[Senate Report 110-337]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 740
110th Congress                                                   Report
                                 SENATE
 2d Session                                                     110-337

======================================================================
 
                 AMERICA'S CLIMATE SECURITY ACT OF 2007

                                _______
                                

                  May 20, 2008.--Ordered to be printed

                                _______
                                

    Mrs. Boxer, from the Committee on Environment and Public Works, 
                        submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 2191]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Environment and Public Works, to which was 
referred a bill (S. 2191) to direct the Administrator of the 
Environmental Protection Agency to establish a program to 
decrease emissions of greenhouse gases, and for other purposes, 
having considered the same, reports favorably thereon with an 
amendment, and recommends that the bill, as amended, do pass.

                    General Statement and Background


                              INTRODUCTION

    The past 20 years have seen a concerted global effort to 
grapple with the challenge of climate change, an effort that 
began with the creation of the Intergovernmental Panel on 
Climate Change (IPCC) to investigate and report on climate 
science. That period has also been marked by the U.S. 
ratification and international entry into force in 1994 of the 
UN Framework Convention on Climate Change (UNFCCC) and the 
entry into force in 2005 of the Kyoto Protocol for the 
reduction of greenhouse gas (GHG) emissions.
    During the mid-1990's the United States played a leading 
role in the formulation and negotiation of the Kyoto Protocol 
and its implementing rules, lending the lessons of its 
experience under domestic environmental laws like the Clean Air 
Act to the process of crafting the GHG emissions reduction 
program embodied in the Kyoto Protocol. In recent years, the 
U.S. role in the international process receded. Domestic 
climate policies have been modest at best.
    Perhaps the most striking development during this 20-year 
period, however, has been the ever-increasing urgency of the 
warnings issued by the worldwide scientific community acting 
through the IPCC that rapid manmade climate change unchecked by 
measures to reduce GHG emissions poses a grave and potentially 
catastrophic threat to both human society and unmanaged 
ecosystems.
    Accordingly, in December 2007 the Environment and Public 
Works Committee reported comprehensive climate legislation 
aimed at responding to these warnings--by instituting both a 
robust GHG emissions reduction program and an equally robust 
program for developing and deploying new clean energy 
technologies. The Climate Security Act (S. 2191) would achieve 
substantial reductions in U.S. GHG reductions over a nearly 40-
year period beginning in 2012 and culminating in 2050, with 
reductions in total U.S. GHG emissions below 2005 levels of as 
much as 66 percent.\1\ In addition, S. 2191 would raise 
substantial resources from the industries responsible for GHG 
emissions and recycle those resources, largely to the private 
sector, including electric utilities and other businesses, in 
order to: (1) spur the rapid development and commercialization 
of clean energy, energy conserving, and other GHG emission-
reducing technologies that will trigger substantial growth in 
domestic ``green collar'' jobs; (2) assist communities, 
individuals, and companies that could be affected by the costs 
of transitioning to lower GHG-emitting energy sources; and, (3) 
support efforts to protect people and ecosystems from the 
effects of rapid climate change.
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    \1\ http://www.nrdc.org/legislation/factsheets/leg_07121101A.pdf.
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    A key feature of the GHG reduction program is its ``cap and 
trade'' architecture. Through cap and trade, S. 2191 will 
assure that the intended reductions in GHG emissions are 
actually achieved. At the same time, the program will enable 
GHG sources to engage in emissions trading; this will afford 
full flexibility for businesses operating under the program and 
create a dynamic market for GHG emissions reductions. Thanks to 
this market, GHG emitting businesses will be able to use the 
lowest cost GHG reductions to meet their obligations; indeed, 
the dynamics of the GHG market, like those of any other market, 
will ensure that overall reductions are achieved at the lowest 
possible cost.
    A number of other features of the GHG reduction program 
created by the Climate Security Act, such as the timetable 
established for sources' compliance with their reduction 
obligations and the allocation of reduction obligations between 
and among industrial sectors, are aimed not only at reducing 
overall costs, but also at minimizing disruptions to energy and 
fuel markets and to consumers as the U.S. economy gradually 
transitions to full compliance with the required GHG 
reductions.
    Coupled with the Climate Security Act's comprehensive GHG 
emissions reduction program is a similarly comprehensive 
program for fostering the development and commercialization of 
new, clean technologies, with particular focus on the 
electricity and transportation sectors. The Act establishes an 
Energy Technology Deployment Program as well as an Energy 
Transformation Acceleration Fund, which would be administered 
by the Advanced Research Projects Agency of the Department of 
Energy. These funds would operate through financial incentives 
to speed the development and commercialization of sustainable 
energy technologies, low-carbon electricity technologies, 
advanced biofuels like cellulosic ethanol, CO2 
capture and storage systems, electric and plug-in hybrid 
electric vehicles and high-efficiency consumer products.
    Because technology innovation and deployment are central to 
long-term climate policy, and because certainty is essential to 
private investment as well as to public programs, the Act 
strives to ensure that funding for these programs will be 
forthcoming. In effect, the Act's technology policy will be 
``self-funding''. The mechanics of the GHG emissions reduction 
program require each covered source of GHG emissions to hold 
one GHG emissions allowance for each ton of CO2-
equivalent the source generates. The Act creates these 
allowances, and they are distributed in part via allocation and 
in part via an auction conducted by the Climate Change Credit 
Corporation (Corporation). It is the Corporation that will be 
responsible for conducting the allowance auctions, collecting 
the proceeds and disbursing the proceeds to the technology 
programs created by the Act. Thus, the bill's GHG reduction 
program and its technology program function in a mutually 
reinforcing fashion, resulting in a comprehensive and a fully 
integrated policy approach to addressing GHG emissions and 
climate change.
    Finally, the Committee recognized that a robust national 
climate policy must address several issues with which that 
policy is interlocked. As a result, the Act creates funds 
specifically aimed at assisting energy consumers in responding 
to potential new costs resulting from reducing GHG emissions; 
training and/or re-training workers affected by the GHG 
reduction program; assisting efforts to protect ecosystems and 
wildlife threatened by climate change; and providing resources 
to protect U.S. national security and economic interests by 
investing in certain key efforts to address climate change 
overseas.

                   CLIMATE CHANGE SCIENCE AND IMPACTS

    In its work on climate change, the Committee turned to the 
premier body for analysis of climate change research: the IPCC. 
The IPCC was established in 1988 by the World Meteorological 
Organization to synthesize on an ongoing basis developing peer-
reviewed climate research. Marshalling the active participation 
of thousands of scientists worldwide, the IPCC has released 
four major assessments of climate science since 1990, each 
relying on peer-reviewed work. The IPCC assessments have 
reported increasing certainty about the threat and causes of 
climate change. So great is the deference that policy-makers 
and the worldwide scientific community affords these 
assessments that in 2007, the IPCC was awarded the Nobel Peace 
Prize ``for their efforts to build up and disseminate greater 
knowledge about man-made climate change, and to lay the 
foundations for the measures that are needed to counteract such 
change.'' \2\
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    \2\ http://nobelprize.org/nobel_prizes/peace/laureates/2007/.
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    The IPCC's general finding that the emissions of greenhouse 
gases from human activities are warming the planet is also 
supported by the American Association for the Advancement of 
Science,\3\ the American Geophysical Union,\4\ the American 
Chemical Society,\5\ the American Meteorological Society \6\ 
and 13 National Academies (including the United States' 
National Academy of Sciences).\7\
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    \3\ http://www.aaas.org/news/releases/2007/0202ipcc.shtml.
    \4\ http://www.agu.org/sci_soc/policy/positions/
climate_change2008.shtml.
    \5\ http://portal.acs.org/portal/fileFetchC/WPCP_007661/pdf/
WPCP_007661.pdf.
    \6\ http://www.ametsoc.org/POLICY/2007climatechange.html.
    \7\ http://www.nationalacademies.org/includes/
G8Statement_Energy_07_May.pdf.
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    The most recent Fourth Assessment Report (AR4) was released 
by the IPCC in 2007. AR4 represents six years of work from over 
1,200 authors who are leading experts in their respective 
fields. An additional 2,500 experts reviewed drafts of the 
report, which was released when participant countries, 
including the U.S., had signed off on the results. AR4 Working 
Group I found that levels of carbon dioxide in the atmosphere 
``have risen from a pre-industrial value of about 280 ppm to 
379 ppm in 2005.'' \8\ This ``exceeds by far the natural range 
over the last 650,000 years.'' Levels of methane, another 
greenhouse gas, have risen from 715 ppb to 1774 ppb, an 
increase also far greater than the natural range over the last 
650,000 years. AR4 concluded that evidence of climate warming 
is now ``unequivocal,'' and that it is more than 90 percent 
likely that human activities have caused ``most of the observed 
increase in globally averaged temperatures since the mid-20th 
century.'' The extra energy trapped in the atmosphere by these 
greenhouse gases not only increases the global temperature 
(``global warming''), but also changes the amount and 
distribution of rainfall, increases severe weather and heat 
waves, melts polar and mountain ice caps, and causes sea levels 
to rise.
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    \8\ IPCC, AR4, Working Group, Summary for Policy Makers.
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    According to AR4, the specific impacts of continued warming 
in North America include the following: \9\
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    \9\ IPCC, AR4, Working Group II, Summary for Policy Makers.
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     Hot extremes, heat waves and heavy precipitation 
will become more frequent.
     ``Coasts are projected to be exposed to increasing 
risks, including coastal erosion, due to climate change and 
sea-level rise, and the effect will be exacerbated by 
increasing human-induced pressures on coastal areas.''
     Warming in North America's western mountains is 
projected to cause ``decreased snowpack, more winter flooding 
and reduced summer flows, exacerbating competition for over-
allocated water resources.''
     ``Disturbances from pests, diseases and fire are 
projected to have increasing impacts on forests, with an 
extended period of high fire risk and large increases in area 
burned.''
     Heat waves increasing in frequency put the 
``growing number of the elderly population * * * most at 
risk.''
    Internationally, the impacts of climate change are likely 
to be even more severe. The IPCC predicts that by 2020, in 
Africa, 75 million to 250 million people will be exposed to 
increased water stress as a result of climate change, and that 
the yield of some crops could decline by up to 50 percent. In 
Asia, climate change, combined with other factors, could lead 
to water stress for more than one billion people. Millions more 
worldwide will experience coastal flooding.
    Within the range of temperatures that could result at the 
end of this century on a fossil-energy intensive trajectory, 
the IPCC predicts that there will be ``significant extinctions 
around the globe''; ``widespread coral mortality''; loss of 
about 30% of global coastal wetlands; decreased productivity of 
all cereal crops at low latitudes; and a ``substantial burden 
on health services'' as a result of malnutrition, heat stroke, 
diarrheal, cardio-respiratory, and infectious diseases.
    In considering these impacts, it is important to note one 
way in which climate change differs from conventional air 
pollution. Air pollutants like ozone and particulates do not 
last very long in the atmosphere. As a result, aggressive 
reductions in the emissions of those pollutants and their 
precursors will lead to a rapid improvement in air quality. In 
general, policy responses that occur within the same timeframe 
in which damage from conventional pollution manifests itself 
are still timely. For GHG emissions, the virtual opposite is 
true, as GHG gases remain in the atmosphere for long time 
periods. Once damage from these pollutants emerges, policy- 
makers simply do not have the option of adopting measures that 
can reduce atmospheric concentrations in the near term. By 
then, it is literally too late. Because of the long lifetime of 
GHGs in the atmosphere and the tremendous amount of physical 
inertia in the climate system, we will be unable to avert or 
reverse severe climate impacts if we wait until we observe 
those impacts. The current levels of greenhouse gases, for 
example, commit us to an increase of at least another 1-1.6 +F 
of warming, even if we could stop emitting GHGs tomorrow. 
Similarly, the rise of sea levels in response to emissions of 
GHGs will continue for hundreds of years as the heat from 
climate change slowly mixes through the ocean.

                  NATIONAL SECURITY AND CLIMATE CHANGE

    In addition to the ecological and health impacts, rapid 
climate change poses potential national security challenges for 
the U.S. In April 2007 the Center for Naval Analysis 
Corporation (CNA) issued a report, National Security and the 
Threat of Climate Change, which detailed the numerous threats 
posed by climate change.\10\ The military advisory board that 
oversaw the report was chaired by General Gordon R. Sullivan, 
U.S. Army (Ret.). It was comprised of a distinguished panel of 
retired military officers from all service branches.
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    \10\ http://www.SecurityAndClimate.cna.org.
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    The CNA report addressed three specific questions: (1) What 
conditions are climate changes likely to produce around the 
world that would represent security risks to the United States? 
(2) What are the ways in which these conditions may affect 
America's national security interests? (3) What actions should 
the nation take to address the national security consequences 
of climate change?
    The CNA report found that global climate change poses a 
significant threat to America's national security. The extreme 
weather and ecological conditions associated with climate 
change have the potential to ``disrupt our way of life and to 
force changes in the way we keep ourselves safe and secure.'' 
\11\ Some of the destabilizing impacts described in the report 
include: reduced access to fresh water, impaired food 
production, human health emergencies and mass population 
displacement. These outcomes will have security consequences on 
the United States. The CNA analysis predicted, for example, 
that these conditions will increase the potential for failed 
states, and thus the growth of global terrorism. Given that 
many of the countries likely to experience these conditions do 
not have governments in place capable of handling challenges 
posed by the effects of climate change, particularly conflicts 
over scarce resources, there is strong potential for extremists 
to fill the void.
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    \11\ National Security and the Threat of Climate Change, The CNA 
Corporation, 2007, page 6.
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    If unchecked, climate change is expected to trigger mass 
migrations of people. Lack of water and food will force the 
movement of people, both within their own borders and 
internationally. In the United States,''the rate of immigration 
from Mexico to the U.S. is likely to rise because the water 
situation in Mexico is already marginal and could worsen with 
less rainfall and more droughts. Increases in weather 
disasters, such as hurricanes elsewhere, will also stimulate 
migrations to the U.S.'' \12\ Storm damage and sea level rise 
in the Caribbean islands will also contribute to an increase in 
the flow of immigrants into the U.S.\13\ The issue of 
immigration has become a seemingly intractable political and 
social issue in the U.S. that may not be resolved any time 
soon. An increased influx of ``climate refugees'' will only 
exacerbate the stress on the current U.S. immigration system.
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    \12\ Purvis, N, and J. Busby, 2004. The Security Implications of 
Climate Change for the UN System. ECSP Report, Issue 10.
    \13\ Campbell, Kurt M. et al., The Age of Consequences: The Foreign 
Policy and National Security Implications of Global Climate Change, 
November 2007, page 56.
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    In addition to these indirect risks to national security, 
there are also direct impacts on U.S. military infrastructure 
and operations. Climate change will stress our weapons systems, 
threaten U.S. bases throughout the world, and have a direct 
effect on military readiness.\14\ Under catastrophic climate 
change scenarios, ``the U.S. military's worldwide reach could 
be reduced substantially by logistics and the demand of 
missions near our shores.'' \15\ In order to prepare for--or 
avoid--such impacts, the CNA report found that the national 
security implications of climate change should be incorporated 
into national security and national defense strategies. ``As 
military leaders, we know we cannot wait for certainty. Failing 
to act because a warning isn't precise is unacceptable.'' \16\
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    \14\ National Security and the Threat of Climate Change, The CNA 
Corporation, 2007, page 37.
    \15\ Campbell, Kurt M. et al., The Age of Consequences: The Foreign 
Policy and National Security Implications of Global Climate Change, 
November 2007, page 86.
    \16\ National Security and the Threat of Climate Change, The CNA 
Corporation, 2007, page 46.
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    Included in the CNA's recommendations for mitigating the 
impacts of climate change is a call for the U.S. to commit to 
both a national and international policy that will stabilize 
climate change at levels that will avoid the significant 
security impacts the report outlines. In addition, in order to 
prevent or lessen instability abroad, the U.S. should commit to 
global partnerships that help less developed nations build the 
capacity and resiliency to better manager climate impacts.\17\
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    \17\ National Security and the Threat of Climate Change, The CNA 
Corporation, 2007, page 47.
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    Furthermore, the Center for Strategic and International 
Studies and the Center for a New American Security found in 
their November 2007 report The Age of Consequences: The Foreign 
Policy and National Security Implications of Global Climate 
Change that ``Climate stress may well represent a challenge to 
international security just as dangerous--and more 
intractable--than the arms race between the United States and 
the Soviet Union during the Cold War'' \18\ Clearly, climate 
change can be regarded as a ``threat multiplier'' \19\ that 
will result in increased demands and stresses on the U.S. and 
the world. Addressing global climate change will help keep 
Americans and American interests abroad secure.
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    \18\ Campbell, Kurt M. et al., The Age of Consequences: The Foreign 
Policy and National Security Implications of Global Climate Change, 
November 2007, page 20-21.
    \19\ National Security and the Threat of Climate Change, The CNA 
Corporation, 2007, page 44.
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               THE PATH TO AVOIDING SEVERE CLIMATE CHANGE

    In order to stabilize greenhouse gases below 500 ppm 
(CO2 equivalent), the safest stabilization scenario 
presented by the IPCC, the IPCC recommends that global carbon 
dioxide emissions must be stabilized by 2015 and reduced 50 to 
85% below 2000 levels by 2050.\20\ ``For low and medium 
stabilization levels, developed countries would need to reduce 
their emission to below 1990 levels in 2020 * * * and to still 
lower levels by 2050 (40 to 95% below 1990 levels).'' \21\ The 
IPCC concludes that ``mitigation over the next two or three 
decades will have a large impact on opportunities to achieve 
lower stabilization levels''--meaning that failure to start 
reductions now will commit the world to very high 
concentrations of greenhouse gases.
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    \20\ IPCC AR4 Working Group III Summary for Policy Makers.
    \21\ IPCC AR4 WGIII, page 775.
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    The Climate Security Act achieves reductions on the order 
of those recommended by the IPCC for stabilization of global 
greenhouse gas concentrations. For example, the Natural 
Resources Defense Council (NRDC) and World Resources Institute 
(WRI) predict that the bill will reduce emissions by up to 13% 
below 1990 levels by 2020 and up to 60% below 1990 levels by 
2050.\22\ Similarly, EPA predicts that cumulative U.S. GHG 
emissions from 2012-2050 will be 172 to 207 gigatons of carbon 
dioxide equivalent; \23\ The Union of Concerned Scientists 
estimates that U.S. emissions should be held to 73-178 gigatons 
in order to stabilize GHG concentrations at levels in the range 
of 450 ppm., as needed to avoid worst effects of global 
warming. Importantly, the Act also provides for periodic review 
of the emissions targets by the National Academy of Sciences, 
including assessment of whether the targets need to be revised 
to provide sufficient protection.
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    \22\ http://www.nrdc.org/legislation/factsheets/leg_07121101A.pdf.
    \23\ http://www.epa.gov/climatechange/downloads/
s2191_EPA_Analysis.pdf.
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    In early 2008 EPA analyzed the effectiveness of the bill in 
reducing global CO2 concentrations using the Mini-
Climate Assessment Model (MiniCAM). In its analysis, EPA 
applied the conservative assumptions that the U.S. makes cuts 
in GHGs as laid out in S.2191; that other Annex I (developed) 
countries reduce emissions to 50% below 1990 levels; and that 
developing nations take no action until 2025, at which point 
they move slowly to stabilize emissions at 2000 levels. Under 
these assumptions, EPA found that carbon dioxide concentrations 
would be kept to 488 ppm in 2100, rather than reaching levels 
of 718 ppm or higher as would occur under a ``business as 
usual'' scenario.\24\ However, this projection may overestimate 
future CO2 concentrations, as the European Union 
currently is planning for reductions on the order of 60-80% 
below 1990 levels\25\ and the analysis by EPA makes the 
unlikely assumption that no additional reductions are achieved 
between 2050 and 2100. The EPA modeling demonstrates that U.S. 
climate legislation, under conservative assumptions about 
action by the rest of the world, will keep greenhouse gas 
concentrations from reaching the levels associated with the 
highest risks of severe climate impacts. Stated another way, 
early and aggressive action by the U.S. and other developed 
nations will leave successive generations of policy makers with 
the option of stabilizing greenhouse gases at much lower levels 
and a wider range of technologies--and lower cost exposures--
with which to achieve the needed reductions. Because of the 
long lifetime of GHGs in the atmosphere, delayed action will 
commit all countries to moderate to high climate risks, 
regardless of aggressive actions they may seek to take at a 
later date. In the words of the IPCC: ``Mitigation efforts and 
investments over the next two to three decades will have a 
large impact on opportunities to achieve lower stabilisation 
levels. Delayed emission reductions significantly constrain the 
opportunities to achieve lower stabilisation levels and 
increase the risk of more severe climate change impacts.'' \26\
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    \24\ http://www.epa.gov/climatechange/economics/
economicanalyses.html.
    \25\ http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/
08/35&format=HTML&aged=0&language=EN&guiLanguage=en.
    \26\ IPCC AR4 Synthesis Report.
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  TECHNOLOGIES ARE AVAILABLE TODAY TO COMBAT GLOBAL WARMING AND SPUR 
                            ECONOMIC GROWTH

    The IPCC has determined that achieving the necessary 
emissions reductions will not require a ``magic bullet,'' but 
that they can be realized using technologies that are currently 
available or expected to be commercialized in the next few 
decades. While the IPCC does not endorse specific policies, the 
IPCC's AR4 report observes that ``an effective carbon-price 
signal could realize significant mitigation in all sectors.'' 
The report highlights the role of energy efficiency in meeting 
these goals, as well as a need for low-carbon energy sources. 
It also notes that non-CO2 and CO2 land-
use and forestry mitigation measures provide additional 
flexibility and cost-effectiveness in reducing emissions.
    Leading industry and public policy experts have conducted 
extensive analyses regarding how the emissions reductions 
necessary to combat the worst effects of global warming can be 
achieved.\27\ They have reached a number of important 
conclusions:
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    \27\ McKinsey & Company, Reducing Greenhouse Gas Emissions, How 
Much and at What Cost? (2007), available online at http://
www.mckinsey.com/clientservice/ccsi/pdf/US_ghg_final_report.pdf; S. 
Pascala and R. Socolow, Stabilization Wedges: Solving the Climate 
Problem for the Next 50 Years With Current Technologies, Science 
(2004).
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     Our nation has the tools available now to address 
global warming.
     Many of the needed technologies have already been 
proven, requiring only a market framework and incentives to 
achieve widespread adoption.
     Achieving these reductions at the lowest cost to 
the economy will require strong, coordinated economy-wide 
action that begins in the near future.
     The bill's cap and trade policy will create a 
market and financial incentives that will sustain U.S. 
leadership in the clean technology and energy efficiency 
industries.
    U.S. companies and researchers have led the way in 
developing a broad spectrum of breakthrough technologies 
enabling substantial emissions reductions now. Many studies 
have identified and discussed the numerous emissions reduction 
technologies and practices that are available now. The AR4 
Summary for Policy Makers on Climate Change Mitigation set 
forth a summary of selected technologies, listed in Figure 1.

                                FIGURE 1
------------------------------------------------------------------------
                                 Selected technologies and practices to
            Sector                  reduce global warming pollution
------------------------------------------------------------------------
Energy Supply................  Improved supply and distribution
                                efficiency; improved generation
                                efficiency; renewable heat and power
                                (hydropower, solar, wind, geothermal and
                                bioenergy); combined heat and power;
                                nuclear power; early applications of CCS
                                (e.g. storage of removed CO2 from
                                natural gas).
Transport....................  More efficient vehicles; hybrid and plug-
                                in hybrid vehicles; cleaner diesel
                                vehicles; biofuels; modal shifts from
                                road transport to rail and public
                                transport systems; non-motorized
                                transport (cycling, walking); land-use
                                and transportation planning.
Buildings....................  Efficient lighting and day lighting; more
                                efficient electrical appliances and
                                heating and cooling devices; improved
                                cook stoves; improved insulation;
                                passive and active solar design for
                                heating and cooling; alternative
                                refrigeration fluids; recovery and
                                recycle of fluorinated gases; geothermal
                                energy.
Industry.....................  More efficient end-use electrical
                                equipment and processes; heat and power
                                recovery; material recycling and
                                substitution; control of non-CO2 gas
                                emissions; and a wide array of process-
                                specific technologies.
Agriculture..................  Improved crop and grazing land management
                                to increase soil carbon storage;
                                improved fertilizer management and use;
                                restoration of cultivated peaty soils
                                and degraded lands; improved rice
                                cultivation techniques and livestock and
                                manure management to reduce methane
                                emissions; dedicated energy crops to
                                replace fossil fuel use; improved energy
                                efficiency.
Forestry/forests.............  Afforestation; reforestation; forest
                                management; reduced deforestation;
                                harvested wood product management; use
                                of forestry products for bioenergy to
                                replace fossil fuel use.
Waste........................  Landfill methane recovery; waste
                                incineration with energy recovery;
                                composting of organic waste; controlled
                                waste water treatment; recycling and
                                waste minimization.
------------------------------------------------------------------------

    For many of these clean energy technologies, achieving 
broad market adoption can require substantial capital-intensive 
investments. The Committee heard testimony from many experts 
who stated that a high degree of certainty regarding the market 
framework will be a necessary prerequisite to the massive 
private sector investment that is needed. The bill provides 
this certainty, establishing a long term reduction path (and 
therefore market signal) and a framework that includes 
approximately 87% of our economy's global warming emissions in 
a single comprehensive cap and trade program.
    The bill also provides major financial incentives 
supporting the widespread adoption of these technologies. It 
has been estimated that the allocation and auction of 
allowances under the bill could generate tens of billions of 
dollars annually that will be dedicated to funding of such 
green technology deployment.
    A study by McKinsey and Company found similar benefits from 
energy efficiency measures.\28\ The study found that the 
``United States could reduce emissions in 2030 by 3.0 to 4.5 
gigatons of CO2 equivalent using tested approaches 
and high-potential emerging technologies.'' Critically, the 
study found that ``almost 40 percent of abatement could be 
achieved at `negative' marginal costs''--that is, roughly 40 
percent of the needed emissions reductions could be achieved 
with an efficiency measure which actually saves the economy 
money.\29\
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    \28\ McKinsey, Reducing Greenhouse Gas Emissions, How Much and at 
What Cost? (2007).
    \29\ Id.
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    The Advanced Coal Technology Work Group convened by EPA 
reported in January that:

        Widespread commercial deployment of [advanced coal and 
        CCS] technologies likely will not occur without 
        legislation that establishes a significant long-term 
        market driver. National mandatory GHG reduction 
        legislation, for example, can provide a carbon price 
        signal that would encourage the widespread deployment 
        of large-scale carbon dioxide capture and sequestration 
        systems. It is critical that any national policy should 
        include provisions that prioritize and encourage early 
        deployment of [advanced coal technology]--particularly 
        CCS.\30\

    \30\ http://www.epa.gov/air/caaac/coaltech.html.

    Other countries have recognized the tremendous economic 
opportunities presented and have adopted government policies to 
spur the necessary capital investments; the United States must 
not fall behind. For example, Japan now controls 43% of the 
market for solar power, an industry invented in America.\31\ 
European nations control 90% of wind turbine production, and 
the United States is importing fuel cells from Canada.\32\ By 
creating a new market for global warming emissions and 
directing tens of billions of dollars to commercialization of 
clean energy technologies, the bill will position the United 
States to continue its role as a global economic leader.
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    \31\ http://www.apolloalliance.org/downloads/
resources_ApolloReport_022404_122748.pdf.
    \32\ Id.
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    These technologies and practices represent more than just 
solutions to the challenge of reducing global warming 
emissions. There is widespread agreement that the United States 
must end our dependence on foreign oil. Renewable energy 
technology has the potential to displace a large portion of our 
current reliance on fossil fuels.
    These views have been affirmed by leading U.S. businesses. 
The U.S. Climate Action Partnership, a group whose members 
include automakers, utilities and power producers, insurance 
companies, oil companies, and other businesses, has stated:\33\

    \33\ http://www.us-cap.org/USCAPCallForAction.pdf.
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        In our view, the climate change challenge, like other 
        challenges our country has confronted in the past, will 
        create more economic opportunities than risks for the 
        U.S. economy. Indeed, addressing climate change will 
        require innovation and products that drive increased 
        energy efficiency, creating new markets. This 
        innovation will lead directly to increased U.S. 
        competitiveness, as well as reduced reliance on energy 
        from foreign sources. Our country will thus benefit 
        through increased energy security and an improved 
        balance of trade.

