cement, glass (including flat, container, and specialty glass and fiberglass), pulp, paper, chemicals, or industrial ceramics, and(B)any other manufactured product that the Secretary, in consultation with the Administrator, determines—(i)is sold for purposes of further manufacture, and(ii)generates, in the course of the manufacture of the product, direct and indirect greenhouse gas emissions that are comparable (on an emissions-per-dollar of output basis) to emissions generated in the manufacture or production of a primary product identified in subparagraph (A).(3)

Equivalent measure

The term ‘equivalent measure’ means a tax, or other regulatory requirement that imposes a cost, on manufacturers of carbon-intensive goods located outside the United States, by reason of greenhouse gas emissions in the production of such goods by such manufacturers, approximately equal to the cost imposed by this subtitle on manufacturers of comparable carbon-intensive goods located in the United States.

9923.

Sense of Congress

It is the sense of Congress that the United States should work proactively under the United Nations Framework Convention on Climate Change and in other appropriate fora, to establish binding agreements committing all major greenhouse gas emitting countries and countries with globally competitive producers of carbon-intensive goods to contribute equitably to the reduction of global greenhouse gas emissions on a schedule and order of magnitude necessary to stabilize the climate.

(b)

Clerical amendment

The table of subtitles for the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

Subtitle L. Auction of Carbon Permits and Distribution of Healthy Climate Dividends.