Short title

This Act may be cited as the

Keep America Competitive Global Warming Policy Act of 2006

Definitions

For purposes of this Act: (1)

Administrator

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

Allowance

The term allowance means a tradeable allowance issued by the Administrator pursuant to section 3(b), 5(a), or 7(b). (3)

Carbon equivalent

With respect to each greenhouse gas, the term carbon equivalent means the amount of the greenhouse gas that traps the same amount of heat as one metric ton of carbon, as determined by the Administrator. (4)

Covered fossil fuel

The term covered fossil fuel means coal, crude oil, natural gas, natural gas liquids, refined petroleum products, and any other fossil fuel that the Administrator determines appropriate. (5)

Developing countries

The term developing countries means the countries that are not listed in Annex I of the United Nations Framework Convention on Climate Change. (6)

Greenhouse gas

The term greenhouse gas means carbon dioxide, hydrofluorocarbons, methane, nitrous oxide, perfluorocarbons, and sulfur hexafluoride. (7)

Natural gas

The term natural gas does not include natural gas liquids. (8)

Sequestration

The term sequestration means the capture, recapture, long-term separation, isolation, or removal of greenhouse gases from the atmosphere, including through reforestation, forest preservation, and geological storage.

Establishment of system of allowances

(a)

Regulations

The Administrator shall issue regulations not later than the second January 1 after the date of enactment of this Act to establish a system for— (1)issuing, recording, and tracking allowances; (2)appropriately measuring for purposes of section 6 the relative amounts of carbon that will be emitted or produced by given amounts of covered fossil fuels; and (3)appropriately measuring given amounts of greenhouse gases in units of carbon equivalents. (b)

Issuance of allowances

On the third January 1 after the date of enactment of this Act, and annually thereafter, the Administrator shall issue a number of allowances equal to the number of allowances that the Administrator estimates will be required to be transferred to the Administrator pursuant to section 6 during the calendar year beginning with that January 1. The Administrator shall base such estimate on the number of allowances that would have been transferred pursuant to section 6 had such transfers been required during each of the 3 full calendar years immediately preceding that January 1. The Administrator shall publish in the Federal Register the number of allowances to be issued pursuant to this subsection not later than July 1 of the calendar year immediately preceding that January 1. (c)

Sale or exchange of allowances

Any person holding an allowance issued, sold, or exchanged under this Act may sell or exchange such allowance to any other person. The sale or exchange of such allowance shall be recorded in accordance with regulations issued by the Administrator. An allowance issued pursuant to subsection (b), section 5(a), or section 7(b) shall not be sold, exchanged, or used to meet the requirements of section 6 after the expiration of the 2-year period beginning on the date that the allowance is issued. The Administrator shall maintain a registry of all allowances issued, sold, or exchanged under this Act. (d)

Serial numbers

The Administrator shall assign a unique serial number to each allowance issued pursuant to subsection (b), section 5(a), and section 7(b), and shall take such action as may be necessary to prevent the counterfeiting of allowances. The Administrator shall retire the serial number assigned to an allowance pursuant to this subsection on the date that the allowance is used to meet the requirements of section 6.

Allocation of allowances

(a)

Secretary of Energy

In each year that allowances are issued by the Administrator pursuant to section 3(b), the Administrator shall allocate 25 percent of such allowances to the Secretary of Energy, for use in carrying out section 8. (b)

Secretary of State

In each year that allowances are issued by the Administrator pursuant to section 3(b), the Administrator shall allocate 10 percent of such allowances to the Secretary of State. After consultation with such agencies as the Secretary of State determines, the Secretary of State shall use the allowances to— (1)invest in low-emission and emission-free policies, technologies, and projects in developing countries; and (2)assist developing countries in adopting the emission reducing policies and programs described in section 5(b). (c)

Administrator

(1)

In general

In each year that allowances are issued by the Administrator pursuant to section 3(b), the Administrator shall retain 35 percent of such allowances for distribution under this subsection. (2)

Rulemaking

The Administrator shall establish, by rule, a procedure to distribute allowances without charge to the industry sectors listed in paragraph (3) in a sufficient amount to offset, but no more than offset, any expected loss of profits by that industry sector as a whole, directly attributable to the enactment of this Act. Within each of the industry sectors listed in paragraph (3), the allowances shall be distributed without charge to companies within the respective industry sector based on their relative historic share of greenhouse gas emissions, as determined by the Administrator. (3)