          CLEAN TECHNOLOGY CREATES AMERICAN GREEN COLLAR JOBS

    The Committee received testimony from business leaders and 
experts who focused on the need to transform American industry 
by creating and growing new categories of ``green collar'' 
jobs. With the market incentives provided for in the bill, a 
number of green industry sectors are expected to experience 
major job growth. Witnesses highlighted the large potential for 
green jobs creation when the correct market signals are sent 
through the adoption of strong legislation to reduce greenhouse 
gas emissions.
    For example, the Committee received testimony from Mr. 
Sigmar Gabriel, Federal Minister for the Environment, Nature 
Conservation and Nuclear Safety for the Federal Republic of 
Germany, that the expansion of the use of renewable energy 
sources in Germany shows how the nation ``is benefiting from 
its role as a driving force for climate protection: Within just 
two years, from 2004 to 2006, employment in the renewables 
sector rose by 50 percent--to 235,000 jobs.'' Minister Gabriel 
testified that the German government projects that ``renewables 
will create more than 400,000 jobs by 2020'' in Germany, 
including many jobs dedicated to exporting manufactured 
products for such technologies.
    Among the green collar jobs that are expected to be 
generated in the United States in response to the strong demand 
for reduced global warming pollution under S. 2191 are:\34\

    \34\ For a discussion of green jobs see, for example, Roger Bezdek, 
Management Information Services, Inc., for the American Solar Energy 
Society, Renewable Energy and Energy Efficiency: Economic Drivers for 
the 21st Century, 2007; Apollo Alliance, Community Jobs in the Green 
Economy, 2007; New Energy For America--The Apollo Jobs Report: Good 
Jobs and Energy Independence (2004).
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     Renewable Electricity. Building the components 
that are used in solar, wind, geothermal, and other types of 
renewable energies will create jobs that can apply skills that 
are similar to those used in traditional manufacturing.
     Energy Efficiency and Green Building. Building and 
retrofitting structures will require workers in a variety of 
different areas, including heating, ventilation, air 
conditioning, windows, plumbing, lighting, insulation, and 
appliances. Many of these areas, in turn, can lead to job 
growth in other sectors, such as the manufacturing of energy 
efficient appliances, building materials, and other products.
     Renewable Biofuels and Transportation. Jobs 
associated with biofuels are related to feedstock production, 
refining, and distribution. Opportunities for feedstock 
production will be more concentrated in rural areas. New jobs 
associated with transportation include jobs developing and 
maintaining an improved rail and mass transit networks, and 
jobs developing, manufacturing, and providing parts for new 
vehicle technology, such as plug-in hybrids, electric vehicles 
and fuel cell vehicles.
     Retrofitting Urban Areas. Our major metropolitan 
areas can achieve substantial emissions reductions by 
retrofitting buildings with energy- and water-saving green 
technologies. Thousands of new jobs will be created, supporting 
economic transformation in our inner-city areas.
    In today's global marketplace, the U.S. faces a real risk 
of falling behind in the competition to serve the global market 
for clean energy--which is expected to be the largest new 
market ever created. The bill will provide a platform that not 
only will result in decisive action against global warming, but 
will also create the foundation for continued U.S. leadership 
in the global economy.

     U.S. LEADERSHIP IS CRUCIAL IN THE FIGHT AGAINST GLOBAL WARMING

    In reporting the bill, the Committee concluded that U.S. 
leadership--in the form of a comprehensive and binding 
emissions reduction program--is a necessary prerequisite to a 
global response that will avoid catastrophic warming impacts. 
The rest of the world is waiting to see whether the U.S. will 
act meaningfully. Given the risks to U.S. interests, including 
the massive costs and threats to our national security posed by 
unchecked global warming, the U.S. must take an active 
leadership role.
    Some have argued that the U.S. should not act on its own, 
but should demand that rapidly developing countries such as 
China and India accept binding emissions caps as a precondition 
of U.S. action. This view misconstrues the international 
dynamics of the global warming challenge, and fails to 
recognize the importance of U.S. action and leadership in 
bringing these nations to the table for meaningful action.
    It is because the U.S. has by far emitted the greatest 
cumulative amount of greenhouse gas emissions--and will remain 
the largest cumulative GHG emitter for some time--that U.S. 
leadership on this issue is crucial. Were the U.S. to continue 
the current Administration's voluntary approach to global 
warming solutions, there is no reason to believe these 
countries would change course. In the absence of U.S. policy 
action, international negotiation most likely will result in 
continued delay on the part of rapidly developing nations. Such 
delay would create unacceptable risk, jeopardizing the world's 
ability to reduce GHG concentrations to the levels necessary to 
stabilizing the climate.
    By acting decisively, the U.S. will remove a primary 
rationalization for inaction by developing countries. The bill 
thus will provide an effective complement in our efforts to 
negotiate binding emissions reduction commitments by other 
major emitters.
    The effectiveness of active U.S. leadership coupled with 
policy action on global environmental issues has been 
demonstrated before. In 1987, the developed countries, lead by 
the U.S., entered into the Montreal Protocol, to phase-out use 
of ozone-depleting chlorofluorocarbons (CFCs). Within three 
years, developing countries came on board. With the resulting 
global cooperative approach we have since reduced overall 
emissions of ozone-depleting substances by more than 95%.
    Delaying U.S. action on account of the current inaction of 
rapidly developing economies would be ironic, precisely because 
such delay could result in additional costs to the U.S. itself. 
As the Environmental Defense Fund's detailed testimony before 
the Committee highlighted, if the bill is enacted with its 
current 2012 effective date, the emissions reduction schedule 
would result in an annual reductions of just under 2% per year 
and, for covered sources, arrive at a reduction of 15% below 
current levels by 2020. But if the effective date is delayed by 
as little as two years while international negotiations are 
pursued, in order to achieve the same amount of cumulative 
emissions by 2020, the program would have to mandate that 
emissions fall by 4.3% every year, a rate more than double that 
of the current bill. Instead of a reduction of 15% in the 
annual emissions for the year 2020, two years of delay means 
2020 emissions have to be reduced by 23%.
    In our history, America has not shied away from taking 
decisive action in confronting crises, with or without the 
support of other countries. We have faced other threats to our 
security, and have not waited for multilateral treaties to take 
action. Just as we have acted as leaders in the global fights 
to end disease and promote democracy, America should not shirk 
from its leadership role now as we face another critical 
threat.
    At the same time, the legislation includes specific 
measures aimed at promoting a comprehensive global response. To 
encourage other countries to reduce emissions and minimize 
unfair competition for affected companies in the U.S., the bill 
calls for the Executive Branch to intensify its efforts to 
convince other nations to begin reducing greenhouse-gas 
emissions. If a major emitting nation has not taken action 
analogous to that of the U.S. within eight years of the 
beginning of the program, the President is authorized to 
require importers of GHG-intensive manufactured products to 
submit emissions credits equivalent in value to the emissions 
allowances or emissions reduction credits the bill's GHG 
reduction program effectively requires of domestic 
manufacturers. The bill thus creates significant economic 
incentives for developing countries that are exporters to the 
U.S. to move forward with comparable programs.
    The bill provides positive incentives to the international 
community. Countries that develop systems of comparable 
integrity will be able sell international emissions allowances 
to U.S. companies, creating a substantial potential economic 
reward for corresponding action.
    Developing countries also will benefit from accelerated 
technology development that will result from the bill. The bill 
provides for substantial allocation of auction revenues to 
technology research and development. The bill supports the 
current U.S. policy of promoting trade in such technologies 
while eliminating tariffs and other trade barriers. In 
addition, approximately 20 percent of global greenhouse gas 
emissions are due to deforestation and land-use changes. The 
bill creates a special fund to help countries take steps to 
reduce deforestation and degradation of forests.

                          THE COST OF INACTION

    While there will be economic consequences resulting from 
climate change legislation, the costs of compliance will be 
dwarfed by the costs imposed by unchecked climate change. All 
of the economic analyses to date, both those produced by 
government and those provided by private entities, compare the 
trajectory of the U.S. economy under climate legislation to a 
``business-as-usual (BAU)'' scenario that does not account for 
the costs imposed on the U.S. by a rapidly changing climate. 
Thus, these BAU scenarios represent a misleading fiction since 
they portray a world without climate legislation that is 
unaffected by climate change itself. In reality, policy makers 
do not have the option of choosing a world where failure to 
reduce greenhouse gases does not result in climate-driven 
economic impacts. Work by the IPCC and others makes it 
abundantly clear that climate change is already having effects 
on the global economy and that any future that does not involve 
rapid stabilization of GHG concentrations inevitably will 
involve increasingly severe climate impacts, with the potential 
for severe economic impacts.
    Direct comparisons of climate policy (which reduces climate 
change impacts) to scenarios where no policy is adopted (and 
more severe climate change impacts occur) has been hindered by 
the difficulty of making precise predictions about the impacts 
of climate change. Although the IPCC assigns a very high 
likelihood to a long list of climate impacts like those 
described at the start of this report, the precise timing and 
magnitude of individual events remains difficult to predict. 
However, as is the case with the threat of terrorism, the fact 
that the timing and magnitude of any individual event or series 
of events is difficult to predict does not make the 
consequences of failing to prepare and mitigate any less 
severe.
    The most comprehensive attempt to quantify the costs of 
inaction on climate change is the Stern Review on the Economics 
of Climate Change, authored by Sir Nicholas Stern, former Chief 
Economist of the World Bank.\35\ The Review described climate 
change as the greatest and widest-ranging market failure ever 
seen and emphasized that ignoring the issue will ultimately 
undermine economic growth. The Review found that the impacts of 
climate change would be at least 5% of global GDP each year and 
that they could be as high as 20% of GDP or more. The report 
predicted that the poorest countries will suffer earliest and 
most and that it will be too late to reverse the process by the 
time the impacts appear. Impacts on the developed world may be 
relatively less damaging at first but are ``likely to be very 
damaging for the much higher temperature increases expected by 
mid- to late-century under BAU scenarios. ''\36\ As with the 
impacts on the developing world, by the time these impacts are 
clearly visible, it will be too late to reverse the process and 
more severe impacts will be on the way. The review estimated 
that, by contrast, action to keep GHGs at safer levels would be 
roughly 1% of global GDP.
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    \35\ http://www.hm-treasury.gov.uk/independent_reviews/
stern_review_economics_climate_change/sternview_index.cfm.
    \36\ Stern Review, Page viii.
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    A review conducted by the Center for Integrative 
Environmental Research at the University of Maryland recently 
examined the cost of inaction for the U.S.\37\ The report found 
that the economic impacts of climate change will occur 
throughout the U.S. economy and impact essential 
infrastructures for reliable services and high standards of 
living. The study found that ``Climate change impacts will 
place immense strains on public sector budgets'' and that 
``Negative climate impacts will outweigh benefits for most 
sectors that provide essential goods and services to society.'' 
Another recent study by the Global Development and Environment 
Institute at Tufts University found that the impact of 
unchecked global warming on Florida would be 2.8% of GSP by 
mid-century and 5% of GSP by 2100.\38\
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    \37\ http://ww.cier.umd.edu/climateadaptation/index.html.
    \38\ http://www.ase.tufts.edu/gdae/rp/FloridaClimate.html.
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                                 COSTS

    The Climate Security Act is designed to minimize the costs 
that individual businesses and the economy as a whole will 
incur in meeting the GHG reduction requirements imposed by the 
bill. First, the bill's cap and trade system for GHG reductions 
is designed to create a market for GHG reductions, a market in 
which GHG allowances, representing increments of GHG emissions 
reduced or avoided, will be purchased, sold and banked for 
future use. Thus, the price of GHG reductions will be subject 
to the dynamics of a market, dynamics that will drive prices 
down. Second, the schedule by which GHG sources will have to 
meet their GHG reduction requirements has been set to 
accommodate an affordable transition for businesses that must 
meet these requirements. In addition, during the early years of 
the program, the bill provides that a substantial, albeit 
declining, portion of the emissions allowances that sources 
need to cover their actual GHG emissions will be allocated free 
to those sources that will have GHG reduction obligations. 
Finally, the bill provides for substantial financial assistance 
in the form of new programs to support the development and 
commercial-scale deployment of new, clean technologies that 
will be instrumental in the economy's transition to the GHG 
reduction policies established under the bill.
    The Committee's expectations that the power and dynamics of 
a GHG market, together with the program's GHG reduction 
timetable and the bill's technology programs, will result in 
manageable costs for the GHG reduction program and safeguard 
the health of the U.S. economy has been borne out by a detailed 
economic analysis performed by the Environmental Protection 
Agency (EPA) and Energy Information Administration (EIA). The 
EPA used a model--Applied Dynamic Analysis of the Global 
Economy (ADAGE)--that explicitly examined new technology 
deployment in the power sector of precisely the sort likely to 
emerge thanks both to the GHG reduction mandates established in 
the bill and the substantial financial resources that the bill 
itself provides to the development and commercialization of new 
technologies \39\ ADAGE also models the global economy as well. 
The EIA modeled the bill using the National Energy Modeling 
System (NEMS) and produced the only authoritative analysis to 
date which has fully incorporated the projected impacts of the 
GHG emission reducing provisions of the Energy Independence and 
Security Act (EISA) of 2007 (in the Annual Energy Outlook 
2008).\40\ EPA, in the interests of timely reporting, was only 
able to approximate EISA in Scenario 10 of its analysis.
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    \39\ http://www.epa/gov/climatechange/downloads/
s2191_EPA_Analysis.pdf.
    \40\ http://www.eia.doe.gov/oiaf/servicerpt/s2191/index.html.
---------------------------------------------------------------------------
    It should be noted at the outset that neither EPA's nor 
EIA's modeling seeks to evaluate the economic impacts of doing 
nothing to control global warming. However, as is discussed 
above, the costs of inaction are expected to be enormous and to 
far outweigh the costs of action. As the Stern Report found, 
global warming could shrink the global economy by 5% to 20%, 
and that taking action now would cost just 1% of global gross 
domestic product.\41\
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    \41\ http://www.hm_treasury.gov.uk/independentreviews/
stern_review_economics_climate/sternreview_index.cfm.
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    Both EPA and EIA predict continued strong growth in the 
U.S. economy under S. 2191. EPA modeling found that under the 
bill, U.S. gross domestic product grows by 80% between 2010 and 
2030--just one percentage point less than the model predicts 
for GDP growth in the absence of the bill. EIA similarly found 
that the GDP impact would be substantially less than one 
percent, even under ``High Cost'' assumptions with considerably 
less nuclear deployment. The overall picture is that, even with 
different model structures and differing assumptions about 
technology and economic growth, both EPA and EIA predict that 
the impact of climate legislation on the U.S. economy would be 
much smaller than variability between models or even year-to-
year shifts in the projections of long term economic growth.
    The EPA analysis examined key sectoral impacts of the bill. 
For coal, and coal-burning utilities, the analysis showed that 
the GHG reduction requirements--and the resulting price at 
which GHG allowances will trade in the emissions market, 
together with the financial support provided for carbon capture 
and sequestration (CCS) technology will make that technology a 
commercial reality by 2015. EIA also shows CCS deploying in 
2015-17. This early deployment of CCS will ensure that coal can 
continue to play its current leading role in U.S. electricity 
production. At the same time, the expected in investment in, 
and deployment of, CCS will drive natural gas out of the 
electricity sector to the benefit of manufacturers who rely on 
natural gas. Thanks to a combination of elements--the free 
allocation of a substantial portion of allowances to power 
plants in the early years of the program, the schedule of 
required reductions, the flexibility and economic efficiency of 
the auction and trading market and the massive financial 
support directed to CCS and other energy technologies--
according to EPA analysis, increases in average U.S. 
electricity prices are extremely gradual. The bill also directs 
more than an estimated $1 trillion to lowering and offsetting 
U.S. consumers' energy costs over that same period. Considering 
these and other factors, EIA found impacts on electricity 
prices similar to those found by EPA, with just ``a 3-percent 
increase in consumers' total electricity costs'' through 
2030.\42\  Evaluations by others using the EIA model indicate 
that ``energy usage drops considerably, due to S. 2191's energy 
efficiency provisions and price response, and this drop in 
energy consumption results in lower monthly electrical bills 
for residential and commercial customers relative to the 
reference case.'' \43\
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    \42\ http://www.eia.doe.gov/oiaf/servicerpt/s2191/pdf/
sroiaf(2008)01.pdf.
    \43\ Clean Air Task Force, The Lieberman-Warner Climate Security 
Act--S.2191 Modeling Results from the National Energy Modeling System--
Preliminary Results, January, 2008.
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    Finally, the EPA analysis addressed the impact of S. 2191 
on U.S. global competitiveness. The analysis assumed that other 
industrialized nations reduced their GHG emissions by less than 
the U.S., and that developing countries did not even begin to 
make reductions until 2025. Even under these conservative 
assumptions, the legislation does not shift U.S. greenhouse gas 
emissions abroad; as the analysis put it: ``no international 
emissions leakage occurs.'' In addition, the analysis found 
that the legislation would lead to an increase in the export 
from the U.S. of energy-intensive products such as cement and 
steel. At the same time, U.S. imports of energy-intensive 
products from developing nations would decrease.
    The EPA/EIA analyses included additional scenarios, several 
of which were performed at the request of critics of climate 
legislation. These runs, and still other scenarios included in 
the EPA/EIA analyses, show higher costs and greater dislocation 
in the energy sector and some industrial sectors. Many of the 
other scenarios artificially constrain the models in a way that 
is highly atypical of the American and global economies. They 
make highly pessimistic assumptions about constraints on 
technology deployment, the formation of natural gas cartels, 
and similar uneconomic strategies. In responding to requests 
for various modeling scenarios last October, the Energy 
Information Administration concluded that an analysis would be 
realistic even if it eschewed such pessimistic assumptions 
about economic and technological responses. For example, EIA 
found that reference case projections for coal-fired power were 
``realistic based on current construction activity'' and 
described a hypothetical natural gas cartel as ``unlikely to be 
as successful as an oil cartel due to the geographic 
distribution and relative abundance of natural gas resources 
compared to oil.'' \44\ Many of these pessimistic scenarios 
assume that carbon capture and sequestration technology will 
not be available until 2030, even though the DOE National 
Energy Technology Lab \45\, the Coal Utilization Research 
Council (CURC) \46\, and the Electric Power Research Institute 
(EPRI) \47\ predict that this technology can be available at 
least a decade sooner. The CURC and EPRI predict that, given 
adequate funding for research and development, CCS can provide 
the same cost and performance as current technology by 2020-
2025.\48\
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    \44\ http://www.eia.doe.gov/oiaf/servicerpt/biv/index.html.
    \45\ http://204.154.137.14/technologies/carbon_seq/overview/
program_goals.html.
    \46\ http://www.coal.org/pdf/RD&DFactSheet.pdf.
    \47\ The Power to Reduce CO2. Emissions in the U.S. 
Electric Sector, 1/2008 briefing.
    \48\ http://www.coal.org/pdf/RD&DFactSheet.pdf.
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    Some alternative cases provided by both EIA and EPA also 
highlight the importance of offsets (particularly international 
offsets), in reducing the cost of the program. EPA found that 
the offset provisions currently in the bill decrease the cost 
of the program 82%, and that further reducing limits on offsets 
could reduce the cost of the program 26-71%.

                             CAP AND TRADE

    The reported bill, which, first and foremost, creates a GHG 
emissions reduction program relies on an approach commonly 
termed ``cap and trade''. The choice of cap and trade as the 
central feature of the emissions reduction program reflects 
both a broad consensus among stakeholders as well as growing 
experience in the U.S. in using cap and trade programs to 
reduce pollution.
    Typical of the support for cap and trade systems is the 
report, ``A Call for Action,'' issued by the U.S. Climate 
Action Partnership (US CAP), whose membership encompasses 
leading environmental advocacy organizations as well as leading 
American companies such as Ford, Caterpillar, Duke Energy, 
DuPont, Alcoa and General Electric.\49\ In the report, US CAP, 
which calls for a mandatory, comprehensive climate policy, 
describes cap and trade as ``essential'' to such a policy. 
Similarly, in testimony before the Committee, the Pew Center on 
Global Climate Change (Pew), a consortium of 45 major companies 
promoting climate policy solutions, stated: ``Cap-and-trade is 
the most cost-effective way of reducing greenhouse gas 
emissions.'' \50\ For a more detailed discussion of some of the 
benefits of cap-and-trade, see the discussion for Title II.
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    \49\ http://www.us-cap.org/USCAPCallForAction.pdf.
    \50\ Testimony to EPW, November 15, 2007.
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        DISCUSSION OF PROVISIONS AND SECTION-BY-SECTION ANALYSIS

Findings

    The most central findings of the Act are: (1) Unchecked 
global climate change poses a significant threat to the 
national security and economy of the United States, public 
health and welfare in the United States, the well-being of 
other countries, and the global environment. (2) It is possible 
and desirable to cap greenhouse gas emissions from sources that 
together account for the majority of those emissions in the 
United States at or slightly below the current level in 2012, 
and to lower the cap each year between 2012 and 2050, on the 
condition that the system includes cost containment measures, 
periodic review of requirements, an aggressive program for 
deploying advanced energy technology, programs to assist low- 
and middle-income energy consumers, and programs to mitigate 
the impacts of any unavoidable global climate change.

Purposes

    The purposes of the Act are: (1) To establish the core of a 
Federal program that will reduce United States greenhouse gas 
emissions substantially enough between 2008 and 2050 to avert 
the catastrophic impacts of global climate change; and (2) to 
accomplish that purpose while preserving robust growth in the 
United States economy, creating new jobs, and avoiding the 
imposition of hardship on United States citizens.

Definitions

    The key definitions in the Act are as follows:
    ``Group I greenhouse gas'' refers to carbon dioxide, 
methane, nitrous oxide, sulfur hexafluoride, and 
perfluorocarbons. Titles I through IX of the Act regulate 
emissions of group 1 greenhouse gases.
    ``Group II greenhouse gas'' refers to hydrofluorocarbons. 
Titles I through IX of the Act regulate hydrofluorocarbon 
emissions that result from the manufacture of 
hydrochlorofluorocarbons. Title X of the Act regulates other 
hydrofluorocarbon emissions.
    The term ``carbon dioxide equivalent'' means, for each 
greenhouse gas, the quantity of the greenhouse gas that the 
Environmental Protection Agency determines makes the same 
contribution to global warming as one metric ton of carbon 
dioxide.
    The term ``covered facility'' means--
           any facility that uses more than 5,000 tons 
        of coal in a year;
           any facility that is a natural gas 
        processing plant or that produces natural gas in the 
        State of Alaska, or any entity that imports natural gas 
        (including liquefied natural gas);
           any facility that in any year manufactures, 
        or any entity that in any year imports, petroleum- or 
        coal-based liquid or gaseous fuel, the combustion of 
        which will emit greenhouse gas, assuming no capture and 
        sequestration of that gas;
           any facility that in any year manufactures 
        for sale or distribution, or any entity that in any 
        year imports, more than 10,000 carbon dioxide 
        equivalents of greenhouse gas, assuming no capture and 
        destruction or sequestration of that gas; and
           any facility that in any year emits as a 
        byproduct of the manufacture of 
        hydrochlorofluorocarbons more than 10,000 carbon 
        dioxide equivalents of hydrofluorocarbons.

Title I--Capping greenhouse gas emissions

    Background--The goal of the bill is to reduce U.S. GHG 
emissions to levels compatible with achieving a global 
atmospheric concentration of CO2-equivalent GHG that 
prevents runaway climate change and the predicted, potentially 
catastrophic, damage that such a change would impose on human 
society and unmanaged ecosystems. The bill's approach is 
straightforward--to achieve overall reductions in U.S. GHG 
emissions by mandating that approximately 2,100 covered 
facilities of GHG emissions achieve actual reductions in their 
emissions under a regime that makes them legally accountable 
for limiting the total amount of GHG they may emit in each year 
from 2012 through 2050.
    For sources obligated to limit their GHG emissions 
compliance is specified as a requirement for the source to hold 
a GHG emissions allowance for each of GHG emissions the source 
generates each year from 2012 through 2050. Since the total 
number of GHG emissions allowances created by the bill is 
finite, then the aggregate effect of this is to place a cap on 
U.S. GHG emissions generated by the three major GHG-emitting 
sectors of the U.S. economy. Each year, the number of GHG 
allowances created by the bill diminishes by 106 million tons 
or 1.8 percent. Thus, during the life of the program, overall 
GHG emissions of covered facilities must reach 2005 levels in 
2012. In 2020 GHG emissions by covered facilities are brought 
to 15 percent below 2005 levels and in 2050 GHG emissions of 
these facilities are reduced to 71 percent below 2005 levels--a 
reduction that is projected to bring total U.S. GHG emissions 
to 66 percent below 2005 levels in that year.\51\
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    \51\ http://www.nrdc.org/legislation/factsheets/leg_07121101A.pdf.
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    Title I establishes the system by which the EPA will track 
each source's GHG emissions and the number of GHG allowances it 
holds at the end of each year. In addition, the provisions of 
Title I specify the compliance obligations for major GHG-
emitting sectors.
            Summary
            Subtitle A--Tracking emissions
    Subtitle A requires each covered facility to submit to EPA 
periodic reports on the facility's emissions of greenhouse 
gases and on activities at the facility that affect its 
emissions. The subtitle requires facilities to begin reporting 
in 2008, and to report emissions from as far back as 2004. The 
subtitle requires EPA to make the emissions data publicly 
available.
    Sec. 1101. Purpose. Section 1101 states that the purpose of 
subtitle A is to establish a Federal greenhouse gas registry 
that is complete, consistent, and transparent.
    Sec. 1102. Definitions. Section 1102 defines ``affected 
facility'' as a covered facility or other facility designated 
by EPA. The section prohibits EPA from designating, as an 
``affected facility,'' any small business or any facility that 
emits fewer than 10,000 carbon dioxide equivalents per year. 
The term ``affected facility'' is used to describe facilities 
that are required to file periodic emissions tracking reports 
under Subtitle A, a broader universe than ``covered 
facilities,'' emissions of which are directly controlled in the 
bill's cap and trade program.
    Sec. 1103. Reporting Requirements. Section 1103 directs 
each affected facility to submit data on its greenhouse-gas 
emissions to EPA electronically. The section requires 
annualized data for 2004 through 2007 and quarterly reports 
from 2008 onward.
    Sec. 1104. Data Quality and Verification. Section 1104 
directs EPA to develop comprehensive protocols and methods to 
ensure accurate, complete, consistent, and transparent data on 
greenhouse-gas emissions and fossil-fuel production and use. 
The section declares that the protocols shall require best 
practices, including continuous emissions monitoring where 
technically feasible.
    Sec. 1105. Federal Greenhouse Gas Registry. Section 1105 
directs EPA to establish and manage the greenhouse-gas 
registry. The section establishes an advisory body of 
stakeholders; provides for electronic submission, verification, 
and auditing of data; includes policies for calculating carbon 
content and emissions from fossil fuels; and requires EPA to 
publish data to the public on the Internet. The section 
declares that confidential business information not related to 
greenhouse-gas emissions shall not be made publicly available.
    Sec. 1106. Enforcement. Section 1106 allows EPA to bring 
civil actions against facilities that fail to comply with 
registry requirements. The civil penalty for noncompliance is 
set at up to $25,000 per each day of each violation.
    Discussion--This subtitle creates a key component for 
establishing, ensuring and enforcing sources' compliance with 
their GHG emissions limitation obligations. The provisions of 
this subtitle require affected GHG sources to monitor, quantify 
and report their total annual GHG emissions so that the EPA can 
establish and maintain a database for each source's GHG 
emissions. Since the quality, reliability, accuracy and 
timeliness of each source's GHG emissions data are crucial to 
the integrity of the compliance program, section 1106 
authorizes EPA to bring civil actions for substantial penalties 
against sources that fail to meet their emissions reporting 
requirements. Finally, this subtitle permits the EPA some 
flexibility in promulgating rules so that even facilities that 
are not ``covered facilities'' subject to the GHG emissions 
limitation obligations of this Title can be required to report 
their emissions. Data from these facilities may be essential to 
determining the trajectory of overall U.S. GHG emissions or to 
designing complementary climate policies in future years.
            Subtitle B--Reducing emissions
    For each year from 2012 through 2050, subtitle B 
establishes an Emission Allowance Account containing a specific 
number of emission allowances. The subtitle requires each 
covered facility, at the end of each year from 2012 through 
2050, to submit to EPA one emission allowance for each carbon 
dioxide equivalent of group I greenhouse gas (or 
hydrofluorocarbon emitted as a byproduct of 
hydrochlorofluorocarbon manufacture) that the facility emitted 
in that year.
    Each year's Emission Allowance Account contains 106 million 
fewer emission allowances than the preceding year's Account. It 
is the increasing scarcity of emission allowances, together 
with the requirement that a covered facility submit one 
allowance for each carbon dioxide equivalent emitted, that 
causes the aggregate emissions of covered facilities to 
decrease over time. The number of allowances in the 2050 
Account is 70 percent smaller than the number of allowances in 
the 2012 Account.
    Sec. 1201. Emission Allowance Account. Section 1201 
identifies, for each year from 2012 through 2050, the number of 
emission allowances in that year's Emission Allowance Account. 
The section identifies 5.775 billion as the number of emission 
allowances in 2012's Emission Allowance Account. The number of 
emission allowances set forth for each subsequent year is 106 
million lower than the number set forth for the preceding year.
    Sec. 1202. Compliance Obligation. Section 1202 declares 
that, not later than 90 days after the end of a calendar year, 
each covered facility shall submit to EPA an allowance for each 
carbon dioxide equivalent of:
           group I greenhouse gas that was emitted by 
        that facility during the preceding year from the use of 
        coal;
           group I greenhouse gas that will (assuming 
        no subsequent capture and destruction or sequestration) 
        be emitted from the use of any petroleum- or coal-based 
        liquid or gaseous fuel that was produced or imported by 
        that facility during the preceding year;
           group I greenhouse gas that was manufactured 
        for sale or distribution or imported by that facility 
        during the preceding year;
           group II greenhouse gas that was emitted by 
        that facility during the preceding year as a byproduct 
        of hydrochlorofluorocarbon manufacture; or
           group I greenhouse gas that will (assuming 
        no subsequent capture and destruction or sequestration) 
        be emitted from the use of any natural gas or natural-
        gas liquid that was, by that facility during the 
        preceding year, processed, imported, or produced and 
        not re-injected into the field.
    The section directs EPA, when calculating the amount of 
group I greenhouse gas that was emitted by a facility in a 
given year from the use of coal, to subtract the number of 
metric tons of carbon dioxide that the owner or operator of the 
facility geologically sequestered during that year.
    The section directs EPA to retire an allowance immediately 
upon its submission to EPA pursuant to one of the section's 
submission requirements.
    The section directs EPA each year to establish and 
distribute, to each entity that uses petroleum- or coal-based 
product, natural gas, or natural-gas liquid as a feedstock, the 
quantity of allowances that were submitted for that feedstock 
by a covered facility, minus the number of carbon dioxide 
equivalents of greenhouse gas that the facility released to the 
atmosphere from the feedstock.
    The section declares that, with regard to all allowance 
submission requirements other than the one stemming from the 
use of coal, if EPA determines that a covered facility has 
geologically sequestered carbon dioxide during any of years 
2012 through 2050, EPA shall establish and distribute to that 
facility a quantity of emission allowances equal to the number 
of metric tons of carbon dioxide that the owner or operator of 
the facility geologically sequestered during that year.
    The section declares that if EPA determines that an entity 
has destroyed greenhouse gas during any of years 2012 through 
2050, EPA shall establish and distribute to that entity a 
quantity of emission allowances equal to the number of carbon 
dioxide equivalents of greenhouse gas that the entity destroyed 
during that year.
    Sec. 1203. Penalty for Noncompliance. Section 1203 sets the 
penalties for failure to submit the appropriate number of 
allowances for a given calendar year. The penalty, per 
allowance, for noncompliance in a given year is three times the 
mean annual market value of an allowance or $200, whichever is 
greater. Proceeds from non-compliance are deposited into the 
Treasury. In addition to the fine, owners or operators of 
covered facilities must submit a plan to offset the excess 
emissions with allowances in the following calendar year. 
Facilities that are allocated allowances for transition 
assistance will have the excess allowances automatically 
deducted from the following year's allocation.
    Sec. 1204. Rulemaking. Section 1204 directs EPA to expand, 
by rule, the definition of ``covered facility'' to capture all 
greenhouse-gas emissions from the flaring, processing, 
production, and sale of natural gas. The purpose of this 
provision is to account for greenhouse-gas emissions not 
accounted for under the original definition of covered 
facility. It is not the intent to regulate natural gas that is 
already directly regulated upstream. Ensuring an adequate and 
reasonably priced supply of natural gas is an important 
component to addressing global warming, especially in the short 
term.
    Discussion--Subtitle B creates, via the EPA, an Emissions 
Allowance Account for each calendar year from 2012 through 2050 
inclusive. The size of the Year 2012 Account is 5.775 billion 
allowances, which represents the quantity of GHGs, in 
CO2 equivalents, emitted by all the covered 
facilities in 2005. For each of the 38 years of the program, 
the EPA will reduce the number of allowances in the Emissions 
Allowance Account by 106 million, or 1.8 percent of the initial 
5.775 billion. The size of the Account for Year 2050 is 1.732 
billion allowances, representing a 70 percent reduction in the 
GHG emissions generated in 2005. These reductions will be 
achieved by approximately 2100 sources that meet the definition 
of ``covered facility''. Sources that do not meet the terms of 
this definition--e.g., farms, residential and commercial 
buildings have no GHG emissions limitation obligations.
    This subtitle also establishes the sectors whose sources 
are subject to mandatory GHG emissions limitations. It exempts 
emissions from coal combustion in circumstances in which those 
emissions are captured before release into the atmosphere and 
stored in underground reservoirs. The subtitle provides that 
natural gas processors are liable to GHG emissions limitations 
so that the entire natural gas sector is encompassed by the GHG 
emissions reduction program. At the same time, it specifies 
that the EPA is to allocate allowances to companies that use 
natural gas as a feedstock. This allocation is intended to 
offset the economic cost to manufacturers that they otherwise 
might bear if and when the costs of compliance with the 
emissions limitations on natural gas are passed on to these 
manufacturers.
    Should the owners or operators of these facilities fail to 
turn into EPA an allowance for the CO2 equivalent of 
each ton of GHG the facilities emit, they are subject to a 
series of automatic penalties. Following the highly successful 
precedent established by Title IV of the Clean Air Act, which 
established the SO2 cap and trade program, the 
``automaticity'' of these penalties is designed to ensure both 
the environmental and economic integrity of the GHG emissions 
cap and emissions market. First, for those non-complying 
sources for which EPA is required to allocate allowances in the 
year following the noncompliance, EPA must deduct from the next 
year's allocation the number of allowances equal to the number 
of tons the source emitted in excess of the allowances it held. 
This, of course, creates a built-in or automatic obligation for 
the source to offset its excess emissions immediately. Second, 
the source must pay an automatic fine equal to a multiple of 
the market price of an allowance; thus, sources will face a 
strong economic incentive to achieve timely compliance with 
their GHG emissions obligations. The size and ``automaticity'' 
of the penalty negates the prospect that sources otherwise 
might ``arbitrage'' noncompliance.

Title II--Managing and containing costs efficiently

            Summary
    Title II institutes, from the inception of the program, 
five mechanisms designed to reduce the amount of money that 
owners and operators of covered facilities otherwise would need 
to spend to ensure that the number of allowances they submit 
does not fall short of the number of carbon dioxide equivalents 
they have emitted. The five mechanisms are trading, banking, 
borrowing, offsets, and international credits. They are 
intended not only to reduce compliance costs, but also to 
minimize volatility in the market price of an emission 
allowance. Offsets additionally are intended to enlist the 
participation of non-covered facilities in the project of 
reducing greenhouse-gas emissions.
    The title places no limitation on the use of trading and 
banking. It does limit the use of borrowing, offsets, and 
international credits, but it also creates a Carbon Market 
Efficiency Board that is empowered to authorize increased 
resort to those three mechanisms if the Board finds that the 
emission allowance market otherwise would pose a significant 
harm to the economy.
    The Board is allowed to authorize increased use of 
borrowing, offsets, and international credits as early as two 
years after enactment. If, having done so, the Board then finds 
that more is needed to avoid significant economic harm, it is 
empowered to increase by up to 5 percent the number of 
allowances comprising the next year's Emission Allowance 
Account. The Board is then required to decrease the size of 
subsequent years' Accounts, such that, within 15 years' time, 
the cumulative number of emission allowances issued up to that 
point is no larger than it would have been if the Board had 
never increased the size of a year's Account.
    The Board is required to conduct the market-wide borrowing 
described immediately above if, 180 days after it has 
authorized increased resort to company-specific borrowing, the 
average daily market price of an emission allowance exceeds the 
upper range of a projection that the Congressional Budget 
Office is directed to have made by July 1, 2014.
            Subtitle A--Trading
    Subtitle A allows anyone to buy, hold, sell, and retire 
emission allowances. Because the allowances can be bought and 
sold freely, a market develops, and the price of an emission 
allowance becomes uniform across the market. The owner or 
operator of a covered facility that can reduce its own 
emissions at a cost lower than the market price will do so. If 
those reductions leave the owner or operator with more 
allowances than it needs to cover its own emissions at the end 
of the year, the owner or operator will sell the surplus on the 
market. An owner or operator of a covered facility that cannot 
reduce its own emissions without incurring a cost that exceeds 
the market price will purchase credits on the market in lieu of 
reducing its emissions. The market thus enables owners and 
operators of covered facilities to comply with the law at a 
cost lower than the one they would bear in the absence of 
trading.
    Sec. 2101. Sale, Exchange, and Retirement of Emission 
Allowances. Section 2102 declares that the lawful holder of an 
emission allowance may, without restriction, sell it, exchange 
it, transfer it, submit it for compliance, or retire it.
    Sec. 2102. No Restriction on Transactions. Section 2102 
declares that the privilege of purchasing, holding, selling, 
exchanging, and retiring allowances shall not be restricted to 
covered facilities.
    Sec. 2103. Allowance Transfer System. Section 2103 directs 
EPA to promulgate rules to carry out the provisions of the Act 
relating to emission allowances. The section declares that 
those regulations shall establish procedures whereby an entity 
may transfer an emission allowance before EPA has distributed 
that allowance to the entity.
    Sec. 2104. Allowance Tracking System. Section 2104 declares 
that the rules promulgated under section 2103 shall establish a 
system for issuing, recording, and tracking emission 
allowances, and that the system shall specify all necessary 
procedures and requirements for ensuring an orderly and 
competitive market in allowances.
            Subtitle B--Banking
    Subtitle B allows owners and operators of covered 
facilities to hold onto allowances as long as they wish. An 
owner or operator thus will be able to maintain a reserve of 
allowances. Such reserves will reduce the number of allowances 
that owners and operators will need to purchase when market and 
auction prices are high.
    Sec. 2201. Indication of Calendar Year. Section 2201 states 
that allowances submitted for compliance do not need to 
indicate the calendar year for which the allowance was 
submitted.
    Sec. 2202. Effect of Time. Section 2202 clarifies that 
allowances do not expire or diminish in compliance value over 
time.
            Subtitle C--Borrowing
    Subtitle C directs EPA to promulgate regulations allowing 
the owner or operator of any covered facility to satisfy up to 
15 percent of a given year's compliance obligation with 
allowances borrowed from future years. The subtitle specifies a 
10 percent annual interest rate on such ``loans'' and imposes a 
five-year limit on the term of any loan.
    Sec. 2301. Regulations. Section 2301 directs EPA to develop 
regulations allowing a covered facility to borrow allowances 
from future years and to submit them in satisfaction of up to 
15 percent of the facility's annual compliance obligation.
    Sec. 2302. Term. Section 2302 declares that allowances may 
not be borrowed from any farther than 5 years in the future.
    Sec. 2303. Repayment with Interest. Section 2303 declares 
that the number of allowances that a covered facility must 
submit in a year from which it has borrowed allowances must be 
the number of allowances that it borrowed from that year, 
multiplied by 10 percent, multiplied by the number of years 
separating that year from the earlier year in which the 
borrowed allowances were submitted.
    Discussion--Subtitles A, B and C set down the rules that 
create the structure--and dynamics--of the GHG emissions 
reduction market. By allowing sources to purchase and sell 
allowances, the bill permits the private sector to find and use 
the lowest-cost reductions for compliance with their GHG 
emissions limitations. Allowing sources to ``bank'' 
reductions--by making more reductions than required and saving 
unused allowances for compliance in future years--brings both 
economic and environmental benefits. Sources that create a 
supply of additional or excess reductions when they can achieve 
those reductions at lower cost, will, by using those banked 
allowances in later years, be able to curb their costs in later 
years should future reductions become more expensive. At the 
same time, because of the time lags associated with GHG 
emissions, the atmosphere benefits from reductions achieved 
earlier. Finally, by creating an explicit economic value for 
incremental GHG emissions reductions, the GHG emissions market 
also creates an incremental financial incentive for, and 
incremental financial return on, investment in innovations 
leading to GHG emissions reductions.
    Another feature of the GHG allowance trading market created 
by these subtitles is the option afforded sources, under 
certain conditions, to ``borrow'' allowances or incremental GHG 
reductions from future years to offset for purposes of 
compliance GHG emissions in a current year. This option grants 
sources additional flexibility to manage their financial and 
compliance demands in the most economically efficient way 
possible. Of course, since ``borrowing'' allowances from future 
years represents a delay in achieving required reductions, the 
borrowing program in effect requires sources to ``make the 
atmosphere whole'' by achieving greater reductions in later 
years than the GHG emissions from the added earlier years as a 
result of allowance-borrowing.
    Together with Title I, these subtitles constitute a 
comprehensive ``cap and trade'' program for GHG. Cap and trade 
was first introduced in the U.S. in 1989 by then-President 
George H.W. Bush as an innovative strategy for reducing the 
pollutants that caused acid rain. With bipartisan support, the 
101st Congress incorporated the Bush cap and trade proposal in 
the Clean Air Act Amendment of 1990. Since 1990, the cap and 
trade approach first used in the acid rain program has enjoyed 
continued bipartisan support, having been incorporated several 
times in legislative proposals and pollution control 
regulations put forward by both the Clinton administration and 
the current Bush administration. The GHG emissions reduction 
program in the Committee-reported bill sought to capture the 
benefits of the acid rain approach; thus the Committee bill 
incorporates almost all of the key elements of the acid rain 
program.
    The success--and popularity--of the cap and trade approach 
reflects several factors. First, in contrast to other 
approaches (e.g., taxes or technology standards or mandates), 
imposing a cap on emissions ensures that the full measure of 
required emissions reductions specified by Congress will be 
achieved. Second, businesses can operate with far more 
flexibility under a cap and trade program than under more 
traditional pollution control programs. Third, under cap and 
trade, businesses can buy and sell the difference between their 
actual emissions and their legally mandated emissions levels. 
Cap and trade literally creates a market for emissions 
reductions and what markets do best is drive costs down. As a 
result, individual businesses can find the lowest cost way to 
reduce their emissions--including by purchasing surplus 
reductions from other sources that can achieve them at lower 
cost. The overall cost of the program, in turn, will be that 
much lower. At the same time, markets are the single most 
effective driver of innovation; thus, a market for GHG 
emissions reductions is certain to spur significant innovations 
in reducing GHG emissions.
    All of these factors informed the Committee's decision to 
rely on the cap and trade model because of the distinctive 
nature of the challenge confronting climate policy. GHG 
emissions are inextricably bound up in virtually the entire 
suite of modern activity, encompassing energy, manufacturing, 
transportation, land use and agriculture. As a result, a 
successful climate policy must put a premium not only on 
success in achieving the required emissions reductions, but on 
mobilizing the widest range of economic and social resources to 
minimize costs, maximize innovation and safeguard the growth of 
economic prosperity. Experience has taught that it is well-
designed and appropriately regulated markets that are best 
suited for achieving these outcomes. Thus, the Committee set 
out to create an economy-wide market for GHG emissions 
reductions, one that spans and integrates all major sectors and 
businesses, and virtually all forms of economic activity that 
can contribute to the cost-effective net reduction of aggregate 
U.S. GHG emissions.
    Under the GHG reduction program established by the reported 
bill, the Environmental Protection Agency (EPA) will distribute 
to each power plant a fixed number of emissions ``allowances,'' 
each of which gives the owner the authorization to emit one ton 
of CO2-equivalent in any one year. A plant may then 
sell the allowances to another plant provided that at the end 
of the year it surrenders to the EPA enough allowances to cover 
its emissions for that year. Allowances that are not used to 
cover emissions in one year may be saved for use in later 
years, an option known as ``banking.'' Because the number of 
emissions allowances the EPA distributes every year is fixed, 
then, by definition, an allowance remaining in excess of a 
plant's emissions represents an ``extra'' reduction that may be 
transferred to another plant to cover its incremental 
emissions. No matter how many or how few allowances are 
transferred total emissions always remain constrained by the 
cap.
    Given the premium the Committee put on ensuring the 
economic viability of the GHG reduction program created by the 
bill, one of the key sets of features the bill creates is 
flexibility for businesses and efficiency in the regulatory 
process under which they will operate. With the enactment of 
the acid rain program in 1990, Congress created a new paradigm 
for combating pollution, a paradigm that overthrew the 
traditional discretionary powers of environmental regulators 
even while making it more certain that the full measure of 
promised emissions reductions would be delivered to the public 
and the environment. With the objective of ensuring business 
flexibility and regulatory efficiency, the Committee bill 
perpetuates and extends that same new paradigm.
    To understand the value of this approach, it is worth 
contrasting the Committee bill with other pollution control 
programs. Between 1970, when the ``modern'' Clean Air Act was 
first adopted, and 1990, programs to control air pollution were 
characterized by requirements focusing on how sources of 
emissions operated. State and federal regulators were empowered 
and called on to assess the cost, feasibility, and 
effectiveness of various technologies, methods, and processes 
for reducing emissions from the operations of various classes 
of sources. On the basis of those assessments, regulators would 
impose either specific technology requirements or operational 
parameters such as emissions rate requirements on plants and 
factories. Compliance was defined in terms of meeting those 
operational parameters, not in terms of meeting specified 
emissions reduction targets. Often, plants were subject to 
detailed operating permits, and enforcement resources went 
toward ensuring that plants developed and submitted compliance 
plans and met the operational milestones delineated in the 
plans, rather than focusing on actual emissions performance. To 
a significant extent the approach worked. According to many key 
indicators, air quality in the United States improved 
substantially.
    By 1990, however, the performance of the traditional 
approach was often burdened by a broad range of flaws. In many 
cases, the full increment of pollution reductions that had been 
promised, predicted, or assumed when operational requirements 
were adopted had not been achieved. Because compliance was 
defined simply in terms of technologies or operating 
parameters, however, nobody, including the polluters 
themselves, was legally accountable for the failure to achieve 
the expected levels of total reductions. With fewer than the 
expected and needed pollution reductions achieved, key ambient 
air-quality standards were often not attained. Specifying 
technologies or operating parameters was not enough to limit 
total emissions discharges.
    At the same time, the costs of these programs were high. 
The regulatory community's resources often were inadequate for 
collecting and processing the range of information needed to 
formulate operational requirements for whole classes of 
sources.
    As a result, plants were forced to operate with limited 
flexibility. Once the requirements and implementing permits 
were put in place, the capacity to absorb new information and 
respond to inevitable and ongoing economic and other 
operational changes was virtually nonexistent. Although the 
characteristics of sources varied, requirements tended to be 
uniform and thus many sources were subject to expenses that 
could have been avoided in more flexible systems. 
Simultaneously, sources that could have adopted more effective 
or innovative control technologies had no incentive to do so. 
At the same time, regulators, mindful of the need to control 
costs, compromised the stringency of requirements either in 
setting the standards or in negotiating individual permits and 
``variances'' to permits, all at the cost of total emissions 
reductions achieved.
    In contrast, under the GHG program established by the 
Committee bill, each business, rather than outside regulators, 
will determine how the business meets its obligations. Under 
the bill's GHG program, the business is legally accountable for 
achieving a specified level of emissions reductions--with the 
options of using surplus reductions achieved in earlier years, 
or acquiring low-cost surplus reductions from other sources, to 
offset its own GHG emissions increases--and for little else 
save continually monitoring and reporting its actual emissions. 
The only job that EPA regulators have to do is ensure that each 
source meets its monitoring and reporting requirements and that 
its actual annual GHG emissions equal the number of allowances 
or offsets the source holds.
    How businesses reduce their GHG emissions has been left 
completely to the discretion of the businesses themselves. As a 
result, it is up to them to manage the continually changing 
economic, technical, and other circumstances in which they are 
operating and to integrate their basic business activities with 
their obligation to meet their emissions cap. The burden and 
the opportunity of lowering costs are placed squarely on the 
businesses. At the same time, because of the built-in cap-based 
structure of the program, cost savings through emissions 
trading in no way lessens the amount of total emissions 
reductions or their environmental benefit.
    Critical to the character and success (and not just the 
mechanics) of the program is the fact that the aggregate number 
of allowances circulated every year is fixed, or capped. As a 
result of this design, businesses must plan for economic growth 
and change while operating against a limit on their total GHG 
emissions. This cap and trade regime gives businesses a direct 
financial incentive to reduce emissions below required levels. 
Extra reductions, in the form of unused allowances, give 
companies flexibility to offset increases in emissions in one 
location with reductions in another. In addition, businesses, 
like electric utilities, can optimize control by reducing 
emissions when it is least expensive to do so and then bank the 
surplus allowances for future use or sale. Consequently, extra 
reductions give power plants and industrial sources the 
flexibility needed to respond to economic demands and 
opportunities while meeting their compliance obligations under 
the cap.
    Furthermore, through emissions trading, businesses have the 
means, as well as the incentive, to find the lowest-possible-
cost ways of achieving compliance anywhere within the entire 
economy and to reap financial rewards for developing those 
means. Under this program, each business can choose between and 
among various compliance alternatives, ranging from energy-
efficient technologies, to capturing CO2-emissions 
from smokestacks, to changing their materials or processes, to 
acquiring allowances or offsets from other businesses that can 
make reductions more cost-effectively. By including emissions 
trading in the full suite of compliance options open to 
companies, the program enhances the ability of the interlocking 
emissions, financial and commercial markets to find the most 
efficient responses. As has already been demonstrated in the 
acid rain emissions trading market, the GHG market will succeed 
in reducing costs by fostering implicit or ``latent'' emissions 
trading as well as active trading. Put another way, emissions 
trading places all compliance options in direct competition 
with each other. Of course, any program that permits 
flexibility in compliance choices does this. Because of 
emissions trading, however, that competition is geometrically 
expanded in the GHG market. Different compliance options do not 
compete with each other only at any one facility. Because 
emissions trading allows a facility operator to choose to apply 
a compliance option at its own site or, in effect, at any other 
affected facility that can make surplus emissions allowances or 
reductions available, the facility operator's range of choices 
are much broader, the competition among them much more intense, 
and the capacity of that competition to lower costs much, much 
greater. Again, as the acid rain market has shown, the 
different compliance alternatives will be forced to compete 
with one another even more vigorously. In the acid rain 
program, the expected result has occurred: Compliance costs 
have been driven steadily downward. The same result will 
prevail in the much larger, and even more dynamic, GHG market.
            Subtitle D--Offsets
    Subtitle D directs EPA, in conjunction with the Secretary 
of Agriculture, to promulgate regulations allowing the owner or 
operator of any covered facility to satisfy up to 15 percent of 
a given year's compliance obligation with offset allowances 
generated within the United States.
    Offset allowances are in addition to the emission 
allowances that comprise the annual Emission Allowance 
Accounts. Offset allowances come into being when EPA certifies 
that a non-covered facility has done something that either has 
reduced the number of carbon dioxide equivalents that the 
facility otherwise would have emitted in that calendar year or 
has increased the number of carbon dioxide equivalents that the 
facility otherwise would have captured from the atmosphere in 
that calendar year and stored.
    Subtitle D specifies procedures and standards that EPA must 
use in certifying, monitoring, and enforcing offsets. The 
procedures and standards established in the subtitle are 
intended to ensure that the emission reductions and 
sequestration increases certified as offsets by EPA will be 
real, verified, monitored, permanent, enforced, and additional 
to what would have happened in the absence of the offset 
certification.
    Sec. 2401. Outreach Initiative on Revenue Enhancement for 
Agricultural Producers. Section 2401 directs USDA, with various 
agencies and outside stakeholders, to establish an outreach 
initiative to provide information to farmers and foresters 
about opportunities to earn income from offsets.
    Sec. 2402. Establishment of Domestic Offset Program. 
Section 2402 directs EPA, in conjunction with USDA, to 
promulgate regulations authorizing the issuance and 
certification of offset allowances. For land-use related 
projects (agriculture and forestry), regulations are to ensure 
real, verifiable, additional, permanent, and enforceable 
reductions in emissions (or increases in sequestration) and to 
establish procedures outlined in the rest of the subtitle. Non-
land use offsets must establish baseline emissions through the 
greenhouse gas registry (Sec. 1105) and generate real, 
verifiable, additional, permanent, and enforceable reductions 
below that baseline. Offset credits may be sold, traded or 
transferred.
    Sec. 2403. Eligible Offset Project Types. Section 2403 
lists projects eligible to generate offset allowances, 
including: Altered tillage practices, cover cropping, 
conversion of cropland to rangeland or grassland, reduction of 
fertilizer use, rice-paddy flood management, reduced carbon 
emissions from organic soils, afforestation, reforestation, 
forest management, and manure management. EPA can certify other 
terrestrial offset projects, including the capture of fugitive 
emissions and the capture/combustion of methane at non-
agricultural facilities.
    Sec. 2404. Project Initiation and Approval. Section 2404 
details the procedures for the initiation and approval of 
offset projects. Project developers must submit a detailed 
monitoring and quantification plan and a certification of 
baseline greenhouse gas emissions (or carbon stock). EPA, in 
conjunction with USDA, is directed to develop standardized 
tools and methods for monitoring, quantification, accounting, 
discounting, additionality, baselines, uncertainty, and 
acquisition and review of new data and methods.
    Sec. 2405. Offset Verification and Issuance of Allowances. 
Section 2405 directs EPA to develop regulations for third-party 
verification of offset projects. Verification reports quantify 
net emissions reductions (or increases in sequestration), which 
are adjusted to take into consideration a determination of 
additionality, a calculation of leakage, an assessment of 
permanence, and discounting for uncertainty.
    Sec. 2406. Tracking of Reversals for Sequestration 
Projects. Section 2406 creates regulations for tracking 
reversals (for example, a forest fire in a planted forest). 
Offset projects must submit annual reports detailing the 
quantities of any unmitigated reversals. If a reversal has 
occurred, EPA declares the appropriate allowances invalid and 
requires the submission of an equal number of offsets and/or 
emission allowances.
    Sec. 2407. Examinations. Section 2407 directs EPA to 
promulgate regulations examining and auditing offsets, 
including rights and privileges of an examined party and an 
appeals process.
    Sec. 2408. Timing and the Provision of Offset Allowances. 
Section 2408 specifies that EPA may allow for the transition of 
pre-existing offsets projects and banked offset allowances if 
those projects satisfy the requirements of this subtitle.
    Sec. 2409. Offset Registry. Section 2409 creates a registry 
for all certified offsets. The registry shall include 
verification reports, reversal certification reports, and any 
other necessary information.
    Sec. 2410. Environmental Considerations. Section 2410 
directs EPA, in conjunction with USDA, to avoid or minimize 
negative impacts that offset projects might have on human 
health or the environment. It requires a report by 2010 on 
policies associated with offsets that could benefit human 
health or the environment. It also creates regulations to 
ensure that native plants are given primary consideration in 
offset projects and that noxious weeds or invasive plants are 
not used.
    Sec. 2411. Program Review. Section 2411 establishes 
periodic reviews of the regulations promulgated by this 
subtitle, beginning 5 years after enactment.
    Sec. 2412. Retail Carbon Offsets. Section 2412 directs EPA 
to establish Energy Star certification for retail carbon 
offsets (i.e., offsets that cannot be used for compliance under 
the Act).
    Discussion--This subtitle expands the potential reach of 
the GHG/carbon equivalents reduction market to include sources 
and activities not otherwise captured in the mandatory 
reduction program if those sources and activities are able to 
achieve legitimate GHG/carbon equivalents reductions at a 
competitive cost. In fact, there is substantial evidence that 
the agriculture sector, which has no GHG/carbon equivalents 
emissions limitation obligations under the bill, could achieve 
cost-effective reductions or cost-effective carbon 
sequestration. Thus, in keeping with the underlying economic 
logic of the cap and trade program, this subtitle permits 
sources to extend their hunt for the lowest cost reductions--or 
incremental sequestration--to the agricultural sector. The 
subtitle includes provisions aimed at facilitating that search, 
and farmers' participation in the GHG/carbon equivalents 
reduction market.
    In contrast to sources mandated to limit their GHG/carbon 
equivalents emissions via a requirement to match a portion of a 
fixed total of available emissions allowances, sources not 
included in the cap and trade program must demonstrate that 
their incremental reductions, or the increments of carbon 
sequestration they achieve, represent a genuine net excess 
reduction--as if they had been issued allowances as part of the 
cap and trade program. Thus, the requirements of this subtitle 
are intended to ensure that, via EPA rulemaking and 
implementation, reduction or sequestration activities proposed 
for the award of offset allowances truly represent the 
equivalent in terms of net reductions or sequestration of an 
allowance issued to a source under the cap and trade program. 
Such certainty benefits both the purchasers of allowances (by 
ensuring valid offsets) and the suppliers of offsets (by 
providing a solid, reliable market). At the same time, the 
Committee recognizes that the task of ensuring this equivalence 
may not produce reliable results in all cases. As a result, in 
order to safeguard both the environmental and economic 
integrity of the overall GHG/carbon equivalents cap and trade 
system and incentivize progressive reductions in all sectors, 
the subtitle imposes a numerical limit on the percentage of 
offset credits that a source may use in meeting its GHG/carbon 
equivalents emissions limitation obligations.
            Subtitle E--International emission allowances
    Subtitle E directs EPA to promulgate regulations allowing 
the owner or operator of any covered facility to satisfy up to 
15 percent of a given year's compliance obligation with 
international allowances. An international allowance is an 
emission allowance purchased from a foreign greenhouse gas 
emissions trading market that EPA certifies as having 
comparable integrity to the U.S. market, and that exists by 
virtue of national emissions caps that EPA finds to be of 
comparable stringency to the caps established by the Act.
    Sec. 2501. Use of International Emission Allowances. 
Section 2501 declares that a covered facility may submit, in 
satisfaction of up to 15 percent of its compliance obligation 
in a given year, allowances obtained on a foreign market that 
EPA has certified in accordance with the regulations 
promulgated pursuant to section 2502.
    Sec. 2502. Regulations. Section 2502 directs EPA to 
promulgate regulations to implement section 2501. The 
regulations shall require that, in order to be approved for 
use, an international allowance shall have been issued by a 
foreign country pursuant to a governmental program that imposes 
mandatory absolute tonnage limits on greenhouse-gas emissions 
from one of more industrial sectors in the foreign country. The 
regulations shall also require that the foreign governmental 
program in question be of comparable stringency to the program 
established for the U.S. by the Act.
    Sec. 2503. Facility Certification. Section 2503 requires 
covered facilities to ensure that international allowances have 
not been retired in the country of origin.
    Discussion--Subtitle E permits sources with GHG/carbon 
equivalents emissions limitation requirements to reach into 
overseas GHG emissions trade markets in search of low-cost 
reductions. As in the case with offset allowances authorized 
under Subtitle D, this subtitle reflects the economic and 
environmental logic of GHG emissions trading--that sources 
should be granted the flexibility to seek and purchase the 
surplus emissions reductions at the lowest possible cost. By 
expanding the market, both subtitles D and E intensify the 
cost-reducing dynamics of the overall GHG emissions trading 
market created through the cap and trade program while offering 
sources that much greater flexibility in determining their 
respective paths to compliance.
    Meanwhile, subtitle E requires EPA to ensure that the 
importation of offsets or allowances from overseas does not 
compromise the environmental or economic integrity of the cap 
and trade program. Overseas allowances must represent genuine 
surplus or excess GHG reductions in precisely the same way that 
allowance from the Emissions Allowance Account represents a 
genuine excess reduction. As a result, EPA is specifically 
mandated to certify that an overseas allowance is generated 
under a national program that incorporates a comprehensive cap 
on GHG emissions that is of comparable stringency to that of 
the cap established under the bill. In addition, the subtitle 
restricts the quantity of overseas allowances that a source may 
use as a backstop to the integrity of the overall program by 
ensuring that the predominant source of compliance by any given 
U.S. source are allowances issued by EPA from the Emissions 
Allowance Account.
            Subtitle F--Carbon Market Efficiency Board
    Subtitle F establishes a Carbon Market Efficiency Board, 
comprising seven members serving staggered, fourteen-year 
terms, plus a scientific advisor to ensure that steps taken by 
the Board are informed by expertise with climate change and its 
impacts on the environment. All members are appointed by the 
President with the advice and consent of the Senate. The Board 
is tasked with monitoring the emissions trading market, 
periodically reporting to the President and Congress on its 
operations, and employing specified cost-relief measures under 
specified circumstances.
    Sec. 2601. Purposes. Section 2601 states that the purpose 
of the Carbon Market Efficiency Board is to implement and 
maintain a stable, functioning and efficient market in 
emissions allowances.
    Sec. 2602. Establishment of Carbon Market Efficiency Board. 
Section 2602 establishes the Board and directs it to observe 
the national greenhouse gas emissions allowance market and 
submit quarterly reports on the status of the market, its 
economic costs and benefits, energy investment responses to the 
market, needed corrective measures, and any instances of fraud 
or market manipulation. The section directs the President to 
ensure fair representation of the financial, agricultural, 
industrial, commercial, and consumer interests, as well as fair 
representation with regard to geographic region and political 
party. The section also establishes pay rates for Board members 
and prohibits them from outside employment or pecuniary 
interests related to the Act. Board members can be removed by 
the President for cause. Not later than January 1, 2013, the 
Government Accountability Office shall begin conducting annual 
reviews of the efficacy of the Board.
    Sec. 2603. Duties. and Sec. 2604. Powers. Section 2603 
details information which should be gathered by the Board 
including: allowance allocation and availability; the price of 
allowances; macro and micro economic effects of market shifts; 
thresholds that could warrant cost relief measures; effects of 
cost relief measures on the market; appropriate levels of cost 
relief measures; the success of the market in promoting the 
purposes of the Act; and the functioning of other greenhouse 
gas markets.
    During the first two years of the market's operation, if 
the average daily closing price of allowances during a 180-day 
period exceeds the upper range of a projection that the 
Congressional Budget Office is required to provide by July 
2014, then the Board shall increase the quantity of emission 
allowances that covered facilities may borrow, and may 
additionally: (1) extend the term of allowance ``loans;'' (2) 
lower the interest rate that applies to such ``loans;'' (3) 
increase the quantity of international allowances and offset 
allowances that facilities may submit for compliance; and (4) 
increase the quantity of allowances in the next calendar year's 
Emission Allowance Account by as much as 5 percent, provided 
that the Board decreases the quantity of allowances in 
subsequent years' Accounts sufficiently to ensure that the 
cumulative emissions reductions over a fifteen-year period 
remain unchanged.
    After the market has been operating for at least two years, 
the Board is authorized to employ the measures identified above 
as necessary to ensure functioning, stable, and efficient 
allowance markets. The Board is also directed, however, to 
exercise the measures incrementally, and only as needed to 
avoid significant economic harm.
    Sec. 2605. Estimate of Costs to Economy of Limiting 
Greenhouse Gas Emissions. Section 2605 directs the 
Congressional Budget Office, no later than July 2014, to issue 
a report on projected emissions allowance prices and the impact 
of the market on the U.S. economy.
    Discussion--The Carbon Market Efficiency Board, a proposal 
first crafted by a bipartisan quartet of Senators, was designed 
in effect to ``backstop'' the cost-reducing dynamics of the cap 
and trade market--and to do so in a way which avoids 
undermining the environmental and economic integrity of the cap 
and trade program. The Board's purpose is to provide relief 
against sustained, as opposed to short-term, high prices in the 
allowance market that threaten economic harm. The Board's key 
tool for serving this purpose would be to authorize different 
forms of borrowing--that is, by instituting temporary measures 
permitting additional emissions that were eventually offset by 
additional reductions in later years. This form of relief would 
allow prices to drop, while ensuring that over time the 
atmosphere was ``made whole'' by means of additional mandatory 
reductions.