Industry

Consistent with paragraph (2), the Administrator shall distribute without charge not more than 5 percent of the allowances issued by the Administrator pursuant to section 3(b) each calendar year to each of— (A)the fossil fuel-fired electric generating industry; (B)the petroleum and natural gas industry; (C)the coal industry; and (D)energy-intensive industries, as determined by the Administrator, and industries that are required to transfer allowances to the Administrator under section 6(b) or (c). (4)

Transition assistance

(A)

In general

The Administrator, in consultation with the Secretary of Labor, shall distribute the percentage of allowances described in subparagraph (B) each calendar year to the States. Each State shall receive allowances under this paragraph according to the proportion of individuals who have lost jobs in that State in the previous year as a result of the enactment of this Act as compared to all the individuals who have lost jobs in all States the previous year as a result of the enactment of this Act. Each State shall use the allowances to make— (i)grants to individuals who have lost their jobs as a result of the enactment of this Act for the purpose of— (I)providing training, adjustment assistance, and employment services to such individuals; and (II)making income-maintenance and needs-related payments to such individuals; and (ii)grants to local governments that represent communities that demonstrate economic losses that are directly attributable to the enactment of this Act for the purpose of assisting the communities in attracting new employers or providing essential local government services. (B)

Percentage of allowances used for transition assistance

With respect to allowances issued in the third full calendar year beginning after the date of enactment of this Act, the percentage referred to in subparagraph (A) shall be 15 percent of the allowances issued by the Administrator pursuant to section 3(b) for that year. The percentage shall be reduced by 1.5 percentage points each calendar year thereafter. (5)

Low-income home energy assistance

The Administrator shall distribute 5 percent of the allowances issued by the Administrator pursuant to section 3(b) each calendar year to the States. Each State shall receive allowances under this paragraph equal to its share of the total of all individuals receiving home energy assistance pursuant to the Low-Income Home Energy Assistance Act of 1981 (42 U.S.C. 8621 et seq.) in the previous year. Each State shall use the allowances to provide home energy assistance to such individuals. (d)

Secretary of the Treasury

In each year that allowances are issued by the Administrator pursuant to section 3(b), the Administrator shall allocate 25 percent of such allowances to the Secretary of the Treasury, plus the percentage not distributed under subparagraph (B) of subsection (c)(4) pursuant to the percentage reduction described in the last sentence of that subparagraph. The Secretary of the Treasury shall deposit the cash proceeds from selling the allowances pursuant to section 3(c) in the Treasury. Allowances that have been allocated or retained under subsection (a), (b), or (c) but have not been distributed pursuant to such subsections at the end of the calendar year in which they were issued by the Administrator shall be transferred, without charge, to the Secretary of the Treasury for sale pursuant to section 3(c).

Safety valve allowances

(a)

Safety valve price

Beginning on the third January 1 after the date of enactment of this Act, the Secretary of the Treasury shall offer for sale an unlimited number of allowances at the safety valve price. The allowances sold under this subsection shall be in addition to the allowances issued pursuant to section 3(b). In the third full calendar year beginning after the date of enactment of this Act, the safety valve price shall be $25 per allowance. On January 1 of each calendar year thereafter, the Secretary of the Treasury shall adjust the safety valve price by the percentage increase in the Consumer Price Index for All Urban Consumers (United States city average) during the 1-year period ending 2 months before the date of the adjustment plus one percent. (b)