Title III--Allocating and distributing allowances

    Title III directs EPA to allocate specified percentages of 
the Emission Allowance Account to specified recipients for 
specified purposes.
            Subtitle A--Auctions
    Sec. 3101. Allocation for Early Auctions. Section 3101 
directs EPA, not later than 180-days after enactment, to 
allocate the following percentages of the quantities of 
allowances in the 2012, 2013, and 2014 Emission Allowance 
Accounts to the Climate Change Credit Corporation for early 
auctioning in accordance with section 4301:

        Year                    Percentage of Emission Allowance Account
2012..............................................................     5
2013..............................................................     3
2014..............................................................     1

    Sec. 3102. Allocation for Annual Auctions. Section 3102 
directs EPA, not later than April 1, 2011 and annually 
thereafter through 2049, to allocate a percentage of the 
quantity of allowances in the subsequent year's Emission 
Allowance Account to the Climate Change Credit Corporation for 
annual auctioning in accordance with section 4302. The 
percentages are as follows:

        Year                    Percentage of Emission Allowance Account
2012..............................................................  21.5
2013..............................................................  24.5
2014..............................................................  27.5
2015..............................................................  29.5
2016..............................................................  30.5
2017..............................................................  31.5
2018..............................................................  33.5
2019..............................................................  34.5
2020..............................................................  36.5
2021..............................................................  39.5
2022..............................................................    41
2023..............................................................    43
2024.............................................................. 45.75
2025..............................................................  48.5
2026..............................................................  51.5
2027..............................................................  55.5
2028..............................................................  58.5
2029..............................................................  61.5
2030.............................................................. 62.75
2031-2050.........................................................  69.5

    Discussion--Subtitle A establishes the balance between the 
allocation of allowances without cost to covered entities as 
well as for other public benefit purposes, and the auction of 
allowances, presumably to the same universe of entities--that 
is, sources with mandatory GHG emissions limitations that are 
most likely to bid to purchase GHG allowances in annual 
auctions. By requiring a rising proportion of those allowances 
available to sources with emissions obligation to be auctioned, 
the subtitle is intended to enhance the economic efficiency of 
the program. By using the market dynamics of competitive bid 
auctions that characterize the trading market in the initial 
distribution of allowances, the bill ensures that the 
allowances themselves will go to high-value users at a price 
set competitively between and among businesses. Through the 
auction's setting of the initial price of allowances, the bill 
further reduces the overall cost of the emissions reduction 
program. In contrast, were the bill to allocate all allowances 
to sources throughout the life of the program, almost all 
economists agree that this would introduce substantial 
inefficiencies into the overall economy, and new entrants into 
the economy would be required to pay market ``rents'' to those 
existing stakeholders that had received the allowances 
originally at no charge. At the same time, the subtitle phases 
in the auction of allowances over an 18-year period in order to 
ensure that the major sectors covered by the GHG emissions 
reduction program are able to accommodate their GHG reduction 
obligation without undue economic disruption or dislocation.
    Subtitle A also provides for the annual auction of 
allowances to begin immediately so that the Climate Change 
Credit Corporation can begin the immediate funding of the 
technology programs created by the bill. To achieve the full 
measure of GHG reductions mandated by the legislation will 
require extensive investment in the development and commercial 
scale deployment of clean technologies. Jump-starting this 
process is one of the key objectives of the bill's technology 
programs, and beginning the program as early as possible, even 
before the GHG reduction program begins, is instrumental to 
achieving this objective by opening up the technology pipeline.
            Subtitle B--Early action
    This subtitle provides allowance to companies which have 
taken early action to reduce greenhouse gas emissions.
    Sec. 3201. Allocation. Section 3201 directs EPA, not later 
than two years after enactment, to allocate percentages of the 
quantities of allowances in the 2012, 2013, 2014, 2015, and 
2016 Emission Allowance Accounts to owners and operators of 
facilities that emit greenhouse gas, in recognition of actions 
that the owners and operators have taken since January 1, 1994 
and that have resulted in verified and credible emission 
reductions. The percentages are as follows:

        Year                    Percentage of Emission Allowance Account
2012..............................................................     5
2013..............................................................     4
2014..............................................................     3
2015..............................................................     2
2016..............................................................     1

    The United Nations Framework Convention on Climate Change, 
which obligated the United States to reduce its greenhouse-gas 
emissions, took effect in 1994.
    Sec. 3202. Distribution. Section 3202 directs EPA, not 
later than one year after enactment, to promulgate rules for 
distributing the allowances allocated under section 3201. The 
section requires that the rules provide for consideration of 
verified and credible emissions reductions registered before 
enactment under a voluntary EPA, Department of Energy, or 
Energy Information Administration program, a state or regional 
greenhouse-gas emissions reduction program, or a private 
voluntary program that resulted in entity-wide greenhouse-gas 
emissions reductions. Finally, the section directs EPA, not 
later than four years after enactment, to distribute all of the 
allowances allocated under section 3201.
    Discussion--For the past several years a number of 
companies of adopted voluntary programs to reduce their GHG 
emissions. In some cases, these voluntary actions have helped 
speed along technology development and other GHG-friendly 
approaches. In recognition of these private sector 
achievements, this subtitle authorizes the allocation of a 
portion allowances to these companies.
            Subtitle C--States
    Subtitle C directs EPA, not later than April 1, 2011 and 
annually thereafter through 2049, to allocate 10.5 percent of 
the quantity of allowances in the subsequent year's Emission 
Allowance Account to states and 0.5 percent to Indian tribes.
    Sec. 3301. Allocation for Energy Savings. Subsection 
3301(a) directs EPA, not later than April 1, 2011 and annually 
thereafter through 2049, to allocate 2 percent of the quantity 
of allowances in the subsequent year's Emission Allowance 
Account to states that have, by the time of the allocation, 
adopted de-coupling rules for all natural-gas and electric 
utilities in those states. De-coupling rules do two things. 
First, they automatically adjust the rates charged by utilities 
to fully recover fixed costs of service without regard to 
whether their actual sales are higher or lower than the 
forecast of sales on which the rates are based. Second, they 
make cost-effective energy-efficiency expenditures by investor-
owned utilities at least as rewarding to their shareholders as 
power purchases, energy purchases, and expenditures on new 
energy supplies, or expenditures on new energy infrastructure.
    Subsection 3301(b) directs EPA, not later than April 1, 
2011 and annually thereafter through 2049, to allocate 1 
percent of the quantity of allowances in the subsequent year's 
Emission Allowance Account to states that have, by the time of 
the allocation, come into synch with the national model 
building energy codes and standards that are strengthened by 
section 5201.
    Subsection 3301(c) directs EPA, not later than 2 years 
after enactment, to promulgate rules for distributing the 
allowances allocated under subsections (a) and (b).
    Subsection 3301(d) declares that 90 percent of the 
allowances allocated to a state under section 3301 shall be 
retired or used for one or more of the purposes listed in 
paragraph (1) of subsection 3303(c). No restriction is placed 
on the use of the remaining 10%.
    Sec. 3302. Allocation for States with Programs that Exceed 
Federal Emission Reduction Targets. Subsection 3302(a) directs 
EPA, not later than April 1, 2011 and annually thereafter 
through 2049, to allocate 2 percent of the quantity of 
allowances in the subsequent year's Emission Allowance Account 
to states that have, by the time of the allocation, imposed on 
covered facilities within their borders aggregate greenhouse-
gas emissions limitations more stringent than those imposed on 
such facilities by the Act. The subsection limits the states 
that may receive such an allocation to ones that have, not 
later than enactment of the Act, enacted statewide greenhouse-
gas emissions reduction targets more stringent than the 
nationwide targets established by the Act.
    Subsection 3302(b) directs EPA, not later than 2 years 
after enactment, to promulgate rules for distributing the 
allowances allocated under subsection (a).
    Subsection 3302(c) declares that 90% of the allowances 
allocated to a state under section 3302 shall be retired or 
used for one or more of the purposes listed in paragraph (1) of 
subsection 3303(c). No restriction is placed on the use of the 
remaining 10%.
    Sec. 3303. General Allocation. Subsection 3303(a) directs 
EPA, not later than April 1, 2011 and annually thereafter 
through 2049, to allocate 4.5 percent of the quantity of 
allowances in the subsequent year's Emission Allowance Account 
to states.
    Subsection 3303(b) declares that, each year, the allowances 
to be allocated under subsection (a) shall be divided into 
equal thirds. The number of allowances that an individual state 
receives from the first third shall be proportionate to that 
state's expenditures on the Low Income Home Energy Assistance 
Program in the preceding year. The number of allowances that an 
individual state receives from the second third shall be 
proportionate to that state's population in the most recent 
decennial census. The number of allowances that an individual 
state receives from the final third shall be proportionate to 
the quantity of carbon dioxide that would be emitted assuming 
that all of the coal mined, natural gas processed, and 
petroleum refined in that state in the preceding year were 
combusted, and that none of the resulting carbon dioxide were 
captured, as determined by the Department of Energy.
    Subsection 3303(c) declares that 90% of the allowances 
distributed to a state under subsection (b) shall be retired or 
used for one or more of the following purposes:
           to mitigate impacts on low-income energy 
        consumers;
           to promote energy efficiency (including 
        support of electricity and natural gas demand 
        reduction, waste minimization, and recycling programs);
           to promote investment in nonemitting 
        electricity generation technology;
           to improve public transportation and 
        passenger rail service and otherwise promote reductions 
        in vehicle miles traveled;
           to encourage advances in energy technology 
        that reduce or sequester greenhouse gas emissions;
           to address local or regional impacts of 
        climate change, including by accommodating, protecting, 
        or relocating affected communities and public 
        infrastructure;
           to collect, evaluate, disseminate, and use 
        information necessary for affected coastal communities 
        to adapt to climate change (such as information derived 
        from inundation prediction systems);
           to mitigate obstacles to investment by new 
        entrants in electricity generation markets and energy-
        intensive manufacturing sectors;
           to address local or regional impacts of 
        climate change policy, including providing assistance 
        to displaced workers;
           to mitigate impacts on energy-intensive 
        industries in internationally competitive markets;
           to reduce hazardous fuels, and to prevent 
        and suppress wildland fires;
           to fund rural, municipal, and agricultural 
        water projects that are consistent with sustainable use 
        of water resources; or
           to fund any other purpose that the states 
        determine to be necessary to mitigate any negative 
        economic impacts as a result of global warming or new 
        regulatory requirements resulting from the Act.
    The subsection declares that half of the remaining 
allowances distributed to a state under subsection (b) (i.e., 
5% of the allowances distributed to a state under that 
subsection) shall either be retired or be used for increasing 
recycling rates through activities such as improving recycling 
infrastructure; increasing public education on the benefits of 
recycling (particularly with respect to greenhouse gases); 
improving residential, commercial, and industrial collection of 
recyclables; improving recycling system efficiency; increasing 
recycling yields; and improving the quality and usefulness of 
recycled materials. No restriction is placed on the use of the 
remaining 5%.
    The subsection declares that, by the start of a given 
calendar year, a state shall distribute or sell all allowances 
distributed to it for that year under Subtitle C. Any such 
allowances not distributed or sold by the state by the start of 
the year shall be returned to EPA not later than the 35th day 
of that year.
    Subsection 3303(d) directs EPA each year to allocate 0.5% 
of the allowances in that year's Emission Allowance Account to 
Indian tribes within the United States pursuant to a program 
designed to alleviate disruption or dislocation experienced by 
those tribes as a result of global climate change. The 
subsection directs EPA, not later than three years after 
enactment and in consultation with the Department of the 
Interior, to promulgate rules establishing the program.
    Sec. 3304. Allocation for Mass Transit. Subsection 3304(a) 
directs EPA, not later than April 1, 2011 and annually 
thereafter through 2049, to allocate 1 percent of the quantity 
of allowances in the subsequent year's Emission Allowance 
Account to each year to states.
    Subsection 3304(b) declares that the allowances allocated 
to states under subsection (a) shall be distributed among 
individual states according to the formula previously 
established in statute for federal highway aid.
    Subsection 3304(c) declares that states receiving emission 
allowances under this section shall use them (or the proceeds 
from selling them) only for: The operating costs of state and 
municipal mass transit systems; efforts to increase mass 
transit service and ridership in the state, including by adding 
new mass transit systems; and efforts to increase the 
efficiency of mass transit systems through the development of 
innovative technologies that reduce greenhouse-gas emissions. 
The subsection also declares that each such state shall ensure 
that at least 60 percent of the allowances or proceeds is used 
in urban areas and that at least 20 percent is used in non-
urban areas.
    Subsection 3304(d) declares that any state receiving 
allowances under the section shall return to EPA any such 
allowances that the state has failed to use in accordance with 
subsection (c) within 5 years of receiving them.
    Subsection 3304(e) directs EPA to transfer immediately to 
the Climate Change Credit Corporation, for annual auctioning 
under section 4302, any allowances returned to EPA under 
subsection (d).
    Discussion: While climate change is undeniably a global 
problem requiring federal action, many of the necessary 
policies to support reductions need to be executed at the 
state, tribal, or local level. During the last decade, while 
Congress has taken few steps to directly confront climate 
change, many states have filled the void of federal inaction 
with their leadership by setting emissions reduction targets 
and plans, energy efficiency policies, and a host of other 
innovative solutions to address the challenge. The Climate 
Security Act affords individual states allowances for use in 
tailoring programs that best recognize each states strengths, 
challenges, and opportunities in shifting to a low-carbon 
economy. In this way states can continue to be laboratories for 
innovation in climate policy.
    States adopting optional but highly effective energy 
efficiency measures are directly rewarded for such policies 
under this subtitle. The first provision rewards states that 
``de-couple'' natural gas and electricity markets--removing the 
perverse incentive for companies to sell as much power as 
possible and replacing it with an incentive for power companies 
to seek demand reduction measures that save consumers money 
over the long run and reduce the need for the construction of 
new power plants. To date, 13 states have adopted gas 
decoupling and another 11 have pending gas decoupling 
legislation while 4 states have adopted electric decoupling and 
another 6 have pending legislation.\52\ The second provision 
rewards states that have adopted and implemented model building 
codes that increase the energy efficiency of buildings.
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    \52\ NRDC.
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    The second section acknowledges the leadership of states 
that have programs which exceed federal emissions reductions 
targets. Because state programs that overlap with a federal cap 
and trade program will offer unique policy challenges for 
enforcement and competitiveness, this section gives allowance 
value to states to allow them to find the best solution to 
those policy challenges.
    The third section provides a large general fund to give 
states resources to cope with the effects of climate change. 
The allocation formula for funding in this section is designed 
to allocate resources between states with very large 
populations, states whose economies rely on the production of 
fossil fuels and may need extra assistance with the transition, 
and states with large low income population that need to be 
shielded from economic impacts that may arise from the 
legislation. The bulk of the allowance value may be used for a 
wide range of purposes related to climate change or impacts of 
the legislation. A small portion must be used for the 
improvement and development of recycling programs.
    One of the uses for proceeds in the general allocation is 
for the protection of coastal communities. These provisions 
recognize that coastal communities in the United States should 
gather and utilize the most up-to-date information to plan for 
the impacts of climate change. This planning should be done 
primarily through state coastal zone management programs which 
acquire data through the most advanced technology. For example, 
key components of these programs will be data from inundation 
prediction systems such as storm surge models; detailed 
topographic and bathymetric measurements such as those taken 
using LIDAR; wave measurement systems; and associated 
visualization and delivery systems that will allow information 
to be provided in a timely manner and where appropriate down to 
a street-level scale.
    The final section of this subtitle directs allowance value 
to states to support mass transit and the reduction of vehicle 
miles traveled. Congress has recently enacted standards to 
increase fuel economy and reduce the carbon content of fuels. 
However, it has taken fewer aggressive steps to address the 
``third leg'' of the stool supporting reductions in gasoline 
demand and carbon emissions from transportation: Per capita 
vehicle miles travelled. Indeed, unchecked growth in per-capita 
vehicle miles could erase both the fuel savings and greenhouse 
gas reduction benefits of the recently enacted fuel economy 
standards. Increased and more efficient mass transit, combined 
with ``smart growth'' planning has the potential to drastically 
reduce greenhouse gas emissions. It also offers many co-
benefits including less traffic, improved air quality, 
healthier communities, and preserved open space.
            Subtitle D--Electricity consumers
    Sec. 3401. Allocation. Section 3401 directs EPA, not later 
than April 1, 2011 and annually thereafter through 2049, to 
allocate 9 percent of the quantity of allowances in the 
subsequent year's Emission Allowance Account to the entities, 
whether public or private, that have a legal, regulatory, or 
contractual obligation to deliver electricity to retail 
consumers, and whose rates and costs are, except in the case of 
a registered electric cooperative, regulated by a State agency, 
regulatory commission, municipality, or public utility 
district.
    Sec. 3402. Distribution. Section 3402 directs EPA to 
distribute among the individual entities described in section 
3401 the allowances allocated to them under that section. The 
number of allowances that an individual entity receives shall 
be proportionate to the amount of electricity that it delivered 
over the three years preceding the year of the allocation in 
question, adjusted upward for electricity not delivered as a 
result of consumer energy-efficiency programs implemented by 
the entity. The section declares that rural electric 
cooperatives receiving allowances under subsection 3903(a) 
shall not receive allowances under this section.
    Sec. 3403. Use. Subsection 3403(a) directs each entity that 
receives allowances under section 3402 to sell each such 
allowance not later than 1 year after receiving it.
    Subsection 3403(b) declares that all proceeds from the sale 
of emission allowances under subsection (a) shall be used 
solely: To mitigate economic impacts on low- and middle-income 
energy consumers, including by reducing transmission charges or 
issuing rebates; and to promote energy efficiency on the part 
of energy consumers.
    Subsection 3403(c) prohibits any entity that receives 
allowances under section 3402 from using any proceeds from the 
sale of allowances to provide any consumer a rebate that is 
based on the quantity of electricity used by the consumer.
    Sec. 3404. Reporting. Subsection 3404(a) directs each 
entity that receives allowances under section 3402 to submit to 
EPA each year a report describing: the date of each sale of 
each emission allowance during the preceding year; the amount 
of revenue generated from the sale of emission allowances 
during the preceding year; and how and to what extent the 
entity used the proceeds of the sale of allowances during the 
preceding year.
    Subsection 3403(b) directs EPA to make the reports 
described in subsection (a) publicly available on the Internet.
    Discussion: Local distribution companies for electricity 
(also known as load serving entities) provide a convenient 
platform for distributing the economic benefits of a cap and 
trade system back to consumers. Electric local distribution 
companies are closest to consumers--they are the ones which 
deliver monthly electrical bills. They are also under the 
guidance and oversight of state public utility commissions--
giving states oversight of how the funds directed through this 
title are spent.
    The allowance value in this subtitle must be directed to 
consumers through one of two mechanisms. The first is through 
rebates. These rebates may not be tied to energy usage so as to 
avoid creating a perverse incentive for higher energy 
consumption. The second mechanism is support for energy 
efficiency measures, which are needed because consumers 
strictly speaking do not pay energy prices, they pay energy 
bills. Policies which increase energy efficiency both reduce 
the impact of any climate policy on the consumer and 
simultaneously reduce overall emissions and load on the 
electrical grid. Local distribution companies around the 
country are already deploying a wide range of innovative 
policies which might be supported by this program including the 
distribution of free energy efficient lighting, subsidies for 
the purchase of more energy efficient appliances, and free home 
energy audits.
    At the same time, an analysis of the provisions of S.2191 
by Pacific Gas & Electric (PG&E), Public Service Enterprise 
Group (PSEG), the Ceres investor coalition, and the Natural 
Resources Defense Council (NRDC) found that the combination of 
allocation to emitters (described in more detail below), very 
modest efficiency gains, and the allocation to local 
distribution companies can protect ratepayers by completely 
eliminating the impact of the carbon price signal on a typical 
home energy bill.\53\
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    \53\ http://www.nrdc.org/air/pollution/benchmarking/default.asp.
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            Subtitle E--Natural gas consumers
    This subtitle sets up a program for natural gas consumers 
parallel to the one for electricity consumers in Subtitle D.
    Sec. 3501. Allocation. Section 3501 directs EPA, not later 
than April 1, 2011 and annually thereafter through 2049, to 
allocate 2 percent of the quantity of allowances in the 
subsequent year's Emission Allowance Account to natural gas 
local distribution companies.
    Sec. 3502. Distribution. Section 3502 directs EPA to 
distribute among the individual natural gas local distribution 
companies described in section 3501 the allowances allocated to 
them under that section. The number of allowances that an 
individual such company receives shall be proportionate to the 
amount of natural gas that it delivered over the three years 
preceding the year of the allocation in question, adjusted 
upward for natural gas not delivered as a result of consumer 
energy-efficiency programs implemented by the company.
    Sec. 3503. Use. Subsection 3503(a) directs each natural gas 
local distribution company that receives allowances under 
section 3502 to sell each such allowance not later than 1 year 
after receiving it.
    Subsection 3503(b) declares that all proceeds from the sale 
of emission allowances under subsection (a) shall be used 
solely: to mitigate economic impacts on low- and middle-income 
energy consumers; and to promote energy efficiency on the part 
of energy consumers.
    Subsection 3503(c) prohibits any natural gas local 
distribution company that receives allowances under section 
3502 from using any proceeds from the sale of allowances to 
provide any consumer a rebate that is based on the quantity of 
natural gas used by the consumer.
    Sec. 3504. Reporting. Subsection 3504(a) directs each 
natural gas local distribution company that receives allowances 
under section 3502 to submit to EPA each year a report 
describing: the date of each sale of each emission allowance 
during the preceding year; the amount of revenue generated from 
the sale of emission allowances during the preceding year; and 
how and to what extent the entity used the proceeds of the sale 
of allowances during the preceding year.
    Subsection 3504(b) directs EPA to make the reports 
described in subsection (a) publicly available on the Internet.
    Discussion: Because the Climate Security Act also covers 
the natural gas sector in addition to the electrical sector, 
this subtitle sets up a parallel program to reduce any price 
impacts on natural gas consumers.
            Subtitle F--Bonus allowances for carbon capture and 
                    geological sequestration
    Subtitle F directs EPA, within three years of enactment, to 
take 4 percent of the quantity of allowances established for 
each year from 2012 through 2030 and place them into a Bonus 
Allowance Account. The subtitle directs EPA to distribute those 
allowances to firms that inject carbon dioxide into geological 
formations.
    Sec. 3601. Allocation. Section 3601 directs EPA to 
establish a Bonus Allowance Account not later than 3 years 
after enactment. The section directs EPA to allocate to that 
account 4 percent of the quantity of allowances established for 
each year from 2012 through 2030.
    Sec. 3602. Qualifying Projects. Subsection 3602(a) defines 
the terms ``commenced'' and ``construction.''
    Subsection 3602(b) declares that, in order to be eligible 
to receive allowances under this subtitle, a carbon capture and 
sequestration project shall: comply with criteria and standards 
promulgated by EPA; sequester captured carbon dioxide in a 
geological formation permitted for that purpose by EPA under 
part C of the Safe Water Drinking Act; and have begun operation 
in the period from 2008 through 2035.
    Subsection 3602(c) declares that a carbon capture and 
sequestration project shall be eligible to receive allowances 
under this subtitle only if the project achieves 1 of the 
following performance standards: (1) for an existing electric 
generation unit, an annual emissions rate of not more than 
1,200 pounds of carbon dioxide per megawatt-hour of net 
electricity generated, after subtracting the carbon dioxide 
that is captured and sequestered; (2) for a new electric 
generation unit on which construction commenced prior to July 
1, 2018, an annual emissions rate of not more than 800 pounds 
of carbon dioxide per megawatt-hour of net electricity 
generation, after subtracting the carbon dioxide that is 
captured and sequestered; (3) for a new electric generation 
unit for on which construction commenced on or after July 1, 
2018, an annual emissions rate of not more than 350 pounds of 
carbon dioxide per megawatt-hour of net electricity generation, 
after subtracting the carbon dioxide that is captured and 
sequestered; (4) for any unit at a covered facility that is not 
an electric generation unit, an annual emissions rate that is 
achieved by the capture and sequestration of a minimum of 85 
percent of the total carbon dioxide emissions produced by the 
unit.
    Subsection 3602(d) authorizes the Climate Change Credit 
Corporation to adjust a performance standard set forth by 
subsection (c) for any electric generation unit that uses 
subbituminous coal, lignite, or petroleum coke in significant 
amounts.
    Sec. 3603. Distribution. Subsection 3603(a) directs EPA to 
distribute allowances from the Bonus Allowance Account to 
qualifying projects. The subsection declares that the quantity 
of bonus allowances distributed to a project for each metric 
ton of carbon dioxide that the project geologically sequesters 
shall equal the bonus allowance rate that is assigned to the 
year in which the metric ton of carbon dioxide is sequestered, 
multiplied by the bonus allowance adjustment ratio. The bonus 
allowance rates are as follows:

        Year                                        Bonus allowance rate
2012..............................................................   4.5
2013..............................................................   4.5
2014..............................................................   4.5
2015..............................................................   4.5
2016..............................................................   4.5
2017..............................................................   4.5
2018..............................................................   4.2
2019..............................................................   3.9
2020..............................................................   3.6
2021..............................................................   3.3
2022..............................................................   3.0
2023..............................................................   2.7
2024..............................................................   2.4
2025..............................................................   2.1
2026..............................................................   1.8
2027..............................................................   1.5
2028..............................................................   1.3
2029..............................................................   1.1
2030..............................................................   0.9
2031..............................................................   0.7
2032..............................................................   0.5
2033..............................................................   0.5
2034..............................................................   0.5
2035..............................................................   0.5
2036..............................................................   0.5
2037..............................................................   0.5
2038..............................................................   0.5
2039..............................................................   0.5

    Subsection 3603(b) directs EPA to determine the bonus 
allowance adjustment ratio by dividing a carbon dioxide 
emissions rate of 350 pounds per megawatt-hour by the annual 
carbon dioxide emissions rate that a qualifying project at the 
electric generation unit achieved during a particular year, 
except that: the factor shall be equal to 1 in the case of a 
project that qualifies under paragraph (1) of subsection 
3602(c) during the first 4 years that emission allowances are 
distributed to the project; and the factor shall not exceed 1 
for any qualifying project.
    Sec. 3604. 10-Year Limit. Section 3604 declares that a 
qualifying project may receive allowances under this subtitle 
only for the first 10 years of its operation or, if the unit in 
question began operating before 2012, for the period from 2012 
through 2021.
    Sec. 3605. Exhaustion of bonus allowance account. Section 
3605 declares that if, at the beginning of a year, EPA 
determines that the quantity of bonus allowances remaining in 
the Bonus Allowance Account will be insufficient to distribute 
the total quantity of bonus allowances that otherwise would be 
distributed in that year under section 3603, then EPA shall 
discontinue the program after distributing the remaining bonus 
allowances on a pro rata basis to projects that were already 
qualifying projects in the preceding year.
    Discussion: Many electric utilities have identified the 
early deployment of carbon capture and sequestration (CCS) as a 
key step in a transition to a low-carbon economy that involves 
minimal economic disruption. Deployment of the first 5-10 
commercial scale CCS projects will allow for scale issues to be 
resolved, costs to be reduced, and the groundwork laid for 
massive deployment of CCS plants either as new facilities or as 
retrofits. Currently, the lack of market certainty has 
prevented significant investment in either new pulverized coal 
or new CCS coal plants. For example, 54 percent of coal 
capacity ordered since 2000 has been canceled or put on hold in 
the last two years, in part because of uncertainties concerning 
the enactment of climate legislation, which most in the private 
sector view as likely or inevitable.\54\ A cap and trade 
market, especially one in which the market and the market alone 
sets prices (as opposed to a legislated price cap), provides 
greater assurance to investors that CCS projects will yield an 
financially adequate return. The bonus allowances provided in 
this section offer further assurance that CCS is a good 
investment because it offers early adopters assurance of a 
stream of allowance value once they commence sequestering 
CO2. Modeling by the EPA of both S. 1766 and S. 2191 
shows that CCS bonus allowances can speed the deployment of CCS 
technology by roughly 5 years.\55\
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    \54\ http://www.eenews.net/eenewspm/2008/02/19/3/.
    \55\ http://www.epa.gov/climatechange/downloads/
s2191_EPA_Analysis.pdf.
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    Multiple capture standards, like those in this subtitle, 
are needed for several reasons. First, while 85% capture is 
technically feasible for gasification-based units, available 
information indicates that equipment vendors are not willing 
today to provide guarantees for capture above 65%. The gas 
streams in systems where capture exceeds 65% are rich in 
hydrogen and there is limited experience with burning this 
hydrogen-rich gas in combustion turbines. Second, a requirement 
fixed at 85% capture from the entire generating unit gas 
stream, would have made a number of retrofit capture projects 
ineligible. These retrofit projects will capture 85% of 
CO2 from only a portion of the existing unit's gas 
stream because they involve testing concepts that have not been 
commercially demonstrated. The standard for existing power 
plants to be eligible provided they meet a performance standard 
equivalent to capturing 85% from at least one-half of the 
unit's gas stream. Given the large number of existing coal 
plants that will likely keep running for some time even under 
the bill, encouraging early demonstrations of retrofit capture 
approaches is important. Following 2018, any new plants are 
required to meet the strictest standard. For industrial 
facilities, where the gas stream is not used in a turbine, it 
is reasonable to attain an 85% capture rate.
            Subtitle G--Domestic agriculture and forestry
    Sec. 3701. Allocation. Section 3701 directs EPA, not later 
than April 1, 2011 and annually thereafter through 2049, to 
allocate 5 percent of the quantity of allowances in the 
subsequent year's Emission Allowance Account to the Department 
of Agriculture for use in achieving reductions in greenhouse-
gas emissions and increases in greenhouse-gas sequestration 
from the agriculture and forestry sectors of the United States 
economy.
    Sec. 3702. Agricultural and Forestry Greenhouse Gas 
Management Research. Subsection 3702(a) directs the Department 
of Agriculture to prepare a report on the status of research on 
greenhouse-gas management in the agricultural and forestry 
sectors.
    Subsection 3702(b) directs the Department of Agriculture to 
establish a standardized system of carbon measurement and 
certification for the agricultural and forestry sectors.
    Subsection 3702(c) directs the Department of Agriculture to 
conduct any additional research that is necessary.
    Sec. 3703. Distribution. Subsection 3703(a) directs the 
Department of Agriculture to establish, by rulemaking, a 
program under which emission allowances allocated under section 
3701 are distributed to entities that carry out projects on 
agricultural and forest land that achieve greenhouse-gas 
emission mitigation benefits.
    Subsection 3703(b) directs the Department of Agriculture to 
ensure that, over the course of any 5-year period, 0.5 is the 
average annual percentage of the quantity of emission 
allowances in the Emission Allowance Account distributed to 
entities under subsection (a) for reducing nitrous oxide 
emissions through soil management or for reducing methane 
emissions through enteric fermentation.
    Subsection 3703(c) directs the Department of Agriculture to 
distribute allowances under this section in a manner that 
maximizes the mitigation of greenhouse-gas emissions.
    Discussion: Because emissions from agriculture and forestry 
are not directly capped under S.2191, complimentary provisions 
are needed to help reduce emissions in the uncapped sectors. 
The first complementary program is domestic offsets as 
described in Title II. Second is a set aside program which 
allows USDA to administer programs that seek further reductions 
in greenhouse gas emissions and increases in the storage of 
carbon in plants and soils. Farmers and foresters would 
participate in the program which works best for the 
circumstances of the particular activity where emissions 
reductions/sequestration increases are being achieved.
            Subtitle H--International forest protection
    Sec. 3801. Findings. Section 3801 makes certain findings, 
first among them that land-use change and forest-sector 
emissions account for approximately 20 percent of global 
greenhouse-gas emissions.
    Sec. 3802. Definition of Forest Carbon Activities. Section 
3802 declares that the term ``forest carbon activities'' refers 
to activities directed at reducing greenhouse-gas emissions 
from deforestation and forest degradation in countries other 
than the United States, and to activities directed at 
increasing sequestration of carbon through restoration of 
forests and degraded lands in countries other than the United 
States.
    Sec. 3803. Allocation. Section 3803 directs EPA, not later 
than April 1, 2011 and annually thereafter through 2049, to 
allocate 2.5 percent of the quantity of allowances in the 
subsequent year's Emission Allowance Account for use in 
carrying out forest carbon activities.
    Sec. 3804. Definition and Eligibility Requirements. Section 
3804 directs EPA, not later than 2 years after enactment, and 
in consultation with the Department of the Interior, the 
Department of State, and the Department of Agriculture, to 
promulgate eligibility requirements for forest carbon 
activities.
    Sec. 3805. International Forest Carbon Activities. 
Subsection 3805(a) directs EPA, in consultation with the 
Secretary of State, to periodically update a list of countries 
that have demonstrated capacity to participate in forest carbon 
activities, capped greenhouse gas emissions or otherwise 
established a national emission reference scenario, and 
commenced an emissions reduction program for the forest sector.
    Subsection 3805(b) declares that a verified reduction in 
greenhouse-gas emissions from deforestation and forest 
degradation under a cap or from a nationwide emissions 
reference scenario shall be eligible for distribution of 
allowances under this section. The subsection directs EPA, in 
consultation with the Department of State, to identify and 
periodically update a list of countries that have: achieved 
national-level reductions of deforestation and degradation 
below a historical reference scenario, taking into 
consideration the average annual deforestation and degradation 
rates of the country and of all countries over a period of at 
least 5 years; and demonstrated those reductions using remote 
sensing technology that meets international standards. Finally, 
the subsection declares that a forest carbon activity other 
than a reduction in deforestation or forest degradation shall 
be eligible for distribution of emission allowances under this 
section, subject to the quality criteria for forest carbon 
activities identified in the Act or in implementing 
regulations.
    Subsection 3805(c) declares that, with respect to counties 
other than those described under subsection (a), EPA shall 
recognize forest carbon activities subject to the quality 
criteria referenced in subsection (b).
    Sec. 3806. Reviews and Discount. Subsection 3806(a) directs 
EPA to conduct a review of the program established by this 
subtitle not later than 3 years after enactment and 5 years 
thereafter.
    Subsection 3806(b) authorizes EPA, beginning 10 years after 
enactment, to apply a discount to the distribution of emissions 
allowances under this subtitle to countries that, in the 
aggregate, account for more than 0.5 percent of global 
greenhouse-gas emissions and that have not, by that time, 
capped those emissions, established emissions reference 
scenarios based on historical data, or otherwise reduced total 
forest emissions.
    Discussion: While emissions from fossil fuels make up the 
bulk of current human-caused greenhouse gas emissions, 
emissions from land use change, particularly deforestation and 
degradation, account for approximately 20% of global emissions. 
In the aggregate, an area larger than the state of Pennsylvania 
is cleared globally every year.\56\ Many of these emissions 
come from nations which, in the absence of forest sector 
emissions, would have a very small contribution to climate 
change and progress against the global problem of climate 
change cannot be made without steps to control forest sector 
emissions.
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    \56\ http://www.fao.org/newsroom/en/news/2006/1000385/index.html.
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    The roadmap adopted at the December 2007 UNFCCC conference 
in Bali, Indonesia contained new provisions laying the 
groundwork for policy approaches to reduce deforestation.\57\ 
This provision is designed to direct funds towards the many 
low-cost reductions which exist in the international forestry 
sector. Measures to protect international forest carbon also 
have the co-benefits of protecting wildlife habitat and 
supporting more sustainable development models. The program 
seeks national-level reductions in deforestation--to assure 
that funding does not simply shift deforestation patterns 
within the country.
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    \57\ UNFCCC Decision 2/CP.13.
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            Subtitle I--Transition assistance
    Subtitle I directs EPA to allocate set percentages of the 
allowances in the Emission Allowance Accounts for years 2012 
through 2030 to facilities and entities within different 
industrial sectors.
    Sec. 3901. General allocation and distribution. Subsection 
3901(a) directs EPA, not later than April 1, 2011 and annually 
thereafter through 2029, to allocate percentages of the 
quantity of allowances in the subsequent year's Emission 
Allowance Account as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Owners and
                                                         Fossil fuel-                      operators of energy    Facilities that
                    Calendar Year                       fired electric    Rural electric        intensive        produce or import    HFC producers and
                                                       power generating    cooperatives       manufacturing       petroleum based         importers
                                                          facilities                            facilities              fuel
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012.................................................                19                 1                10                    2                    2
2013.................................................                19                 1                10                    2                    2
2014.................................................                19                 1                10                    2                    2
2015.................................................                19                 1                10                    2                    2
2016.................................................                19                 1                10                    2                    2
2017.................................................                19                 1                10                    2                    2
2018.................................................                18                 1                 9                    2                    2
2019.................................................                17                 1                 9                    2                    2
2020.................................................                16                 1                 8                    2                    2
2021.................................................                14                 1                 7                    2                    2
2022.................................................                13                 1                 7                    1.75                 1.75
2023.................................................                12                 1                 6                    1.75                 1.75
2024.................................................                11                 1                 5                    1.5                  1.5
2025.................................................                10                 1                 4                    1                    1
2026.................................................                 8                 1                 3                    1                    1
2027.................................................                 6                 1                 2                    0.5                  0.5
2028.................................................                 4                 1                 1                    0.5                  0.5
2029.................................................                 2                 1                 0.5                  0.25                 0.25
2030.................................................                 1                 1                 0.25                 0.25                 0.25
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Subsection 3901(b) directs EPA, not later than 1 year after 
enactment, to promulgate rules for distributing the allowances 
allocated under subsection (a) to individual entities within 
the industrial sectors identified in that subsection.
    Subsection 3901(c) declares that the rules promulgated 
under subsection (b) shall ensure that if a facility 
permanently shuts down, then (1) EPA shall not distribute any 
more allowances for that facility; (2) the facility shall 
return to EPA any allowances distributed to that facility for 
any subsequent years; and (3) the facility shall also return to 
EPA any allowances that EPA determines the facility will no 
longer need to submit under subsection (a) of section 1202 due 
to the shut-down.
    Sec. 3902. Distributing Emission Allowances to Owners and 
Operators of Fossil Fuel-Fired Electric Power Generating 
Facilities. Subsection 3902(a) directs EPA, as part of the 
system promulgated under subsection (b) of section 3901, to set 
aside, from the allocation to fossil fuel-fired electric power 
generating facilities, a quantity of allowances for 
distribution to new-entrant fossil fuel-fired electric power 
generating facilities. The subsection declares that the 
quantity of allowances distributed to an individual new-entrant 
facility shall be equal to the product obtained by multiplying 
the average greenhouse gas emission rate of all fossil fuel-
fired electric power generating facilities that were in 
operation 5 years before enactment by the electricity generated 
by the facility during the calendar year, adjusted downward pro 
rata if insufficient allowance are available.
    Subsection 3902(b) directs EPA, as part of the system 
promulgated under subsection (b) of section 3901, to distribute 
the quantity of allowances remaining of the allocation to 
fossil fuel-fired electric power generating facilities among 
fossil fuel-fired electric power generating facilities that 
were operating in the year preceding enactment. The number of 
allowances for each facility is determined by the ratio between 
the annual average carbon dioxide equivalents of emissions over 
the 3 years preceding enactment and the average aggregate 
emissions from all fossil fuel-fired electric power generators 
over the same period.
    Sec. 3903. Distributing Additional Emission Allowances to 
Rural Electric Cooperatives. Subsection 3903(a) directs EPA to 
distribute 15 percent of the allowances allocated to rural 
electric cooperatives by subsection (a) of section 3901 among 
such entities in Montana and Virginia.
    Subsection 3903(b) directs EPA to distribute the remaining 
85 percent of the allowances allocated to rural electric 
cooperatives by subsection (a) of section 3901 among individual 
such entities in all states other than Montana and Virginia, in 
proportion to those individual entities' electricity sales. 
Such entities in all states other than Montana and Virginia 
shall also receive allowances under sections 3402 and 3902.
    Subsection 3903(c) declares that rural electric 
cooperatives in Montana and Virginia shall not receive any 
allowances under section 3402 or under section 3902.
    Subsection 3903(d) directs EPA, not later than January 1, 
2015 and every 3 years thereafter, to submit to Congress a 
report on: the benefits conferred on ratepayers of Montana and 
Virginia rural electric cooperatives by the pilot program 
established under subsection (a); and the use by those rural 
electric cooperatives of advanced, low greenhouse gas-emitting 
electric generation technologies.
    Sec. 3904. Distributing Emission Allowances to Owners and 
Operators of Energy Intensive Manufacturing Facilities. 
Subsection 3904(a) defines certain terms used in the section. 
Most notably, it defines ``eligible manufacturing facility'' as 
a manufacturing facility located in the United States that 
principally manufactures iron, steel, aluminum, pulp, paper, 
cement, chemicals, or such other products as EPA may determine 
by rule to be at risk of being significantly disadvantaged in 
competitive international markets absent a distribution of 
allowances under this section.
    Subsection 3904(b) directs EPA, as part of the system 
promulgated under subsection (b) of section 3901, to distribute 
each year among currently operating facilities 96 percent of 
the quantity of allowances available for distribution to 
energy-intensive manufacturing facilities under subsection (a) 
of section 3901.
    Subsection 3904(c) directs EPA, as part of the system 
promulgated under subsection (b) of section 3901, to distribute 
allowances among individual categories of currently operating 
energy-intensive manufacturing facilities in proportion to each 
category's share of all energy-intensive manufacturing 
facilities' direct and indirect carbon dioxide emissions in the 
year preceding the allocation.
    Subsection 3904(d) directs EPA, as part of the system 
promulgated under subsection (b) of section 3901, to distribute 
allowances among individual facilities, within each category 
identified pursuant to subsection (c) of this section, in 
proportion to each facility's average number of production 
employees over the 3 years preceding promulgation of the system 
established under subsection (b) of section 3901.
    Subsection 3904(e) directs EPA, as part of the system 
promulgated under subsection (b) of section 3901, to distribute 
each year among new-entrant energy-intensive manufacturing 
facilities 4 percent of the quantity of allowances available 
for distribution to energy-intensive manufacturing facilities 
under subsection (a) of section 3901.
    Sec. 3905. Distributing Emission Allowances to Owners and 
Operators of Facilities and Other Entities That Produce or 
Import Petroleum-Based Fuel. Section 3905 directs EPA, as part 
of the system promulgated under subsection (b) of section 3901, 
to distribute the allowances allocated for facilities that 
produce or import petroleum-based fuel under subsection (a) of 
section 3901 among individual such facilities in proportion to 
each such facility's average amount of petroleum product 
produced or imported over the 3 years preceding the 
distribution.
    Sec. 3906. Distributing Emission Allowances to 
Hydrofluorocarbon Producers and Importers. Section 3906 directs 
EPA to distribute the allowances allocated for 
hydrofluorocarbon producers and importers under subsection (a) 
of section 3901 in accordance with section 10005.
    Discussion: This subtitle of the Act was informed by the 
guidelines described in ``A Call To Action'' by the US Climate 
Action Partnership, a coalition of automakers (GM, Ford) 
utilities and power producers (PG&E, Duke Energy), insurance 
companies (AIG, Marsh), oil companies (Shell, Conoco Phillips, 
BP), chemical companies (Dow, Dupont), other leading 
businesses, and environmental organizations (Environmental 
Defense, Natural Resources Defense Council, National Wildlife 
Federation, The Nature Conservancy). They advised that:

          An emission allowance allocation system should seek 
        to mitigate economic transition costs to entities and 
        regions of the country that will be relatively more 
        adversely affected by GHG emission limits or have 
        already made investments in higher cost, low-GHG 
        technologies, while simultaneously encouraging the 
        transition from older, higher-emitting technologies to 
        newer, lower-emitting technologies. A significant 
        portion of allowances should be initially distributed 
        free to capped entities and to economic sectors 
        particularly disadvantaged by the secondary price 
        effects of a cap including the possibility of funding 
        transition assistance to adversely affected workers and 
        communities. Free allocations to the private sector 
        should be phased out over a reasonable period of 
        time.\58\

    \58\ http://www.us-cap.org/USCAPCallForAction.pdf.
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    The transition assistance in this section is structured in 
fashion consistent with these guidelines, beginning as a 
significant portion of the allowance account (34%) and 
declining to zero in 2031. The amount of allowance value 
directed to each sector depends upon that sector's ability to 
accommodate the carbon price signal and the vulnerability of 
that sector to competition from un-capped foreign markets. For 
example, energy intensive industries receive significant 
transition assistance because they must keep the prices of 
their products low due to foreign competition.
            Subtitle J--Reducing methane emissions from landfills and 
                    coal mines
    Sec. 3907. Allocation. Section 3907 directs EPA, not later 
than April 1, 2011 and annually thereafter through 2049, to 
allocate 1 percents of the quantity of allowances in the 
subsequent year's Emission Allowance Account to a program for 
achieving real, verifiable, additional, permanent, and 
enforceable reductions in emissions of methane from landfills 
and coal mines.
    Sec. 3908. Distribution. Subsection 3908(a) directs EPA, 
not later than 1 year after enactment, to promulgate rules for 
distributing to individual entities the allowances allocated 
under section 3907.
    Subsection 3908(b) directs EPA to distribute the allowances 
allocated under section 3907 in a manner that maximizes the 
avoidance or reduction of greenhouse-gas emissions.
    Discussion: EPA has already invested resources in 
investigating ways to reduce methane emissions from landfills 
and coal mines through voluntary reduction programs.\59\ They 
find that all of the technically recoverable methane from coal 
mines can be recovered at costs lower than predicted allowance 
prices in the second decade of the program. At a similar cost, 
landfill emissions could be reduced 41%. Because EPA already 
has expertise in reducing methane emissions from these sources 
and (in many cases) more than one ton of emissions reduction 
can be achieved for the value of a single allowance, this 
program provides an easy way for the Act to achieve additional 
reductions in GHG emissions.
---------------------------------------------------------------------------
    \58\ http://www.epa.gov/methane/reports/methaneintro.pdf.
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Title IV--Auctions and uses of auction proceeds