Policy comparability certification

Beginning in the sixth full calendar year beginning after the date of enactment of this Act and in subsequent years thereafter, the Secretary of State shall evaluate whether the 5 developing countries with the most greenhouse gas emissions, as determined by the Secretary of State in consultation with the Administrator, have adopted and are enforcing policies and programs to reduce greenhouse gas emissions that are comparable to the policies and programs established pursuant to this Act. Based on the evaluation completed during the previous calendar year, the Secretary of State shall provide certification to the President on the seventh January 1 after the date of enactment of this Act and annually thereafter if the Secretary finds that the 5 developing countries with the most greenhouse gas emissions have adopted and are enforcing comparable policies and programs. Not later than 30 days after the Secretary of State provides such certification, the President shall transmit to Congress an acceptance or rejection of the Secretary of State’s certification along with a report documenting substantial evidence that supports the President’s decision. If the Secretary of State provides certification pursuant to this subsection and the President accepts such certification, the Secretary of the Treasury shall adjust the safety valve price, in addition to the percentage increase due to the Consumer Price Index under subsection (a), by 2 percent, not later than 30 days after the President accepts such certification. The Secretary of the Treasury shall not increase the safety valve price under this subsection during any calendar year in which the Secretary of State has not provided certification pursuant to this subsection or the President has not accepted such certification.

Allowances required

(a)

Fossil fuels

(1)

Imported petroleum fuel products

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), a person shall not import into the United States any refined petroleum product without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of refined petroleum product that is imported into the United States by such person. (2)

Natural gas

(A)

Pipelines

(i)

Prohibition

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), an owner or operator of a natural gas pipeline shall not accept for transportation in such pipeline any natural gas without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of natural gas accepted for transportation by the owner or operator. (ii)

Exception

With respect to an amount of natural gas for which an owner or operator of a natural gas pipeline or a natural gas processing plant has transferred allowances to the Administrator pursuant to this paragraph before a subsequent owner or operator of a natural gas pipeline accepts the natural gas for transportation, the subsequent owner or operator shall not be required to transfer additional allowances to the Administrator. (B)

Processing plants

(i)

Prohibition

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), an owner or operator of a natural gas processing plant shall not sell or dispose of natural gas or natural gas liquids without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of natural gas or natural gas liquids sold or disposed of by the owner or operator. (ii)

Exceptions

With respect to an amount of natural gas or natural gas liquids for which an owner or operator of a natural gas processing plant has transferred allowances to the Administrator pursuant to clause (i) before a subsequent owner or operator of a natural gas processing plant sells or disposes of the natural gas or natural gas liquids, the subsequent owner or operator shall not be required to transfer additional allowances to the Administrator. With respect to an amount of natural gas for which an owner or operator of a natural gas pipeline has transferred allowances to the Administrator pursuant to subparagraph (A)(i) before an owner of a natural gas processing plant sells or disposes of the natural gas (including in liquid form), the owner or operator of the natural gas processing plant shall not be required to transfer additional allowances to the Administrator pursuant to this subparagraph. (3)

Crude oil

(A)

Prohibition

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), an owner or operator of a refinery shall not receive crude oil without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of crude oil that is received by the owner or operator. (B)

Exception

With respect to an amount of crude oil for which an owner or operator of a refinery has transferred allowances to the Administrator pursuant to subparagraph (A) before a subsequent owner or operator of a refinery receives the crude oil, the subsequent owner or operator shall not be required to transfer additional allowances to the Administrator. (4)

Coal

(A)

Preparation plants

(i)

Prohibition

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), an owner or operator of a coal preparation plant shall not sell or dispose of coal prepared at such plant without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of coal sold or disposed of by the owner or operator. (ii)

Exception

With respect to an amount of coal for which a person has transferred allowances to the Administrator pursuant to this paragraph before a subsequent owner or operator of a coal preparation plant sells or disposes of the coal, the subsequent owner or operator shall not be required to transfer additional allowances to the Administrator. (B)

Coal producers

(i)

Prohibition

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), an owner or operator of a coal mine shall not sell or dispose of coal without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of coal sold or disposed of by the owner or operator. (ii)

Exceptions

With respect to coal that is being sold to an owner or operator of a coal preparation plant who is subject to the allowance requirement described in subparagraph (A)(i), the owner or operator of a coal mine shall not be required to transfer allowances to the Administrator. With respect to an amount of coal for which an owner or operator of a coal mine has transferred allowances to the Administrator pursuant to this paragraph before a subsequent owner or operator of the coal mine sells or disposes of the coal, the subsequent owner or operator shall not be required to transfer additional allowances to the Administrator. (C)

Imported coal

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), a person shall not import into the United States any coal without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of coal that is imported into the United States by such person. (5)

Other fossil fuels

(A)