    Title IV establishes a Climate Change Credit Corporation 
and directs it to auction allowances and to deposit the 
proceeds into funds in the Treasury. The title then specifies 
the uses to be made of those funds.
            Subtitle A--Funds
    Sec. 4101. Establishment. Section 4101 establishes seven 
new funds in the Treasury: (1) the Energy Assistance Fund; (2) 
the Climate Change Worker Training Fund; (3) the Adaptation 
Fund, (4) the Climate Change and National Security Fund; (5) 
the Bureau of Land Management Emergency Firefighting Fund; (6) 
the Forest Service Emergency Firefighting Fund; and (7) the 
Climate Security Act Management Fund.
    Sec. 4102. Amounts in Funds. Section 4102 declares that 
each fund established by section 4101 shall consist of the 
amounts deposited into it pursuant to subtitle C of this title.
            Subtitle B--Climate Change Credit Corporation
    Sec. 4201. Establishment. Subsection 4201(a) establishes 
the Climate Change Credit Corporation as a nonprofit 
corporation without stock.
    Subsection 4201(b) declares that the Corporation shall not 
be considered to be an agency of the federal government.
    Sec. 4202. Applicable laws. Section 4202 declares that the 
Corporation shall be subject to this title and, to the extent 
consistent with the title, to the District of Columbia Business 
Corporation Act.
    Sec. 4203. Board of Directors. Subsection (a) declares that 
the Corporation shall have a board of directors composed of 5 
individuals who are United States Citizens, and that each year 
one of the directors shall be elected to serve as the 
Corporation's chairperson during that year.
    Subsection (b) declares that not more than 3 members of the 
Corporation's board serving at any one time may be affiliated 
with the same political party.
    Subsection (c) declares that the President appoints members 
of the Corporation's board, by and with the advice and consent 
of the Senate. The subsection also declares that the term of 
office for a member of the Corporation's board is 5 years.
    Subsection (d) declares that 3 members of the Corporation's 
board shall constitute a quorum for a meeting of the board.
    Subsection (e) prohibits members of the Corporation's board 
from having conflicts of interest.
    Subsection (f) declares that a vacancy on the board shall 
not affect the Corporation's powers so long as it retains 
enough members to convene a quorum. The subsection also 
declares that a member of the Corporation's board shall 
continue to serve until a replacement is appointed.
    Subsection (g) empowers the President to remove a member of 
the Corporation's board for cause, provided the President 
notifies the Congress at least 30 days in advance of the 
removal.
    Sec. 4204. Review and Audit by Comptroller General. Section 
4204 directs the Comptroller general of the United States, not 
later than January 1, 2013 and annually thereafter, to review 
and audit each expenditure made by the Corporation to determine 
the efficacy of those expenditures and the programs and 
projects funded with them.
    Discussion: Instrumental to meeting both the emissions 
reduction and technology development and deployment objectives 
of the legislation is the mobilization of massive levels of 
private sector investment in the technologies and strategies 
needed to reduce U.S. GHG emissions in an economically 
efficient way. Crucial to private sector investors is certainty 
and stability in the conditions under which they are making 
their investments. The substantial levels of public funding for 
technology provided by the bill are aimed at eliciting and 
facilitating such investment.
            Subtitle C--Auctions
    Sec. 4301. Early Auctions. Section 4301 directs the 
Corporation, within one year of enactment, to begin auctioning 
the allowances allocated to it for early auctioning under 
subtitle A of Title III. It directs the Corporation to have 
completed auctioning the last of those allowances by the end of 
2011. The subtitle directs the Corporation to devote all the 
proceeds of the early auctions to the Energy Technology 
Deployment Program established under subtitle D of Title IV.
    Sec. 4302. Annual auctions. Subsection 4302(a) directs the 
Corporation, 330 days before the start of each calendar year, 
to auction all of the allowances allocated to it under subtitle 
A of Title III for annual auctioning that year.
    Subsection 4302(b) directs the Corporation each year to 
deposit into the Bureau of Land Management Emergency 
Firefighting Fund and the Forest Service Emergency Firefighting 
Fund auction proceeds sufficient to ensure that the amounts in 
those funds equal $300 million and $800 million, respectively. 
The subsection directs the Corporation each year to deposit 
into the Climate Security Act Management Fund auction proceeds 
in an amount that EPA determines sufficient for itself and 
other affected federal agencies to administer the Act. The 
subsection declares, however, that expenditures may be made 
from the Climate Security Act Management Fund only subject to 
an appropriations act of Congress. The subsection then directs 
the Corporation each year to dispose of the remaining proceeds 
of annual auctioning as follows:
           52 percent to carry out the programs 
        established under subtitle D of this title;
           2 percent deposited into the preexisting 
        Treasury fund for the Advanced Research Projects Agency 
        within the Department of Energy;
           18 percent deposited into the Energy 
        Assistance Fund;
           5 percent deposited into the Climate Change 
        Worker Training Fund;
           18 percent deposited into the Adaptation 
        Fund; and
           5 percent deposited into the Climate Change 
        and National Security Fund.
    Discussion: Auctions under the act will be conducted at 
least annually. As discussed above, under Title III, the early 
auction will provide technology deployment funds from shortly 
after the date of enactment through 2011 to speed the 
deployment of technologies in advance of the caps. In 2011, the 
Corporation will begin regular auctioning of allowances. Funds 
from the auction will first be used to ensure adequate funding 
for EPA and other agencies to administer the Act and to ensure 
that sufficient funds exist in two Emergency Firefighting 
funds. The bulk of the proceeds are then distributed according 
to the percentages outlined in this title.
            Subtitle D--Energy Technology Deployment
    Subtitle D spells out in detail a series of financial 
incentive programs, administered by the Climate Change Credit 
Corporation, to accelerate the development and deployment of 
sustainable energy technologies, low-carbon electricity 
technologies (including engineering integration costs), 
advanced bio-fuels such as cellulosic ethanol, carbon dioxide 
capture and storage systems, electric and plug-in hybrid 
electric vehicles, and high-efficiency consumer products.
    Sec. 4401. General Allocations. Section 4401 directs the 
Corporation, each calendar year, to use as follows the proceeds 
of any early auctioning still occurring and the 52 percent of 
annual auctioning proceeds allocated by subsection (b) of 
section 4302:
           32 percent to carry out the Zero- or Low-
        Carbon Energy Technologies Program under section 4402;
           25 percent to carry out the Advanced Coal 
        and Sequestration Technologies Program under section 
        4403;
           6 percent to carry out the Fuel From 
        Cellulosic Biomass Program under section 4404;
           12 percent to carry out the Advanced 
        Technology Vehicles Manufacturing Incentive Program 
        under section 4405; and
           25 percent to carry out the Sustainable 
        Energy Program under section 4406.
    Sec. 4402. Zero- or Low-Carbon Energy Technologies 
Deployment. Section 4402 directs the Corporation to 
competitively award financial incentives for three categories:
    Awards for the production of electricity from new zero- or 
low-carbon generation will be based on the bid of each producer 
in dollars per megawatt-hour generated. Awards come as a 
production payment for each year during the first 10 years of 
service based on the amount bid by the producer and the power 
output of the unit.
    Awards for the manufacture of high efficiency consumer 
products are based on the bid of each manufacturer in terms of 
dollars per megawatt-hour or dollars per BTU saved. The awards 
are distributed as lump-sum payments equal to the 
manufacturer's bid multiplied by the energy savings during the 
useful life of the product (but not more than 10 years).
    Awards for new-facility establishment or conversion by 
manufacturers and component suppliers of zero- or low- carbon 
technology will go to those manufacturers and suppliers that 
document the greatest use of domestically sourced parts and 
components, return to productive service existing idle 
capacity, are located in states with the greatest availability 
of unemployed workers, compensate workers at a minimum amount 
equal to 100 percent of the state average manufacturing wage 
(plus health benefits), demonstrate a high probability of 
commercial success, and other appropriate criteria. 
Manufacturers can receive not more than 30 percent of the cost 
of establishing, reequipping or expanding a facility, 
engineering integration costs, and equipment acquired or 
constructed primarily for the construction or operation of the 
facility.
    At least 25 percent of the funds must be used for awards 
for the manufacturing of zero- and low-carbon generation 
technology.
    Sec. 4403. Advanced Coal and Sequestration Technologies 
Program. Section 4403 declares that, in order to qualify for 
funding, an advanced coal technology project must meet one of 
the following performance standards (which are parallel to 
those set forth in section 3602):
       For existing electricity generating units, 
emissions of less than 1,200 pounds of carbon dioxide per 
megawatt-hour of net electricity generation, after subtracting 
sequestered carbon. That corresponds to roughly 42 percent 
capture of carbon dioxide.
       For new electricity generation whose 
construction began before July 1, 2018, emissions of less than 
800 pounds of carbon dioxide per megawatt-hour of net 
electricity generation, after subtracting sequestered carbon. 
That corresponds to roughly 65 percent capture of carbon 
dioxide.
       For new electricity generation whose 
construction began after July 1, 2018, emissions of less than 
350 pounds of carbon dioxide per megawatt-hour of net 
electricity generation, after subtracting sequestered carbon. 
That corresponds to roughly 85 percent capture of carbon 
dioxide.
    The Corporation is authorized to adjust these performance 
standards for units that use coal, lignite or petroleum coke in 
significant amounts, provided that the emissions rule results 
in an equivalent reduction in carbon dioxide emissions.
    At least 25 percent of the funds each year must be used for 
demonstration projects that use advanced coal technology. At 
least 25 percent of the funds for demonstration projects must 
go toward retrofits on exiting electricity generating units 
that meet the performance standard described above.
    At least 25 percent of the funds for advanced coal 
technology each year must be used as financial incentives to 
facilitate the deployment of not more than 20 gigawatts of 
advanced coal technology meeting at least one of the 
performance standards for new units. The Corporation is to 
ensure that a range of domestic coal types is employed in 
facilities that receive those incentives, including by setting 
aside 25 percent of the financial incentive funds for coal with 
an energy content of not more than 10,000 BTU/lb. Incentives 
can take the form of a loan guarantee, a cost sharing grant to 
cover the incremental cost of installing and operating carbon 
capture and sequestration equipment, or production payments of 
not more than 1.5 cents per kilowatt-hour during the first 10 
years of service.
    The remaining half of the funds for each year must be used 
for large-scale geological carbon storage projects that store 
carbon dioxide captured from electric generation units. The 
Corporation will reimburse the project owner for a percentage 
of the incremental project capital and operating costs, 
attributable to carbon capture and sequestration. Up to 25 
percent of the funds for geologic storage may be made available 
to projects that meet the emissions performance standards for 
exiting units.
    Projects may not receive funding in this section if they 
receive an award under the program in section 4402. Projects 
must also have a binding storage agreement for the geologic 
storage of carbon dioxide.
    Sec. 4404. Fuel from Cellulosic Biomass. Section 4404 
directs the Corporation will use the funds for this program to 
encourage domestic production of fuels from cellulosic biomass, 
relying on different feedstocks from different regions of the 
United States. Incentives under this section are provided to 
projects that meet United States fuel and emission 
specifications, help diversify domestic transportation energy 
supplies and improve or maintain air, water, soil and habitat 
quality. These incentives can take the form of loan guarantees 
for the construction of production facilities and 
infrastructure or production payments set up through a reverse 
auction.
    Sec. 4405. Advanced Technology Vehicles Manufacturing 
Incentive Program. This program is designed to provide funds to 
automobile manufacturers and component suppliers for the 
conversion of facilities to produce advanced technology 
vehicles or qualifying components for those vehicles. Advanced 
technology vehicles are electric vehicles, fuel cell-powered 
vehicles, hybrids or plug-in hybrid electric vehicles, or an 
advanced diesel light-duty motor vehicle that meets the Tier II 
Bin 5 (or a lower Bin number) emission standards under the 
Clean Air Act, new emissions standards for particulate matter 
under the Clean Air Act, and achieves at least 125 percent of 
the average base year combined fuel economy for vehicles of a 
similar nature and footprint.
    Funding under this program may cover up to 30 percent of 
the cost of re-equipping or expanding manufacturing facilities 
or the engineering integration of qualifying vehicles and 
components. Awards for facilities are available between 
enactment and 2030 and for integration costs at after 
enactment.
    The maximum amount of all awards under this section is 
limited to $40 million. Awards may not go to manufacturers that 
are either directly or indirectly out of compliance with 
Corporate Average Fuel Economy standards. Manufacturers must 
also certify that they will maintain a workforce for the next 
seven years that: maintains at least 90 percent of the number 
of employees maintained before the receipt of the award, 
maintains an equal or greater proportional share of that United 
States workforce with respect to the global workforce for that 
manufacturer, or ensures that the decrease in workforce is not 
greater than the percentage decline in market share for that 
firm. Each year they must provide documentation to recertify 
that they have met one of these employment standards. If they 
fail to make the recertification, they must repay one seventh 
of the award for each remaining year in the 7-year period.
    Sec. 4406. Sustainable Energy Program. The Sustainable 
Energy Program funds ``sustainable energy technology'' (solar 
including solar water heating, wind, ocean, geothermal energy, 
biomass, landfill gas, or incremental hydropower), including in 
distributed energy systems. At least 25 percent of the funds 
must be used for demonstration projects and at least 25 percent 
must be used for financial incentives to facilitate the 
deployment of sustainable energy. Incentives can take the form 
of a loan guarantee, a cost sharing grant to cover the 
incremental cost of installing and operating equipment, or 
production payments of not more than 1.5 cents per kilowatt-
hour during the first 10 years of service.
    Projects may not receive funding in this section if they 
receive an award under the program in section 4402.
    Discussion: Technological innovation and the rapid movement 
of technologies from the pilot stage to full-scale commercial 
deployment will be key to meeting long-term greenhouse gas 
reduction targets. The centerpiece of the Act's technology 
deployment strategy is the cap and trade market itself. By 
increasing the value of technologies which reduce GHG 
emissions, the Act will trigger trillions of dollars in private 
sector investment in clean technology. However, many new 
technologies need Federal assistance to develop from pilot 
projects to industry-wide technologies. Federal support for 
such projects, in the form of loan guarantees, production 
payments or cost-sharing grants can help overcome investor 
concerns about risk, resolve issues at the prototype/pilot 
stage and move the market more quickly toward economies of 
scale. In deploying these funds, this subtitle aims to use 
competitive, performance-based metrics in distributing funds 
and to ensure that the funds go to support domestic manufacture 
of products and components.
    The first fund in this subtitle, the Zero- or Low Carbon 
Energy Technologies Program, is directed to supporting both 
electricity generation technologies and consumer products. The 
Program will subsidize the manufacture of very high efficiency 
consumer products which reduce energy use. It will also give 
awards to manufacturers for new facilities which make zero- or 
low-carbon technology, or components for those technologies. 
Zero- or low-carbon generating technology such as wind, 
nuclear, solar or coal with carbon capture and storage also 
qualify for funding under this program, although a project may 
not receive funding from this Program and another Program under 
this subtitle.
    The Advanced Coal and Sequestration Technologies Program 
supports the role of coal as our Nation's primary source for 
electrical power and the need to rapidly deploy technologies to 
burn coal with minimal generation of greenhouse gases. 
Facilities must meet the same performance standards outlined 
under Section 3602(c) for CCS bonus allowances.
    The Fuel from Cellulosic Biomass Program supports the rapid 
development of second-generation biofuels. The corn-based 
ethanol industry has rapidly expanded under Federal support. 
However, support is still needed for technologies which can 
utilize non-food crops and waste to produce transport fuels. 
The Program contains protections to ensure that air, water, 
soil and habitat quality are protected during the production of 
feedstocks used to make the fuel.
    The Advanced Technology Vehicles Manufacturing Incentive 
Program assists automobile manufacturers (and component 
manufacturers) in retooling to produce new advanced technology 
vehicles such as electric vehicles, fuel cell-powered vehicles, 
hybrids or plug-in hybrid electric vehicles, or advanced diesel 
light-duty motor vehicles. The Program will help automobile 
manufacturers to deliver vehicles which reduce greenhouse gas 
emissions and reliance on imported oil. By promoting further 
increases in the fuel economy of the US transportation fleet, 
this Program will reduce pressure on the transportation sector 
of the allowance market and potentially reduce the overall cost 
of the program.
    The Sustainable Energy Program is designed to provide 
support to new and existing renewable energy technologies such 
as solar including solar water heating, wind, ocean, geothermal 
energy, biomass, landfill gas, or incremental hydropower. This 
program also supports distributed renewable energy systems 
which make the US grid more resistant to disruption. At least 
25% of the funds under this title go towards demonstration 
projects of new sustainable energy technologies, creating a 
pathway for sustainable energy technologies not yet mature 
enough to be reflected in forecasts of the future US energy 
mix.
            Subtitle E--Energy Consumers
    Subtitle E funds several programs to help protect low-
income energy consumers from impacts that the Act may have on 
energy bills.
    Sec. 4501. Proportions of Funding Availability. Section 
4501 directs funds deposited into the Energy Assistance Fund 
under Subtitle A of Title IV to the Low Income Home Energy 
Assistance Program (LIHEAP) (50 percent), the Weatherization 
Assistance Program for Low-Income Persons (25 percent), and a 
new Rural Energy Assistance Program (25 percent).
    Sec. 4502. Rural Energy Assistance Program. Section 4502 
creates a rural energy assistance program to provide financial 
assistance to promote the availability of reasonably priced 
distributed electricity in off-grid rural regions with high 
electricity prices.
    Discussion: Although modeling of S.2191 projects very 
modest price impacts which emerge slowly over time, these 
provisions are intended to protect consumers, especially low-
income consumers currently struggling to meet their energy 
costs, from any adverse price impacts as a result of climate 
legislation. Significant funding is directed towards low (and 
middle) income consumers through the allocation to local 
electricity and gas distribution companies under Subtitles D 
and E of Title III. However, additional funds to assist, 
specifically, low income consumers are provided through this 
program under the auction. Together, the electricity and gas 
consumer allocations plus the energy consumer fund represent 
15% of the allowance value in the first year of the program, 
rising to roughly 20% over time. The Center for Budget and 
Policy Priorities estimates that at least 14% of allowance 
value should be directed to low income consumers in the bottom 
quintile specifically to offset fully any increased energy 
costs.\60\ States that believe that additional resources are 
needed for consumer assistance are encouraged to direct 
allowance value from Subtitle C, Title III to further 
supplement consumer assistance programs.
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    \60\ http://www.cbpp.org/pubs/climate.htm.
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            Subtitle F--Climate Change Worker Training Program
    Subtitle F directs the creation of several programs to 
collect data on shifts and new demands in the workforce and to 
provide training for workers in clean technology sectors which 
grow as a result of S. 2191 and other legislation such as the 
Energy Independence and Security Act of 2007.
    Sec. 4601. Funding. Section 4601 directs that all funds 
deposited into the Climate Change Worker Training Fund under 
Subtitle A of Title IV shall be used by the Department of Labor 
to fund a new workforce education, training, and placement 
program spelled out in the subtitle.
    Sec. 4602. Purposes. Section 4602 lists the purposes of 
this subtitle:
           to create a sustainable, comprehensive 
        public program that provides quality training linked to 
        jobs in low-carbon and sustainable energy, as well as 
        energy efficiency;
           to satisfy industry demand for a skilled 
        workforce, to support economic growth, boost U.S. 
        competitiveness in the global economy for clean 
        technology, and provide family-sustaining jobs through 
        quality training and placement; and
           to provide funds for Federal and State 
        research, labor market information and labor exchange 
        programs, and the development of Federal- and State-
        administered training programs.
    Sec. 4603. Establishment. Section 4603 directs the 
Department of Labor to establish the Climate Change Worker 
Training program, in consultation with EPA and the Department 
of Energy.
    Sec. 4604. Activities. Subsection 4604(a) creates a 
National Research Program to provide assistance in developing 
labor market data and tracking workforce trends related to this 
subtitle.
    Subsection 4604(b) creates a National Energy Training 
Partnership to provide competitive grants to entities that 
carry out training that leads to economic self-sufficiency and 
develop a clean technology workforce.
    Subsection 4604(c) creates a State Labor Market Research, 
Information, and Labor Exchange Research Program to provide 
competitive grants to States for labor market and labor 
exchange informational programs. These programs will identify 
job openings in clean energy and energy efficiency, administer 
skill and aptitude testing for workers, and provide counseling, 
case management and referral to qualified job seekers.
    Subsection 4604(d) creates a State Energy Training 
Partnership Program to provide competitive grants to States to 
fund eligible State energy sector partnerships.
    Sec. 4605. Worker Protections and Nondiscrimination 
Requirements. Section 4605 clarifies that the program is 
covered by Sections 181 and 188 of the Workforce Investment Act 
of 1998. Labor organizations must also be provided with an 
opportunity to submit comments on proposals where there are a 
substantial number of organized workers engaged in similar work 
or training.
    Sec. 4606. Workforce Training and Safety. Subsection 
4606(a) directs 25 percent of the funds in this subtitle to 
University Programs within the Department of Energy to ensure a 
supply of scientists, engineers, health physicists and energy 
workforce employees.
    Subsection 4606(b) directs the Department of Labor to 
provide technical assistance and funds to non-profit employee 
organizations, voluntary emergency response organizations and 
joint labor-management organizations that demonstrate 
experience in running health and safety training and education 
programs.
    Subsection 4606(c) directs the Department of Labor, in 
cooperation with DOE, to promulgate regulations for programs 
related to zero- and low-carbon technology that: provide 
workforce training to supply skilled workers, certify 
electrical crafts, create career and technology awareness, 
create pre-apprenticeship technical education, generate 
training for technicians, develop construction management 
personnel, ensure the safety of workers, and provide regional 
grants for integrated workforce development programs.
    Discussion: Any program to drive the U.S. towards cleaner, 
low-carbon technology will trigger shifts and new demands in 
the workforce. While many of these new demands will be met from 
traditional occupations, programs to collect and disseminate 
workforce information and provide training will speed the rate 
at which the U.S. workforce can capitalize upon these new 
opportunities. For example, a study by the National Renewable 
Energy Lab identified a shortage of skills and training as a 
key barrier to renewable energy and energy efficiency 
growth.\61\ The programs in this subtitle are intended to help 
meet existing and growing demands for jobs in the clean 
technology and energy efficiency sectors.
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    \61\ Margolis and Zuboy. Nontechnical Barriers to Solar Energy Use: 
Review of Recent Literature (NREL, 2006)
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    While estimating the job impacts of any policy or 
legislation is challenging, several studies point to the job 
creation potential of climate policy. A 2004 report by the 
Apollo Alliance found that investments in low-carbon and green 
technology, as is expected to occur under S. 2191, could create 
over three million new American jobs over a ten-year period, 
while also stimulating $1.4 trillion in new gross domestic 
product and producing over $280 billion in net energy cost 
savings.\62\ At the state level, the Arizona Climate Change 
Advisory Group (CCAG) and the Center for Climate Strategies 
estimated that the CCAG action plan for Arizona would lead to 
the creation of 285,000 jobs.\63\ On an international level, 
Britain has reduced its greenhouse gas emissions by about 15 
percent since 1990, while its economy has grown by over 40% and 
environmental industries grew from about 135,000 to over 
500,000 jobs in the last five years.
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    \62\ New Energy for America, The Apollo Jobs Report.
    \63\ http://www.azclimatechange.gov/.
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    Wherever possible, this program is designed to work with 
existing workforce development strategies in place at the state 
and federal level.
            Subtitle G--Adaptation program for natural resources in 
                    United States and territories
    Subtitle G directs that all funds deposited into the 
Adaptation Fund under Subtitle A of Title IV be used for 
activities that assist fish and wildlife, fish and wildlife 
habitat, plants and associated ecological processes in becoming 
more resilient, adapting to, and surviving the impacts of 
climate change and ocean acidification.
    Sec. 4701. Definitions. Section 4701 defines certain key 
terms used in this subtitle.
    Sec. 4702. Adaptation Fund. Subsection 4702(a) directs 
funds from the Adaptation Fund to federal agencies for the 
activities described above.
    Subsection 4702(b) makes 35 percent of the Adaptation Fund 
available to the Department of the Interior, and subsequently 
made available to states and tribal governments, through the 
Wildlife Conservation and Restoration Account established under 
the Pittman-Robertson Wildlife Restoration Act. It makes 19 
percent of the Adaptation Fund available to the Interior 
Department for use in funding endangered species, migratory 
bird, and other fish and wildlife programs. It makes 5 percent 
of the Adaptation Fund available to the Interior Department for 
adaptation activities carried out under various cooperative 
grant programs. Finally, it makes 1 percent of the Adaptation 
Fund available to Indian tribes to carry our adaptation 
activities through the tribal wildlife grants program of the 
Fish and Wildlife Service. States or Indian tribes which 
receive grants under this subsection must provide 10 percent of 
the costs.
    Subsection 4702(c) makes 10 percent of the Adaptation Fund 
available for wildlife adaptation through the Land and Water 
Conservation Fund.
    Subsection 4702(d) makes 5 percent of the Adaptation Fund 
available to the Department of Agriculture for use in funding 
adaptation activities carried out on national forests and 
national grasslands under the jurisdiction of the United States 
Forest Service or pursuant to the cooperative Wings Across the 
Americas Program.
    Subsection 4702(e) makes 5 percent of the Adaptation Fund 
available to EPA for use in restoring large-scale freshwater 
and estuarine ecosystems.
    Subsection 4702(f) makes 10 percent of the Adaptation Fund 
available to the Army Corps of Engineers for use in restoring 
large-scale freshwater and estuarine ecosystems.
    Subsection 4702(g) makes 10 percent of the Adaptation Fund 
available to the Department of Commerce for use in funding 
adaptation activities to protect, maintain, and restore 
coastal, estuarine, and marine resources, habitats, and 
ecosystems.
    Subsection 4702 (i) directs the President to develop a 
national strategy for assisting fish and wildlife, fish and 
wildlife habitat, plants, and associated ecological processes 
in adapting to climate change.
    Subsection 4072 (j) declares that funds going to states 
must be consistent with a federally approved state 
comprehensive adaptation strategy.
    Discussion: America's rich natural resources are a 
foundation of our country. Natural resources are estimated to 
provide our country with billions of dollars of services each 
year: Wetlands purify our water and protect our coasts, forests 
clean our air and water and provide income to the timber 
industry, and the great outdoors provide the recreational 
opportunities like hunting and fishing that fuel the economy of 
many rural areas. All of these services are essential to 
sustain our robust economy and to support our way of life. 
However, climate change places many of our natural resources at 
severe risk. Dale Hall, the director of the U.S. Fish and 
Wildlife Service has said: ``The warming of the earth could 
potentially have more far-reaching impacts on wildlife and 
wildlife habitat than any challenge that has come before us.'' 
\64\ Even if we begin to cut global warming pollution today, 
climate change will drastically impact natural resources for 
many decades as wildlife and plant populations are subjected to 
changes in temperature, precipitation, stream flow, and the 
timing and frequency of severe weather events.
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    \64\ http://www.fws.gov/home/climatechange/.
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    The IPCC reports that 20-30% or potentially more plant and 
animal species will be placed at risk of extinction by climate 
change.\65\ For changes over 2.5 +C, the IPCC predicts that 
there will be major changes in ecosystem structure and function 
with ``predominantly negative consequences for biodiversity and 
ecosystem goods and services, e.g., water and food supply.'' 
\66\ Global warming could, for example lead to the destruction 
of many wetlands, including up to 90% of wetlands in the 
prairie potholes region.\67\ Increased fire risk due to 
drought, seasonal shifts, and increased pest load can 
significantly increase fire risk in the western U.S.\68 69\ 
Water levels in Lake Erie, already below average, could 
decrease 4-5 feet by the end of this century, disrupting 
shoreline habitat.\70\
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    \65\ IPCC AR4 Working Group 2, Section 4 ES, and Section 4.4.11.
    \66\ IPCC AR4 Working Group 2, Summary for Policy Makers, p. 11.
    \67\ M.G. Anderson and L.G. Sorenson. 2001. ``Global Climate Change 
and Waterfowl: Adaptation Face of Uncertainty.'' Transaction of the 
66th North American Wildlife and Natural Resources Conference 
(Washington, DC: Wildlife Management Institute, 300-319.
    \68\ Westerling, A.L., H.G. Hidalgo, D.R. Cayan, and T.W. Swetnam. 
2006. Warming and earlier spring increases Western U.S. forest wildfire 
activity. Science 313: 940-43.
    \69\ http://www.usgcrp.gov/usgcrp/Library/nationalassessment/
overviewforests.htm.
    \70\ Lofgren, B.M., Quinn, F.H., Clites, A.H., Assel, R.A., 
Eberhardt, A.J., Luukkonen, C.L. 2002. Evaluation of Potential Impacts 
on Great Lakes Water Resources Based on Climate Scenarios of Two GCMs, 
Journal of Great Lakes Research, 28(4):537-554.
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    The Climate Security Act invests critical funding to help 
our natural resources survive this period of climatic change. 
Investment now will help avoid impacts that will be difficult 
or impossible to reverse. Currently, resource managers are 
without the financial means to address the many challenges of 
climate change. The Adaptation Fund will provide natural 
resource managers with the ability to safeguard existing 
natural resources and wildlife and take steps to increase 
resilience to climate change. Under the Climate Security Act, 
federal, state, and tribal agencies will receive funding to 
carry out natural resource adaptation activities that help with 
survival of fish and wildlife, fish and wildlife habitats, 
plants, and associated ecological processes threatened by 
climate change or ocean acidification. Scientific research and 
education are among the conservation activities eligible for 
funding if they support this objective. The natural resources 
conservation funding in this title amount to a conservative 
estimated annual investment of 1 percent of the annual economic 
benefits that forests, wetlands and outdoor recreational 
activities alone provide to the U.S.\71\
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    \71\ National Wildlife Federation. 2008. Investing in America's 
Natural Resources--The Urgent Need for Global Warming Legislation. 
Reston, Virginia.
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            Subtitle H--International Climate Change Adaptation and 
                    National Security Program
    Subtitle H directs that all funds deposited into the 
Climate Change and National Security Fund under Subtitle A of 
Title IV shall be made available to a program established by 
the State Department and administered by the U.S. Agency for 
International Development for the purposes described below.
    Sec. 4801. Findings. Congress finds that:
           global climate change represents a 
        potentially significant threat multiplier for 
        instability around the world as changing precipitation 
        patterns may exacerbate competition and conflict over 
        agricultural, vegetative, and water resources and 
        displace people, thus increasing hunger and poverty and 
        causing increased pressure on least developed 
        countries;
           the strategic, social, political, and 
        economic consequences of global climate change could 
        have disproportionate impacts on least developed 
        countries, which have fewer resources and thus, often 
        fewer emissions;
           the strategic, social, political, and 
        economic consequences of global climate change are 
        likely to have a greater adverse effect on less 
        developed countries;
           the consequences of global climate change 
        could pose a danger to the security interest and 
        economic interest of the United States; and
           it is in the national security interest of 
        the United States to recognize, plan for, and mitigate 
        the international strategic, social, political, and 
        economic effects of a changing climate.
    Sec. 4802. Purposes. The purposes of this subtitle are:
           to protect the national security of the 
        United States where such interest can be advanced by 
        minimizing, averting, or increasing resilience to 
        potentially destabilizing climate change impacts;
           to support the development of national and 
        regional climate change adaptation plans in least 
        developed countries;
           to support the deployment of technologies 
        that would help least developed countries reduce their 
        greenhouse gas emissions and respond to destabilizing 
        impacts of climate change;
           to provide assistance to least-developed 
        countries and small island developing states with 
        national or regional climate change adaptation plans in 
        the planning, financing, and execution of adaptation 
        projects;
           to support investments and capital to reduce 
        vulnerability related to climate change and its 
        impacts, including but not limited to drought, famine, 
        floods, sea level rise, shifts in agricultural zones or 
        seasons, shifts in range that affect economic 
        livelihoods, and refugees and internally displaced 
        persons;
           to support climate change adaptation 
        research in or for least developed countries; and
           to encourage the identification and adoption 
        of appropriate low-carbon and efficient energy 
        technologies in least-developed countries.
    Sec. 4803. Establishment. Subsection 4803(a) directs the 
Department of State, working with the Agency for International 
Development and EPA, to establish an International Climate 
Change Adaptation and National Security Program.
    Subsection 4803(b) directs the program to submit annual 
reports to the president and relevant congressional committees 
that describe: the extent to which other countries are 
committing to reducing greenhouse gas emissions through 
mandatory programs; the extent to which climate change will 
threaten, cause, or exacerbate political instability or 
international conflict in least developed countries; and the 
ramification of climate change on armed conflicts or the 
creation of refugees. This report would also detail how funds 
under this section were spent to enhance national security and 
assist in avoiding the destabilizing impacts of climate change 
in volatile regions of the world.
    Sec. 4804. Funding. Section 4804 states that the 
Administrator of USAID will oversee the expenditures of the 
program. No more than 10 percent of the funds may be spent in 
any single country in any single year.
    Discussion: A key finding of the IPCC and other groups is 
that climate change will have is most severe impacts in many of 
the least developed parts of the world, often the same 
countries that have made the smallest contributions to the 
emissions of greenhouse gases. For example, people living in 
developing countries are more than 20 times as likely to be 
affected by climate-related disasters\72\. Drought prone 
regions in Africa, low-lying countries in Southeast Asia, and 
glacier-water dependent parts of South America and Asia may be 
particularly vulnerable. Because many of these regions already 
suffer from instability and limited resources, climate change 
has the potential to greatly magnify instability, competition 
and conflict. As described in the background section of this 
report, these changes have the potential to significantly 
impact the national security of the U.S.
---------------------------------------------------------------------------
    \72\ Oxfam America. Adaptation 101.
---------------------------------------------------------------------------
    Some impacts of climate change will occur even if global 
efforts to reduce emissions begin immediately and are highly 
successful. For example, World Health Organization estimates 
that climate change may already contribute to 150,000 deaths 
each year and the IPCC projects that by 2020, long before high 
concentrations of greenhouse gases are reached, 75 to 250 
million people in Africa will be exposed to increased water 
stress as a result of climate change.\73,74\ Assistance to 
reduce water scarcity, reduce impacts of flooding and sea-level 
rise, improve agricultural practices, and improve health 
systems to address climate-related health impacts will help 
least developed nations deal with the impacts of unavoidable 
climate change and reduce the degree to which climate change 
creates or exacerbates threats to national security.
---------------------------------------------------------------------------
    \73\ WHO, ``Climate and health,'' Fact Sheet No. 266, August 2007, 
www.int/mediacentre/ factsheets/fs266/en/index.html.
    \74\ IPCC AR4 Working Group II, Summary for Policymakers.
---------------------------------------------------------------------------
            Subtitle I--Emergency firefighting programs
    Subtitle I directs that all auction proceeds deposited into 
the emergency firefighting funds established under Subtitle A 
shall be used to pay for Bureau of Land Management and Forest 
Service wildland fire suppression activities in excess of 
normal, non-emergency fire suppression.
    Sec. 4901. Findings. Congress finds that:
           since 1980, wildfires in the United States 
        have burned almost twice as many acres per year on 
        average than the average burned acreage during the 
        period beginning on January 1, 1920, and ending on 
        December 31, 1979;
           the wildfire season in the western United 
        States has increased by an average of 78 days during 
        the 30-year period preceding the date of enactment of 
        this Act;
           researchers predict that the area subject to 
        wildfire damage will increase during the 21st century 
        by up to 118 percent as a result of climate change;
           the annual budget of the Forest Service, the 
        Forest Service used for wildfire suppression activities 
        was 13 percent in 1991 and 45 percent in 2007; and
           1 percent of the largest escaped fires burn 
        95 percent of all burned acres and consume 85 percent 
        of all wildfire fighting costs.
    Sec. 4902. Bureau of Land Management Emergency Firefighting 
Program. Section 4902 directs that the funds deposited into the 
Bureau of land Management Emergency Firefighting Fund be made 
available without further appropriation to pay for emergency 
fire suppression activities. The Department of the Interior is 
directed to establish an accounting and reporting system for 
the use of these funds and submit monthly and annual reports to 
Congress on expenditures from the fund.
    Sec. 4903. Forest Service Emergency Firefighting Program. 
Section 4903 directs that the funds deposited into the Forest 
Service Emergency Firefighting Fund be made available without 
further appropriation to pay for emergency fire suppression 
activities. The Secretary of Agriculture is directed to 
establish an accounting and reporting system for the use of 
these funds and submit monthly and annual reports to Congress 
on expenditures from the fund.
    Discussion: Climate change is a significant contributor to 
the increasing severity and duration of wildfires throughout 
the United States. Research indicates that in the last twenty 
years there has been a four fold increase in the number of 
major wildfires \75\. This increase in wildfire activity has in 
turn impacted the ability of federal land management agencies 
to adequately fund and address wildfire suppression and 
mitigation efforts. In 1991 the Forest Service spent 13% of its 
budget on wildfire. As of 2007, it spent 45% of its budget on 
wildfire.\76\ This provision directs up to $1.1 billion 
annually to ensure that efforts by the Forest Service and 
Bureau of Land Management to address wildfire have adequate 
funds.
---------------------------------------------------------------------------
    \75\ Science 18 August 2006: Vol. 313. no. 5789, pp. 927-928.
    \76\ http://www.nytimes.com/2007/06/26/us/26fire.html.
---------------------------------------------------------------------------

Title V--Energy efficiency

    Title V updates energy efficiency standards for residential 
boilers, space heaters and air conditioners. It also sets the 
updated building code standards that qualify a state for a 1 
percent set-aside of allowances under Subtitle C of Title III.
            Subtitle A--Appliance efficiency
    Subtitle A incorporates strengthened energy efficiency 
standards for residential boilers, space heaters, and air 
conditioners.
    Sec. 5101. Residential Boilers. Section 5101 sets updated 
standards for residential boilers including such energy saving 
measures such as no constant burning pilot and automatic means 
for adjusting the temperature.
    Sec. 5102. Regional Variations in Heating or Cooling 
Standards. Section 5102 allows the Department of Energy to 
establish regional standards for space heaters and air 
conditioners (excluding window unit air conditioners and 
portable space heaters).
    Discussion: Efficiency standards can achieve efficiency 
gains and emissions reductions in some sectors far more quickly 
and efficiently than the price signal from a cap and trade 
system. Updated standards for residential boilers, space 
heaters and air conditioners were recently enacted as part of 
the Energy Independence and Security Act of 2007 (H.R. 6, P.L. 
110-140).
            Subtitle B--Building efficiency
    Sec. 5201. Updating State Building Energy Efficiency Codes. 
Subsection 5201(a) amends the Energy Conservation and 
Production Act to direct the Department of Energy to update the 
national model building codes and standards at least every 
three years. The standards are designed to achieve energy 
savings compared to the International Energy Conservation Code 
(IECC) of 2006 for residential buildings and the American 
Society of Heating Refrigeration and Air Conditioning Engineers 
(ASHRAE) Standard 90.1 (2004) for commercial buildings. These 
model codes shall be 30% improvements through 2019 and 50% 
improvements after 2020. The DOE is also directed to update 
codes in response to changes in the underlying IECC or ASHRAE 
standard or if the model codes fail to meet the energy savings 
goals.
    Subsection 5201(b) states that adoption of these codes must 
certify compliance with the Department of Energy.
    Subsection 5201(c) defines compliance as when at least 90 
percent of new and renovated buildings covered by the state 
code substantially meet all of the requirements of the code or 
when excess energy use of new, non-code-compliant buildings is 
not more than 10 percent of all energy use by buildings covered 
by the code.
    Subsection 5201(d) allows the Department of Energy to 
extend deadlines for states that are making significant 
progress under good faith efforts.
    Subsection 5201(e) directs the Department of Energy to 
provide assistance, including incentive funding, to States to 
implement updated codes and otherwise promote energy efficient 
buildings.
    Sec. 5202. Conforming amendment. Section 5202 amends the 
Energy Conservation and Production Act (42 U.S.C 6832) with a 
definition of the IECC.
    Discussion: This subtitle creates model building codes.\77\ 
Buildings consume about 40 percent of the total energy used in 
the United States. Efficient buildings avoid global warming, 
reduce demand on the power grid and stress on natural gas 
supplies, improve local air quality, and save consumers money. 
A 2006 report by the McKinsey Global Institute found that 
energy use in new and existing buildings could be reduced by 
more than one quarter by 2020 with measures that pay for 
themselves within ten years. A 2007 study by McKinsey estimated 
that changes in the design of new building shells cost, on 
average, negative $42/ton carbon dioxide equivalent.\78\ That 
is, they save $42 per ton of reduction.
---------------------------------------------------------------------------
    \77\ This text was adapted from the Alliance to Save Energy Fact 
sheet on Building Codes in S.2191.
    \78\ http://www.mckinsey.com/_clientservice/_ccsi/pdf/_US-ghg-
final-report.pdf.
---------------------------------------------------------------------------
    Building design and construction provide by far the best 
and most cost-effective opportunity to build in energy-
efficient features that will last for the lifetime of the 
building. Building energy codes overcome market barriers, which 
otherwise result in underinvestment in building energy 
efficiency. For example, builders have little incentive to 
invest in energy efficiency since they pay the up-front costs 
but not the energy bills of the buildings they develop, and 
buyers cannot easily see how efficient a new building will be. 
Building energy codes save consumers money. While there may be 
modest initial costs for energy efficiency improvements those 
costs are more than offset through lower energy bills. As the 
total monthly cost to the homeowner-mortgage payments plus 
utility bills is lower, energy efficiency makes homes more 
affordable.
    The building codes in this section are carefully designed 
to leave states and local governments in charge of setting 
their own building codes and to leave independent organizations 
primary responsibility for setting the national models. States 
must meet building efficiency codes in this title only if they 
wish to qualify for the allowances under Section 3301(b).

Title VI--GLOBAL effort to reduce greenhouse gas emissions

    Title VI closely tracks the international trade measure 
that appears in the Bingaman-Specter climate bill, S.1766. 
Under this provision, the Executive Branch is directed, upon 
enactment, to intensify its efforts to convince other nations 
to start reducing their greenhouse-gas emissions. If, eight 
years after the enactment of the U.S. program, it is determined 
that a given major emitting nation has not taken comparable 
action, the President at that time is authorized to require 
that importers of greenhouse-gas-intensive manufactured 
products (steel, aluminum, etc.) from that nation submit 
emissions credits of a value equivalent to that of the credits 
that the U.S. system effectively requires of domestic 
manufacturers.
    Sec. 6001. Definitions. Section 6001 defines the baseline 
emissions level as the total average greenhouse gas emissions 
attributed to the production of a category of covered goods 
produced in a foreign country during the period 2012 to 2014. 
Covered goods are primary products (iron, steel, aluminum, 
cement, bulk glass, paper, etc.) whose manufacture emits a 
significant amount of greenhouse gases (both directly and 
through electricity consumption) and whose cost of domestic 
production is impacted by the Act.
    Sec. 6002. Purposes. The purposes of this title are:
     to promote a strong global effort to significantly 
reduce greenhouse gas emissions;
     to ensure, to the maximum extent practicable, that 
greenhouse gas emissions occurring outside the United States do 
not undermine the objectives of the United States in addressing 
global climate change; and
     to encourage effective international action to 
achieve those objectives through agreements negotiated between 
the United States and foreign countries; and measures carried 
out by the United States that comply with applicable 
international agreements.
    Sec. 6003. International Negotiations. Section 6003 begins 
with the finding that the purposes described above can be most 
effectively addressed and achieved through international 
negotiations. It clarifies that Congress intends that the 
negotiating intent of the U.S. shall be to focus multilateral 
and bilateral international agreements on the reduction of 
greenhouse gas emissions to advance these purposes.
    Sec. 6004. Interagency review. Section 6004 directs the 
President to establish an interagency group to carry out this 
section, chaired by the Secretary of State. This group will 
determine whether, and the extent to which, each country has 
taken comparable action to limit greenhouse gas emissions and 
issue reports on their findings to the President.
    Sec. 6005. Presidential Determinations. Section 6005 states 
that, before 2019, the President shall determine whether 
foreign countries subject to review have take comparable 
action, taking into consideration baseline emission levels, and 
applicable reports submitted by the interagency group.
    Sec. 6006. International Reserve Allowance Program. 
Subsection 6006(a) directs EPA to establish a program to offer 
international reserve allowances for sale to importers. These 
allowances are wholly independent from the cap in section 1201 
but the price of these allowances may not exceed the current 
price of auctioned allowances from the main cap in the Act. 
These reserve allowances will have a system for tracking, sale, 
exchange, banking, etc. Proceeds from the sale of these 
allowances go to the International Climate Change and 
Adaptation and National Security Program.
    Subsection 6006(b) directs the President to publish 
annually a list in the Federal Register of foreign countries as 
to whether they are covered or excluded from this program. 
Countries are excluded if they have taken ``action comparable 
to that taken by the United States'' to limit greenhouse gas 
emissions or if their emissions are not more than 0.5 percent 
of global greenhouse gas emissions (taking into account 
deforestation emissions). All other countries are covered under 
this program.
    Subsection 6006(c) declares that, starting in 2020, any 
importer of a covered good will need to submit a declaration to 
U.S. Customs and Border Protection in order to enter the 
customs territory of the U.S. This declaration will certify 
that the good is either from an excluded country or is 
accompanied by the appropriate number of international reserve 
allowances. Declarations are not necessary for goods from 
excluded countries, or from the least-developed of developing 
countries.
    Subsection 6006(d) directs EPA to establish, by rule, a 
method for calculating the required number of reserve 
allowances for each unit of covered good for each country. For 
the initial year, this shall be equal to the increase in 
emissions due to that covered good for the most recent year 
divided by the total quantity of the covered good produced in 
that year. This amount will be adjusted for allowances which 
were allocated to domestic manufacturers in the same sector for 
that year and the level of economic development of the foreign 
country. EPA will revise the adjustments annually, as needed 
and adjust them to comply with any international agreements.
    Subsection 6006(e) adds that, in lieu of an international 
reserve allowance, an importer may submit a credit from a 
commensurate foreign cap and trade program certified under 
Title II.
    Sec. 6007. Adjustment of International Reserve Allowance 
Requirements. Section 6007 directs the President, in 2023, to 
submit a report to Congress assessing the effectiveness of the 
international reserve allowance program. If he determines that 
the requirement is not adequate, he is directed to adjust the 
requirement or take other actions to improve the effectiveness, 
in accordance with all international agreements.
    Discussion: Concerns over U.S. competitiveness have emerged 
as one of the key issues in the design of U.S. climate policy. 
This title recognizes that the best way for the U.S. to ensure 
its long term competitive position is to re-engage in the 
international negotiation process. International treaties are 
the most effective policy tool to ensure that climate policies 
do not simply shift emissions (and production) from regulated 
countries to unregulated ones (``leakage'').
    EPA examined the potential for ``leakage'' of emissions or 
trade under S. 2191, using the ADAGE model. The Agency examined 
a highly conservative scenario where developed nations reduce 
to only 50% below 1990 levels by 2050 (significantly weaker 
targets than those actually being discussed by the EU and other 
nations) and developing nations take no action before 2025 
(leveling their emissions at 2015 levels through 2034). Under 
those conservative assumptions, EPA found ``no international 
emissions leakage occurs.''\79\ Indeed, the analysis found that 
even this modest international action on climate change leads 
to a decline in U.S. imports of energy-intensive manufactured 
goods from developing nations and an increase in the export of 
such goods from the U.S. to developing nations.
---------------------------------------------------------------------------
    \79\ http://www.epa.gov/climatechange/downloads/
s2191_EPA_Analysis.pdf.
---------------------------------------------------------------------------
    However, S. 2191 also contains a backup provision to 
further protect U.S. manufacturers in the event that the U.S., 
EU and others fail to convince some countries to reduce 
greenhouse gas emissions. The President may require importers 
of greenhouse-gas-intensive manufactured products to submit 
emissions credits if those products come from a nation which 
has not taken comparable action. The price of these credits 
will insure that foreign manufacturers of energy-intensive 
goods will not gain a price advantage. Modeling of this 
provision by the EPA demonstrates that international reserve 
allowance requirements strongly limit any increase in imports 
which would otherwise occur. Several experts testified in a 
hearing before the Senate Finance committee that they believed 
that this international trade provision was written in a way 
expected to be compliant with the policies of the WTO.\80\
---------------------------------------------------------------------------
    \80\ Senate Finance Hearing 2/14/08.
---------------------------------------------------------------------------

Title VII--Reviews and Recommendations

    Title VII directs EPA to commission from the National 
Academy of Sciences (NAS) a report to be delivered to Congress 
every three years. The report is designed to detail the latest 
scientific information and data relevant to global change and 
various aspects of the performance of the Act. This report will 
include recommendations for changes to the Act. EPA must submit 
to Congress recommendations for further action based on each 
NAS study.
    Title VIII also directs EPA to submit to Congress in 2012 a 
report on air pollution and air pollution control technology, 
as it relates to the Act.
    In 2020, President must submit to Congress a bill derived 
from a consensus report by a task force of agency heads, based 
on the recommendations submitted by EPA in 2019. This title 
also directs EPA, in consultation with several other agencies, 
to perform regionally-specific analyses of the new 
infrastructure, safety, health, land-use planning, and coastal 
inundation prediction policies that will be necessary to enable 
the U.S. to adapt to the degree of climate change that is now 
inevitable. Finally, it commissions a National Academy of 
Sciences study on greenhouse gas emissions from aviation.
    Sec. 7001. National Academy of Sciences Reviews. Section 
7001 directs EPA to commission NAS reviews for Congress every 
three years. The report will contain a broad review of the 
latest scientific information on the current and future 
emissions and concentrations of greenhouse gases, temperature 
trends, and impacts of climate change. It will describe the 
extent to which the Act, in concert with other policies, will 
prevent dangerous concentrations of greenhouse gases or 
increases in global average temperature.
    The review will examine the impact that the Act's 
technology deployment programs are having and determine whether 
advanced climate-friendly energy technologies are deploying 
quickly enough to enable the U.S. economy to comply with Act's 
emissions caps without suffering hardship. Finally, the review 
will also address a number of questions about the Act's 
effectiveness and possible changes to the legislation.
    Sec. 7002. Environmental Protection Agency Review. Section 
7002 directs EPA to submit a report to Congress detailing the 
latest information on the health effects of mercury, technology 
to reduce mercury emissions from coal combustion, and the 
extent to which the Act assists with reducing particulate 
matter and ozone levels.
    Sec. 7003. Environmental Protection Agency Recommendations. 
Section 7003 directs EPA to submit a report to Congress within 
one year of each NAS review, suggesting recommendations for 
action based on the NAS reviews. The report must include an 
explanation of any inconsistencies between the recommendations 
and NAS reviews.
    Sec. 7004. Presidential Recommendations. Subsection 7004 
directs the President to establish an Interagency Climate 
Change Task Force, composed of EPA Administrator and the 
relevant Cabinet Secretaries. Not later than April 1, 2019 the 
Task Force will submit a consensus report in response to 
reports from EPA under Section 7003, including specific 
legislative recommendations and an explanation of any 
inconsistencies. By July 1, 2020 the President is directed to 
submit to Congress the text of proposed legislation based on 
the Task Force recommendations.
    Sec. 7005. Adaptation Assessments and Plan. Section 7005 
directs EPA to develop estimates of regional infrastructure 
costs associated with climate change. EPA is also directed to 
develop an adaptation plan for the U.S. with a list of 
vulnerable systems, requirements for co-ordination between 
agencies, anticipated costs of adaptation and needs for climate 
change technology and inundation prediction systems. EPA must 
also conduct research on the impact of climate change on low 
income populations and identify measures to assist those 
populations.
    Sec. 7006. Study by Administrator of Aviation Sector 
Greenhouse Gas Emissions. Section 7006 directs the EPA to 
commission a National Academy of Sciences study on greenhouse 
gas emissions associated with aviation.
    Discussion: The rapid pace at which scientists have 
developed a deeper understanding of the causes and consequences 
of climate change has been a major driver in the case for U.S. 
action on climate change. Because climate science is rapidly 
evolving, this section is designed to ensure that Congress 
receives the most current science possible when evaluating 
future climate-related legislation. The National Academy 
studies will update Congress on the latest science regarding 
the sources and concentrations of greenhouse gases and their 
anticipated impact on the climate. It will also provide an 
unbiased, technical examination of the performance of this 
legislation and ways in which it might be expanded or improved.
    The EPA report is intended to respond to these findings and 
recommendations and provide Congress with a framework for 
improvement to the legislation. Ultimately, the responsibility 
for improving or altering the legislation rests with Congress, 
but a Climate Change Task Force--convened by the President--
ensures that Congress will consider a package of legislation in 
2020 to improve the effectiveness of the legislation.

Title VIII--Framework for geological sequestration of carbon dioxide

    Title VIII initiates a series of rulemakings, geological 
surveys, technical reviews, and panels of legal experts 
designed to pave the way for the rollout of a national 
infrastructure for taking carbon dioxide from power plants, 
through pipelines, to injection wells, and then deep 
underground.
    Sec. 8001. National Drinking Water Regulations. Section 
8001 amends the Safe Drinking Water Act to include regulations 
related to carbon dioxide. It directs EPA to promulgate 
regulations for the permitting of commercial scale injection of 
carbon dioxide for geologic sequestration, including provisions 
to monitor and control storage and clarify long-term liability 
associated with the storage. The regulations are to avoid, to 
the extent practicable, carbon dioxide release into the 
atmosphere, and are to ensure that underground sources of 
drinking water, human health, and the environment are 
protected. EPA is directed to report on the effectiveness of 
the regulations every five years, and update them accordingly.
    Sec. 8002. Assessment of Geological Storage Capacity for 
Carbon Dioxide. Section 8002 directs the USGS to develop a 
methodology for assessing the potential capacity for the 
geologic storage of carbon dioxide. The methods shall be 
coordinated with the Department of energy and EPA, subjected to 
external review, and updated every 5 years. By 2011, the USGS 
shall complete a national assessment of carbon dioxide storage 
capacity.
    Sec. 8003. Study of the Feasibility Relating to 
Construction of Pipelines and Geological Carbon Dioxide 
Sequestration Activities. Section 8003 directs the Department 
of Energy, in coordination with other agencies, to promptly 
assess the feasibility of constructing pipelines and facilities 
for the sequestration of carbon dioxide. The report will 
examine: (1) barriers and market risks to the construction of 
pipelines or storage of carbon dioxide; (2) regulatory, 
financing or siting options that may mitigate those risks; (3) 
means to ensure safe handling and transportation of carbon 
dioxide; and (4) measures to ensure the integration of 
pipelines for geologic sequestration and enhanced oil recovery.
    Sec. 8004. Liabilities for Closed Geological Storage Sites. 
Section 8004 establishes a public-private task force to study 
the implications (environmental, safety and financial) of 
federal assumption of liability for closed geologic storage 
sites.
    Discussion: Carbon capture and storage technology will 
present new challenges for regulation and safety related to the 
underground injection of carbon dioxide. As such, this issue 
will require the sustained attention of Congress over the next 
decade. Title VIII is designed to put into place a few key 
steps towards a national framework for carbon dioxide 
sequestration. This includes ensuring that carbon dioxide 
sequestration does not harm drinking water quality, identifying 
barriers to the development of the necessary pipelines, and 
developing recommendations for ways to deal with liability 
risks.

Title IX--Miscellaneous

    The first section of Title IX authorizes the President to 
suspend the provisions of the bill in the event of a national 
security emergency. The second section makes the actions that 
EPA takes pursuant to the Act subject to the Administrative 
Procedure Act and the Clean Air Act. The third section makes 
clear that states are not preempted from enacting and enforcing 
greenhouse gas emission reduction requirements that are at 
least as stringent as the federal ones. This title also 
designates coal and biofuel research centers.
    Sec. 9001. Paramount Interest Waiver. Section 9001 
authorizes the President to modify any requirements under the 
Act if the President determines, in consultation with the NAS, 
DOE, and EPA, that a national security crisis exists. This 
determination is subject to judicial review under the Clean Air 
Act.
    Sec. 9002. Administrative Procedure and Judicial Review. 
Section 9002 clarifies that all rules and regulations in the 
Act, with the exception of the proportions of the allocation 
scheme, are subject to the rulemaking procedure described in 
the Clean Air Act. It also gives the EPA the same powers and 
authority for enforcement, recordkeeping, monitoring, entry, 
subpoenas and judicial review which are laid out in the Clean 
Air Act.
    Sec. 9003. Retention of State authority. Section 9003 
clarifies that the Act does not preclude or abrogate the right 
of states to adopt standards, caps, limitations, prohibitions, 
or any other requirements that are more stringent than those in 
the Act.
    Sec. 9004. Tribal Authority. Section 9004 allows the EPA to 
treat any federally recognized Indian tribe as a state.
    Sec. 9005. Rocky Mountain Centers for Study of Coal 
Utilization. Section 9005 designates the University of Wyoming 
and Montana State University as ``Rocky Mountain Centers for 
the Study of Coal Utilization'' and authorizes the 
appropriation of funds.
    Sec. 9006. Sun Grant Center Research on Compliance with 
Clean Air Act. Section 9006 designates Sun Grant research 
centers for studies of biofuels and biomass, and authorizes 
appropriations.
    Sec. 9007. Authorization of Appropriations. Section 9007 
authorizes funds necessary to carry out this Act.
    Discussion: The first provision in this title ensures that 
the president can modify the Act if a major national security 
crisis should exist and modification of the Act is necessary to 
allow an appropriate response.
    Section 9003 protects the right of States to serve as 
laboratories of innovation on climate legislation. This savings 
clause is intended to preserve regional, state, and local 
efforts to reduce greenhouse gas emissions. Many states, 
counties, cities, and communities have been leaders on global 
warming, trying innovative approaches in advance of the federal 
government. Within our federal system these laboratories of 
innovation, found across our country, are vital to our ability 
to minimize and mitigate the consequences of global warming. 
These local, state and regional efforts are consistent with and 
further the purposes of this statute. Thus, in other parts of 
this bill, state and local laws are integrated into the cap-
and-trade approach of this bill.
    The purpose of this section is to make it absolutely clear 
that this bill does not affect the validity of these state and 
local greenhouse gas emissions laws and regulations (and any 
related laws or regulations), so long as these laws require 
state and local reductions of greenhouse gas emissions at least 
as stringent as those required by federal law. There will be no 
express, implied, field, or conflict preemption of these 
regional, state, and local efforts. These regional, state, and 
local efforts include (but are not limited to) the Regional 
Greenhouse Gas Initiative, the Western Climate Initiative, the 
Midwestern Greenhouse Gas Reduction Accord, California's Global 
Warming Solutions Act of 2006, renewable fuels programs, low 
carbon fuel standards, motor vehicle greenhouse gas emission 
standards (adopted under Clean Air Act section 209(b)), 
renewable energy portfolio standards, electricity generation 
emission performance standards, climate action plans, 
greenhouse gas monitoring, reporting and verification statutes, 
energy and appliance efficiency standards, and labeling and 
information requirements. In interpreting the scope of this 
savings clause, the courts should follow the applicable 
precedent that calls for a narrow reading of federal preemption 
of state and local authority and a broad reading of this 
savings clause.
    The intention of the authors of this legislation was that 
the proceeds from the sale of emissions allowances would cover 
the cost of programs under the Act, making it budget neutral. 
After the committee reported the bill, the Congressional Budget 
Office informed the staff that it would apply new criteria to 
the scoring of allowances. In response to this new information, 
the committee crafted an amendment to ensure the bill remained 
budget neutral. CBO's analysis of this amendment confirmed that 
this amendment would restore the original intent of the 
legislation and that, over the 2009-2018 period, ``revenues 
would exceed the new direct spending by an estimated $78 
billion, thus decreasing future deficits (or increasing 
surpluses) by that amount over the next 10 years.''