Prohibition

Except as provided in paragraph (6) and consistent with regulations issued by the Administrator pursuant to section 3(a), a person shall not sell or dispose of a covered fossil fuel that is not referred to in paragraph (1), (2), (3), or (4) without transferring to the Administrator a number of allowances equal to the number of metric tons of carbon that will be emitted or produced from the amount of covered fossil fuel sold or disposed of by such person. (B)

Exception

With respect to an amount of covered fossil fuel for which a person has transferred allowances to the Administrator pursuant to subparagraph (A) before a subsequent person sells or disposes of the covered fossil fuel, the subsequent person shall not be required to transfer additional allowances to the Administrator. (6)

Export and nonfuel use

Pursuant to regulations issued by the Administrator, a person who— (A)exports an amount of covered fossil fuel; or (B)sells, disposes of, or otherwise handles an amount of covered fossil fuel for a nonfuel purpose that does not result in the emission of more than a trace amount of a greenhouse gas,

shall not be required to transfer allowances to the Administrator pursuant to this subsection with respect to that amount of covered fossil fuel.

(b)

Greenhouse gases

(1)

Prohibition

Pursuant to regulations issued by the Administrator, a person shall not sell or dispose of an amount of greenhouse gas other than carbon dioxide in a manner that may result in the release of such greenhouse gas in the atmosphere without transferring to the Administrator a number of allowances equal to the amount of greenhouse gas sold or disposed of by such person, measured in units of carbon equivalents. (2)

Exception

With respect to an amount of greenhouse gas for which a person has transferred allowances to the Administrator pursuant to paragraph (1) before a subsequent person sells or disposes of the greenhouse gas, the subsequent person shall not be required to transfer additional allowances to the Administrator. (c)

Agricultural, industrial, and manufacturing processes

(1)

Prohibition

A person shall not sell or dispose of any product processed through an agricultural, industrial, or manufacturing process that emits a greenhouse gas without transferring to the Administrator a number of allowances equal to the amount of greenhouse gas emitted in the processing of the amount of such product sold or disposed of by such person, measured in units of carbon equivalents. (2)

Exceptions

With respect to an amount of greenhouse gas emitted in the agricultural, industrial, or manufacturing processing of a product for which a person has transferred allowances to the Administrator pursuant to paragraph (1) or subsection (b)(1) before a subsequent person sells or disposes of the product processed through the agricultural, industrial, or manufacturing process, the subsequent person shall not be required to transfer additional allowances to the Administrator. With respect to an amount of greenhouse gas emitted for which a person has transferred allowances to the Administrator pursuant to subsection (a) before a subsequent person sells or disposes of a product processed through the agricultural, industrial, or manufacturing process that emitted such amount of greenhouse gas, the subsequent person shall not be required to transfer additional allowances to the Administrator. (d)

Exemption

(1)

In general

If the Administrator determines, after public notice and comment, that it is not feasible to measure or estimate the number of allowances that a person is required to transfer to the Administrator pursuant to subsection (b) or (c), the Administrator may grant an exemption only with respect to the greenhouse gas or product processed through an agricultural, industrial, or manufacturing process that emits greenhouse gases for which it is not feasible to measure or estimate the number of allowances required. The Administrator shall revoke such exemption at any time if the Administrator determines that it is feasible to measure or estimate the number of allowances required. (2)

Methane from animals

The Administrator shall grant an exemption under this subsection for the sale or disposal of methane from animals until such time that the Administrator determines, after notice and opportunity to be heard, that it is feasible to measure or estimate the number of allowances that a person is required to transfer to the Administrator pursuant to subsection (b) with respect to the amount of methane from animals sold or disposed of by such person. (3)

Reduction in number of allowances

In accordance with regulations issued by the Administrator, the Administrator shall reduce the total number of allowances issued pursuant to section 3(b) by an amount that is proportional to the number of exemptions granted under paragraphs (1) and (2) of this subsection. If the Administrator revokes an exemption granted under paragraph (1) or (2), the Administrator shall readjust the total number of allowances issued pursuant to section 3(b) for the calendar year following the year that the exemption is revoked. (4)

Reduction of greenhouse gas emissions

If the Administrator grants an exemption under paragraph (1) to a person otherwise required to transfer allowances to the Administrator pursuant to subsection (c), the Administrator shall encourage the reduction of greenhouse gas emissions from the agricultural, industrial, or manufacturing process for which the exemption was granted on a best practices basis until the exemption is revoked. (e)

Penalties

A person who does not transfer the required number of allowances to the Administrator pursuant to this Act shall be liable to the Administrator a civil penalty. The civil penalty assessed by the Administrator shall be equal to three times the market value of the number of allowances that the person failed to transfer to the Administrator for each day the person has so failed to transfer. (f)

Pass through of costs

Any Federal, State, or local authority with ratemaking regulatory authority over any entity required to submit an allowance under this Act, or any entity that the cost of that allowance is passed on to, shall allow such entity to recover the full market value of such allowances for ratemaking purposes. (g)

Effective date

This section shall take effect on the third January 1 after the date of enactment of this Act.

Sequestration

(a)

Sequestration projects

The Administrator, in coordination with the Secretary of Agriculture and the Secretary of Energy, shall review proposals for domestic sequestration projects and provide approval, for purposes of subsection (b), to projects that— (1)will result in greenhouse gas emission reductions that would not occur in the absence of the project; and (2)provide for the sequestration of greenhouse gases in a manner that can be accurately and periodically measured, monitored, and reported in a cost-effective manner. (b)

Allowances

The Administrator shall issue to the person responsible for submitting a proposal that is approved by the Administrator under subsection (a) a number of allowances equal to the amount of greenhouse gas, measured in units of carbon equivalents, that the person has sequestered. The allowances issued pursuant to this subsection shall be in addition to the allowances issued by the Administrator pursuant to section 3(b).

Advanced Research Projects Agency-Energy

(a)

Establishment

(1)

In general

The Secretary of Energy shall establish in the Department of Energy the Advanced Research Projects Agency-Energy (referred to in this section as ARPA–E), to be headed by a Director who shall be appointed by, and report to, the Secretary. (2)

Qualifications

The Director shall be an individual with— (A)an advanced education degree in energy technology; and (B)substantial commercial research and technology development and deployment experience. (b)

Mission

The mission of ARPA–E is to implement a radically innovative advanced basic and applied energy research and technology development and deployment program in order to increase national security, improve homeland security, reduce greenhouse gas emissions, improve our balance of payments, and develop alternative energy sources and improve the efficiency of existing energy sources, by sponsoring a diverse portfolio of cutting-edge, high-risk, high-payoff research and development and deployment projects. (c)

Personnel

In hiring personnel for ARPA–E, the Secretary shall have the hiring and management authorities described in section 1101 of the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 (Public Law 105–261; 5 U.S.C. 3104 note). (d)

Transactions other than contracts and grants

To carry out projects under this section, the Director shall have the authority to enter into transactions provided under section 646(g) of the Department of Energy Organization Act (42 U.S.C. 7256(g)). (e)

Prizes for advanced technology achievements

(1)

In general

The Director may carry out a program to award cash prizes in recognition of outstanding achievements to advance the mission described in subsection (b). (2)

Competition requirements

In carrying out this subsection, the Director shall— (A)use a competitive process for the selection of recipients of cash prizes; and (B)conduct widely-advertised solicitation of submissions. (3)

Maximum amount for all cash prizes

The total amount of all cash prizes awarded for a fiscal year under this subsection may not exceed $50,000,000. (4)

Maximum amount of individual cash prizes

The amount of an individual cash prize awarded under this subsection may not exceed $10,000,000 unless the amount of the award is approved by the Secretary of Energy. (f)

Annual reports

As soon as practicable after the end of each fiscal year, the Director shall submit to the Committee on Energy and Natural Resources of the Senate and the Committee on Energy and Commerce and the Committee on Science of the House of Representatives a report on the progress, challenges, future milestones, and strategic plan of ARPA–E, including— (1)a description of, and rationale for, any changes in the strategic plan; (2)the adequacy of human and financial resources necessary to achieve the mission described in subsection (b); and (3)in the case of cash prizes awarded under subsection (e), a description of— (A)the applications of the research, technology, or prototypes for which prizes were awarded; (B)the total amount of the prizes that were awarded; (C)the methods used for solicitation and evaluation of submissions and an assessment of the effectiveness of those methods; and (D)recommendations to improve the prize program.