Title X--Control of hydrofluorocarbon consumption

    Title X places a separate declining cap on the consumption 
and importation of hydrofluorocarbons (HFCs) into the U.S. HFCs 
are synthetic industrial gases, primarily used in refrigeration 
and air conditioning as substitutes for ozone-depleting 
chlorofluorocarbons (CFCs).
    Sec. 10001. Applicability. Section 10001 makes it illegal 
to produce or import HFCs except in accordance with this title.
    Sec. 10002. Definitions. Section 10002 defines parallel 
definitions to those in the overall Act. It also adds a new 
type of allowance for the certified destruction of HFCs.
    Sec. 10003. Cap on Hydrofluorocarbon Consumption and 
Importation Into United States. Section 10003 directs the EPA 
to establish the cap in section 10004.
    Sec. 10004. Hydrofluorocarbon Consumption Allowance 
Account.
    Section 10004 creates a separate account of allowances for 
the consumption of HFCs. This account begins at 300 million 
metric tons carbon dioxide equivalent in 2010 (two years before 
the cap in section 1201) and declines to 70 percent below that 
level by 2037 (13 years ahead of the cap in section 1201).
    Sec. 10005. Allocation of Hydrofluorocarbon Consumption 
Allowances. Section 10005 directs EPA to distribute HFC 
allowances to HFC producers or importers, in proportion to 
their share of HFC and HCFC production. EPA also auctions a 
portion of the allowances, shown in the table below:

        Year             Percentage of HFC Consumption Allowance Account
2010..............................................................     5
2011..............................................................    10
2012..............................................................    10
2013..............................................................    10
2014..............................................................    15
2015..............................................................    20
2016..............................................................    25
2017..............................................................    30
2018..............................................................    35
2019..............................................................    40
2020..............................................................    45
2021..............................................................    50
2022..............................................................    55
2023..............................................................    60
2024..............................................................    65
2025..............................................................    70
2026..............................................................    75
2027..............................................................    80
2028..............................................................    85
2029..............................................................    90
2030..............................................................    95
2031-2050.........................................................   100

    The proceeds of the auction are used to support the 
following purposes: (1) a program to recover and destroy the 
maximum amount of economically recoverable chlorofluorocarbons, 
halons, and other substances under Title VI of the Clean Air 
Act that have significant ozone depletion potential and global 
warming potential; (2) a program of incentives for consumer 
purchases of energy-efficient refrigeration and cooling 
equipment that contains refrigerants with no or low global 
warming potential; (3) a program to support the development and 
deployment of hydrofluorocarbons with low global warming 
potential, and energy efficient technologies, equipment, and 
products containing or using hydrofluorocarbons; and (4) the 
programs receiving auction proceeds under Title IV.
    Sec. 10006. Compliance Obligation. Section 10006 states 
that companies must submit a combination of HFC consumption 
allowances or allowances from the destruction of HFCs (section 
10010) equal to the HFCs produced or imported in the preceding 
year. Companies that fail to comply are subject to the same 
penalties as in section 1203--three times the market value of 
an allowance or $200, whichever is greater.
    Sec. 10007. Sale, exchange, and other uses of 
hydrofluorocarbon consumption allowances. Section 10007 allows 
HFC producers and importers to sell, trade and exchange HFC 
allowances. These allowances may not be traded or exchanged for 
allowances in the rest of the Act.
    Sec. 10008. Allowance transfer system. Section 10008 
directs the EPA to develop a system for tracking the issuance 
and transfer of HFC allowances.
    Sec. 10009. Banking and borrowing. Section 10009 allows 
banking of both consumption and destruction allowances. It 
allows borrowing of HFC destruction allowances. Borrowing may 
be used for up to 15 percent of a compliance obligation in any 
calendar year and is subject to a 10 percent interest rate.
    Sec. 10010. Hydrofluorocarbon Destruction Allowances. 
Section 10010 directs the EPA to issue allowances for recovery 
and destruction of HFCs from products or equipment. Allowances 
are not granted for the destruction of HFCs which are a 
byproduct of production processes.
    Discussion: Because of the extremely high global warming 
potential (GWP) for HFC's (up to 14,800 times that of carbon 
dioxide), HFCs would experience extremely strong price pressure 
if included in a cap and trade program with carbon dioxide. The 
resulting upward price pressure on allowances related to HFC's 
could force the closure of these facilities simply because in a 
GHG emissions trading market that included both HFCs and 
CO2, the economic value of selling the allowances 
would compete with that of consuming them in the continued 
manufacture of a chemical important for a variety of economic 
use, including the manufacture of energy efficient 
appliances.\81\ The separate market for HFCs is designed to 
reduce emissions of these gases while safeguarding the economic 
and environmental value of manufacturers of continuing to 
produce energy efficient refrigerators and air conditioners.
---------------------------------------------------------------------------
    \81\ Assessment of HFC Consumption Trading Approaches for the 
United States, ICF International, 2008.
---------------------------------------------------------------------------
    This program sets up a parallel structure to the one in 
main titles, with a declining cap and a phase-out of allocation 
to producers over time. However, because HFC manufacturers 
anticipate finding complete replacements for HFCs in the 
future, the cap reaches a 70% reduction 13 years sooner. Unlike 
the main cap and trade system, this title creates two kinds of 
allowances. The first kind is a consumption allowance--required 
to produce an amount of HFC equal to a ton of carbon dioxide. 
These consumption allowances function very much like allowances 
under Title II. The second type of allowances is a destruction 
allowance--which certifies that an amount of HFCs equal to a 
ton of carbon dioxide has been recovered and destroyed. 
Manufacturers of HFCs can submit a combination of the two types 
of allowances for their compliance obligation.
    The proceeds from the auction under this title are directed 
primarily towards programs related to high GWP gases. These 
programs are designed to reduce the impact of high GWP 
synthetic gases on the atmosphere and speed the development and 
deployment of less damaging replacements. The auction funds a 
program to recover and destroy high GWP gases, a program to 
provide consumer incentives for the purchase of energy-
efficient refrigeration and cooling equipment that contains 
refrigerants with no or low global warming potential, and a 
program to support the development and deployment of low global 
warming potential substitutes.

Title XI--Amendments to Clean Air Act

    Title XI includes two sections that extend to HFCs the 
Clean Air Act policies for chlorofluorocarbons (CFCs) and 
hydrochloroflurocarbons (HCFCs), ozone depleting substances 
(and greenhouse gases) with similar applications. The first 
such policy is a national recycling and emission reduction 
program for the chemicals. The second policy relates to the 
servicing of motor vehicle air conditioners.
    The final section of Title XI amends the Clean Air Act with 
a low carbon fuel performance standard that will achieve a 5 
percent reduction in aggregate lifecycle greenhouse gas 
emissions per unit of energy in U.S. fuel by 2015, and a 10 
percent reduction by 2020.
    Sec. 11001. National Recycling and Emission Reduction 
Program. Section 11001 updates the Clean Air Act to clarify 
regulation of HFCs used to replace ozone depleting gases (CFCs 
and HCFCs). It directs the EPA to promulgate regulations 
establishing standards for sale, distribution, use, recycling 
and disposal of HFCs within 1 year of enactment.
    Sec. 11002. Servicing of Motor Vehicle Air Conditioners. 
Section 11002 extends the Clean Air Act requirements governing 
small containers of CFCs and HCFCs (used for motor vehicle air 
conditioners) to HFCs.
    Sec. 11003. Carbon Dioxide Reduction. Subsection 11003(a) 
finds that: (1) oil used for transportation contributes 
significantly to air pollution, including global warming 
pollution, and other adverse impacts on the environment; (2) to 
reduce emissions of global warming pollutants, the United 
States should increasingly rely on advanced lean fuels for 
transportation; and (3) a comparison of life-cycle greenhouse 
gas emissions of conventional transportation fuels and low 
carbon transportation fuels should be based on comparable 
fuels, such as a comparison of gasoline to gasoline and diesel 
fuel to diesel fuel.
    Subsection 11003(b) amends the Clean Air Act to include a 
performance-based Low Carbon Fuel Standard. This Low Carbon 
Fuel Standard considers the aggregate quantity of greenhouse 
gas emissions per unit energy associated with the fuel, from 
production through use (the ``lifecycle greenhouse gas 
emissions'').
    Subsection 11003(c) directs EPA to establish methodologies 
for determining lifecycle greenhouse gas emissions and 
emissions associated with baseline fuels (the fuels used in 
2008). It then establishes a fuel certification and marketing 
process to ensure that each provider produces a fuel mix which 
is at the baseline by 2011, 5 percent below the baseline by 
2015 and 10 percent below the baseline by 2020. EPA shall 
revisit the fuel standard every 5 years to provide the maximum 
practical reduction in lifecycle greenhouse gas emissions, 
using the best available science and guarding against air 
pollution, water pollution, and noxious plants.
    Producers of electricity used for transport fuel (e.g. 
plug-in hybrids) can participate in the program and receive 
credits, as do fuel producers who exceed the targets. These 
credits can be traded, banked or sold to other fuel providers.
    Discussion: The first two sections promulgate rules for 
HFCs, recognizing that they are used as replacements for ozone-
depleting gases and need to be tracked through a similar 
framework. Section 11002 also ensures that only qualified 
technicians will service motor vehicle air conditioners, to 
prevent the accidental release of HFCs into the atmosphere.
    A Low Carbon Fuel Standard is an effective complimentary 
policy with a cap and trade program. By setting a performance-
based and technology-neutral standard for the greenhouse gas 
intensity of fuels, it encourages diversification of the fuel 
mix. For example, producers of fuels can blend in more low-
carbon ethanol, develop hydrogen or natural gas fueling 
capacity, purchase credits from electric utilities which power 
plug-in vehicles, or seek other innovative solutions. This both 
decreases reliance on (largely imported) petroleum and loosens 
pressure on the carbon market by reducing demand for 
allowances.
    The Low Carbon Fuel Standard relies on a full life cycle 
analysis to determine the greenhouse gas intensity of a fuel. 
By considering the greenhouse gas emissions from production 
through use, including land-use impacts, the LCFS ensures that 
these alternate fuels not only shift U.S. fuel use away from 
petroleum but also result in real climate benefits.

                Legislative History and Roll Call Votes

    The America's Climate Security Act (S. 2191) was introduced 
by Senators Lieberman, Warner, Harkin, Coleman, Dole, Collins, 
Cardin, Klobuchar, and Casey on October 18, 2007. Senators 
Nelson of Florida, Schumer, and Wyden later joined as 
cosponsors. The bill was considered by the Subcommittee on 
Private Sector and Consumer Solutions to Global Warming and 
Wildlife Protection on November 1, 2007, and a substitute 
amendment (with amendments thereto) was passed by a vote of 4-3 
(Senators Baucus, Lautenberg, Warner, and Lieberman voting aye, 
Senators Barrasso, Isakson, and Sanders voting no).
    On December 5, 2007, the full Committee on Environment and 
Public Works considered and ordered favorably reported a 
substitute amendment (with amendments thereto) by a vote of 11-
8 (Senators Boxer, Baucus, Lieberman, Carper, Clinton, 
Lautenberg, Sanders, Cardin, Whitehouse, Klobuchar, and Warner 
voted yea, and Senators Inhofe, Voinovich, Isakson, Vitter, 
Craig, Alexander, Barrasso, and Bond voted nay).

                                Hearings

    The Committee on Environment and Public Works and its 
subcommittees held over 20 hearings at which a wide array of 
global warming related issues were discussed, including four 
legislative hearings on S. 2191, the America's Climate Security 
Act. These hearings included: ``Senators' Perspectives and 
Global Warming,'' on January 30, 2007; ``Global Warming and 
Wildlife,'' on February 7, 2007 (Subcommittee); ``Hearing on 
U.S. Climate Action Partnership Report,'' on February 13, 2007; 
``State, Regional, and Local Perspectives on Global Warming,'' 
on March 1, 2007; ``Vice President Al Gore's Perspective on 
Global Warming,'' on March 21, 2007, ``Reducing Government 
Building Operational Costs through Innovation and Efficiency: 
Legislative Solutions,'' on March 28, 2007; ``The Implications 
of the Supreme Court's Decision Regarding EPA's Authorities 
with Respect to Greenhouse Gases under the Clean Air Act,'' on 
April 24, 2007; ``Emerging Technologies and Practices for 
Reducing Greenhouse Gas Emissions,'' on May 9, 2007 
(Subcommittee); ``Green Buildings: Benefits to Health, the 
Environment, and the Bottom Line,'' on May 15, 2007; 
``Examining the Case for the California Waiver,'' on May 22, 
2007; ``The Issue of the Potential Impacts of Global Warming on 
Recreation and the Recreation Industry,'' on May 24, 2007; ``An 
Examination of the Views of Religious Organizations Regarding 
Global Warming,'' on June 7, 2007; ``Examining Global Warming 
Issues in the Power Plant Sector,'' June 28, 2007; ``Economic 
and International Issues in Global Warming Policy,'' on July 
24, 2007 (Subcommittee); ``Examining of the Case for the 
California Waiver: An Update from EPA,'' Field Hearing ``Green 
Job Growth and Global Warming,'' on August 14, 2007; ``Green 
Jobs Created by Global Warming Initiatives,'' on September 25, 
2007; ``An Examination of the Impacts of Global Warming on the 
Chesapeake Bay,'' on September 26, 2007; ``Examining the Human 
Health Impacts of Global Warming,'' on October 23, 2007; ``A 
Hearing to Examine America's Climate Security Act of 2007,'' on 
October 24, 2007 (Subcommittee); and three Full Committee 
hearings entitled ``Legislative Hearing on America's Climate 
Security Act of 2007, S. 2191,'' on November 8, November 13, 
and November 15, 2007. In addition, the Committee held numerous 
informal briefings on global warming related issues, including 
two briefings by some of the world's leading global warming 
scientists from the Intergovernmental Panel of Climate Change.

                      Regulatory Impact Statement

    In compliance with section 11(b) of rule XXVI of the 
Standing Rules of the Senate, the committee notes, based on 
CBO's estimates discussed in detail below, that S. 2191 would 
require certain types of private entities to participate in the 
cap-and-trade programs for GHG emissions created by the bill. 
CBO estimates that the cost of those requirements would amount 
to more than $90 billion each year during the 2012-2016 period.

                          Mandates Assessment

    Based upon the CBO cost estimate below, the Committee notes 
that S. 2191 contains several intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). CBO 
estimates that, during the first five years following 
enactment, states would realize a net benefit as a result of 
this bill's enactment (resulting from the allowances they would 
receive). Therefore, the annual threshold for intergovernmental 
mandate costs established in UMRA ($68 million in 2008, 
adjusted annually for inflation) would not be exceeded.
    In addition, as detailed below, the Committee notes that 
according to CBO S. 2191 also would impose private-sector 
mandates as defined in UMRA. The mandates would require certain 
types of private-sector entities to participate in the cap-and-
trade programs for GHG emissions created by the bill. CBO 
estimates that the cost of those mandates would amount to more 
than $90 billion each year during the 2012-2016 period, and 
thus substantially exceed the annual threshold established in 
UMRA for private-sector mandates ($136 million in 2008, 
adjusted annually for inflation).

               Congressional Budget Office Cost Estimate

    In compliance with the Standing Rules of the Senate, below 
are CBO estimates of the costs of this legislation.

S. 2191--America's Climate Security Act of 2007

    Summary: S. 2191 would set an annual limit or cap on the 
volume of certain greenhouse gases (GHGs) emitted from 
electricity-generating facilities and from other activities 
involving industrial production and transportation. Under this 
legislation, the Environmental Protection Agency (EPA) would 
establish two separate regulatory initiatives known as cap-and-
trade programs--one covering most types of GHGs and one 
covering hydrofluorocarbons (HFCs).
    EPA would distribute allowances to emit specific quantities 
of those gases. Some of the allowances would be allocated to 
the Climate Change Credit Corporation (the Corporation), an 
entity created by this bill. The Corporation would auction 
those allowances and use the proceeds to finance various 
initiatives, such as developing renewable technologies, 
assisting in the education and training of workers, and 
providing energy assistance for low-income households. EPA 
would distribute the remaining allowances at no charge, to 
states and other recipients, which could then sell, retire, 
use, or give them away. Over the 40 years that the proposed 
cap-and-trade programs would be in effect, the number of 
allowances and emissions of the relevant gases would be reduced 
each year.
    CBO estimates that enacting S. 2191 would increase revenues 
by about $1.19 trillion over the 2009-2018 period, net of 
income and payroll tax offsets. Over that period, we estimate 
that direct spending from distributing those proceeds would 
total about $1.21 trillion. The additional direct spending 
would exceed the added revenues by an estimated $15 billion, 
thus increasing future deficits (or decreasing surpluses) by 
that amount over the next 10 years. In addition, assuming 
appropriation of the necessary amounts, CBO estimates that 
implementing S. 2191 would increase discretionary spending by 
about $3.7 billion over the 2009-2018 period. Most of that 
funding would be used to support EPA personnel, contractors, 
and information technology necessary to implement this 
legislation.
    In years after 2018, annual direct spending would continue 
to exceed the net revenues attributable to the legislation each 
year, resulting in increased deficits (or decreased surpluses). 
Pursuant to section 203 of S. Con. Res. 21, the Concurrent 
Resolution on the Budget for Fiscal Year 2008, CBO estimates 
that changes in direct spending and revenues from enacting the 
bill would cause an increase in the on-budget deficit greater 
than $5 billion in at least one of the 10-year periods after 
2018.
    S. 2191 contains several intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). CBO 
estimates that, during the first five years following 
enactment, states would realize a net benefit as a result of 
this bill's enactment (resulting from the allowances they would 
receive). Therefore, the annual threshold for intergovernmental 
mandate costs established in UMRA ($68 million in 2008, 
adjusted annually for inflation) would not be exceeded.
    S. 2191 also would impose private-sector mandates as 
defined in UMRA. The most costly mandates would require certain 
types of private-sector entities to participate in the cap-and-
trade programs for GHG emissions created by the bill. CBO 
estimates that the cost of those mandates would amount to more 
than $90 billion each year during the 2012-2016 period, and 
thus substantially exceed the annual threshold established in 
UMRA for private-sector mandates ($136 million in 2008, 
adjusted annually for inflation).
    Major provisions: S. 2191 would require EPA to establish 
two cap-and-trade programs aimed at reducing the emission of 
GHGs in the United States over the 2010-2050 period. A cap-and-
trade program is a regulatory policy aimed at controlling 
pollution emissions from specific sources. The legislation 
would set a limit on total emissions for each year and would 
require regulated entities to hold rights, or allowances, to 
the emissions permitted under that cap. (Each allowance would 
entitle companies to emit one ton of carbon dioxide or to have 
one ton of carbon in the fuel that they sold.) After the 
allowances for a given period were distributed, entities would 
be free to buy and sell allowances among themselves.
    One program would cover emissions of carbon dioxide, 
methane, nitrous oxide, sulfur hexafluoride, and 
perfluorocarbons--defined in the legislation as group I GHGs. 
The other program would cover sales of HFCs--defined as group 
II GHGs. In addition, this legislation would require EPA to 
establish a cap-and-trade program for importers of certain 
carbon-intensive goods, such as steel and aluminum, beginning 
in 2020. Because this program for importers would begin outside 
the 10-year estimating period, CBO did not include any costs 
from this program. The details for the other programs are 
described below.

Cap-and-Trade Program for Group I Greenhouse Gases

    Beginning in 2012, facilities covered by the legislation 
would be required to submit to EPA one emission allowance for 
each ton \1\ of regulated GHGs emitted each year. Based on 
information from EPA, CBO estimates that between 2,000 and 
3,000 facilities would be affected by this requirement. 
Specifically, covered facilities include the following:
---------------------------------------------------------------------------
    \1\ A carbon dioxide equivalent is defined for each GHG as the 
quantity of that gas that makes the same contribution to global warming 
as one metric ton of carbon dioxide, as determined by EPA.
---------------------------------------------------------------------------
           Any facility that uses more than 5,000 tons 
        of coal each year;
           Plants producing natural gas or any facility 
        that produces natural gas in Alaska or imports natural 
        gas;
           Any facility or entity that produces or 
        imports petroleum or coal-based liquid, or gaseous fuel 
        that, when combusted, emits a group I GHG, assuming no 
        capture and sequestration of that gas;
           Any facility or entity that produces or 
        imports more than 10,000 carbon dioxide equivalents of 
        chemicals that are group I GHGs, assuming no capture 
        and sequestration of that gas; or
           Any facility that emits as a byproduct of 
        the production of HFCs more than 10,000 carbon dioxide 
        equivalents of HFCs.
    This legislation would not restrict the types of entities 
or individuals who could purchase, hold, exchange, or retire 
emission allowances for this group of GHGs. An unlimited number 
of allowances obtained in one year could be saved or ``banked'' 
indefinitely to be used in future years. Limited borrowing of 
allowances (that is, the use in one year of an allowance that 
has been established for use in a future year) also would be 
permitted. The program would limit domestic U.S. emissions of 
group I GHGs by covered entities to 5,775 million metric tons 
of carbon dioxide equivalent in 2012--about 93 percent of the 
level of such emissions by covered entities in 2005--and the 
cap would decline by about 106 million metric tons per year, 
falling to 1,732 million metric tons in 2050.
    A portion of an entity's compliance obligation under the 
bill could be met by purchasing ``offsets.'' An offset is 
created by activities (as certified by EPA) that are not 
directly related to the emissions of the facilities covered 
under the bill, but that reduce GHG emissions or increase the 
amount of such gases that are captured from the atmosphere and 
stored (known as sequestration). Examples of such activities 
include reducing emissions from landfills, sequestering GHGs on 
agricultural and rangelands, altering tillage practices, 
planting winter crops, and reducing the use of nitrogen 
fertilizer. Covered entities could also purchase emission 
allowances through international markets if approved by EPA.
    The cap for the group I GHGs cap-and-trade program would 
take effect in 2012. Of the emission allowances established for 
this program (5,775 million metric tons of carbon dioxide 
equivalent), 21.5 percent would be offered for sale that year 
to covered industries and other entities that wish to purchase 
them. Some allowances would be available for sale as early as 
2009 as part of an early auction. The percentage of emission 
allowances auctioned each year would increase steadily, 
reaching about 70 percent around 2030, and would remain at that 
level through 2050, the last year of the program. Emission 
allowances not auctioned would be distributed free of charge to 
covered entities, states, and other specified recipients, who 
could then retire, sell, or use such allowances to meet the 
annual obligation for their own covered emissions.

Cap-and-Trade Program for Group II Greenhouse Gases

    Beginning in 2010, producers and importers of HFCs would be 
required to submit to EPA a consumption allowance for each 
carbon dioxide equivalent ton of HFC produced or imported in 
the United States during the preceding calendar year. This 
program would only cover HFCs, which under this legislation 
would be measured in terms of carbon dioxide equivalents as 
reported in the Fourth Assessment Report of the 
Intergovernmental Panel on Climate Change.
    Beginning in 2012, EPA would be permitted to issue 
destruction allowances to producers and importers of HFCs that 
perform, or arrange for, the recovery and destruction of HFCs 
from products or equipment already in place. Such destruction 
allowances--the functional equivalent of offset allowances for 
group I GHGs--could be used by producers and importers to 
satisfy a portion of the submission requirement for consumption 
allowances. Similar to the group I GHGs program, this program 
would permit unlimited banking and limited borrowing of 
consumption and destruction allowances, though the lifetime of 
an allowance for HFCs would be no more than five years after 
the calendar year in which the allowance is allocated. In 
contrast to the group I program, only those entities that 
produce and import HFCs would be permitted to hold, sell, 
transfer, exchange, and retire consumption or destruction 
allowances.
    Of the consumption allowances established for the group II 
program, 5 percent would be auctioned to importers and 
producers of HFCs in 2010. The percentage auctioned would 
increase steadily in subsequent years, reaching 100 percent by 
2031 and continuing at that level through 2050, the last year 
of the program. Those consumption allowances not auctioned 
would be distributed to importers and producers of HFCs free of 
charge, and could then be retired, sold to other producers or 
importers of HFCs, or used to meet their annual obligations.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 2191 is shown in Table 1. The costs of 
this legislation fall within budget functions 300 (natural 
resources and environment), 270 (energy), and 050 (defense). 
For this estimate, CBO assumes that S. 2191 will be enacted by 
the end of fiscal year 2008, that the amounts necessary to 
implement the bill will be appropriated each year, and that 
outlays will follow historical spending patterns for similar 
programs.
    Basis of estimate: CBO estimates that implementing this 
legislation would result in additional revenues, net of income 
and payroll tax offsets, of $304 billion over the 2009-2013 
period, and about $1.19 trillion over the 2009-2018 period. We 
estimate that direct spending would increase by $281 billion 
and about $1.21 trillion over the same periods, respectively. 
Those changes in revenues and direct spending would stem almost 
entirely from the process of auctioning and freely distributing 
allowances under the cap-and-trade programs established under 
this legislation. In addition, CBO estimates that enacting this 
legislation would increase discretionary spending by about $3.7 
billion over the 2009-2018 period, assuming appropriation of 
the estimated amounts.

                                                                         TABLE 1.--ESTIMATED BUDGETARY IMPACT OF S. 2191
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           By fiscal year, in billions of dollars--
                                                             -----------------------------------------------------------------------------------------------------------------------------------
                                                                 2009       2010       2011       2012       2013       2014       2015       2016       2017       2018    2009-2013  2009-2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Auction of Allowances.......................................        1.0        3.2        5.7       26.5       31.9       37.9       43.1       47.1       51.4       57.7       68.3      305.5
Free Allocation of Allowances...............................          0        1.4        4.5      119.0      111.0      117.4      124.1      131.1      138.5      141.7      235.9      888.6
Other Revenues..............................................          0          *          *          *          *          *          *        0.1        0.1        0.1        0.1        0.3
                                                             -----------------------------------------------------------------------------------------------------------------------------------
      Total Estimated Revenues..............................        1.0        4.6       10.2      145.5      142.9      155.3      167.2      178.2      189.9      199.5      304.3    1,194.4

                                                                                   CHANGES IN DIRECT SPENDING

Spending from Auction Proceeds:
    Estimated Budget Authority..............................        1.3        4.3        7.6       35.3       42.5       50.6       57.4       62.8       68.5       77.0       91.0      407.3
    Estimated Outlays.......................................        0.1        0.4        1.4       10.2       18.8       28.1       38.6       47.9       55.5       62.3       30.9      263.3
Spending from Freely Allocated Emission Allowances:
    Estimated Budget Authority..............................          0        1.4        4.5      125.8      118.2      125.0      132.2      139.6      147.5      151.2      250.0      945.5
    Estimated Outlays.......................................          0        1.4        4.5      125.8      118.2      125.0      132.2      139.6      147.5      151.2      250.0      945.5
TVA and Other Spending:
    Estimated Budget Authority..............................          0          *          *          *          *          *        0.1        0.1        0.3        0.5          *        1.0
    Estimated Outlays.......................................          0          *          *          *          *          *        0.1        0.1        0.3        0.5          *        1.0
    Total Changes:
    Estimated Budget Authority..............................        1.3        5.7       12.1      161.1      160.8      175.6      189.7      202.5      216.3      228.7      341.0    1,353.7
    Estimated Outlays.......................................        0.1        1.8        6.0      136.1      137.0      153.1      170.9      187.6      203.3      214.0      280.9    1,209.7

                                                    NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS FROM CHANGES IN REVENUES AND DIRECT SPENDING

Impact on Deficit/Surplus \1\...............................        0.9        2.8        4.3        9.4        5.9        2.2       -3.7       -9.4      -13.3      -14.5       23.4      -15.4

                                                                          CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...............................        0.2        0.3        0.4        0.4        0.4        0.4        0.5        0.5        0.5        0.5        1.7        4.1
Estimated Outlays...........................................        0.1        0.2        0.3        0.4        0.4        0.4        0.5        0.5        0.5        0.5        1.3       3.7
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Positive numbers indicate decreases in deficits (or increases in surpluses); negative numbers indicate increases in deficits (or decreases in surpluses).

Notes: \*\ = less than $50 million;; TVA = Tennessee Valley Authority. Components may not sum to totals because of rounding.

Budgetary treatment of the activities of the Climate Change Credit 
        Corporation

    The Corporation created by this legislation would be 
responsible for auctioning the allowances created by the 
federal government and for spending the resulting proceeds on 
various initiatives, including research and development to 
support renewable energy technologies, workforce development 
programs, wildlife adaptation programs, and programs providing 
financial assistance to low-income energy consumers. The 
Corporation effectively would be part of the federal 
government, and the cash flows associated with auctioning the 
allowances and spending the proceeds should be recorded in the 
federal budget. Those auctions would be carried out as part of 
an exercise of the government's sovereign power. Consequently, 
CBO would consider the funds generated from the annual sale of 
emission and consumption allowances to be federal revenues and 
the spending of the auction proceeds to be federal outlays.

Budgetary treatment of freely allocated allowances

    The value of the group I allowances created and then given 
away at no charge should also be recorded in the budget as 
revenues and outlays, in CBO's view. The government is 
essential to the existence of the allowances and is responsible 
for their readily realizable monetary value through its 
enforcement of the cap on emissions. The allowances would trade 
in a liquid secondary market since firms or households could 
buy and sell them, and thus they would be similar to cash. CBO 
estimates that the value of the market created by the group I 
cap-and-trade program would be large, exceeding $100 billion in 
2012. Therefore, CBO considers the distribution of such 
allowances at no charge to be functionally equivalent to 
distributing cash.
    That type of scoring approach best illuminates the trade-
offs between different policy choices. Distributing allowances 
at no charge to specific firms or individuals is, in effect, 
equivalent to collecting revenue from an auction of the 
allowances and then distributing the auction proceeds to those 
firms or individuals. In other words, the government could 
either raise $100 by selling allowances and then give that 
amount in cash to particular businesses and individuals, or it 
could simply give $100 worth of allowances to those businesses 
and individuals, who could immediately and easily transform the 
allowances into cash through the secondary market. Treating 
allowances that were issued at no charge as both a revenue and 
an outlay would mean that those two equivalent transactions 
were reflected in parallel ways in the scoring process.
    In contrast, the proceeds associated with the allowances 
allocated for free to producers and importers of HFCs should 
not be recorded on the budget in CBO's view, primarily because 
we expect that the market created for such allowances would be 
relatively small and illiquid. This legislation would limit the 
entities that could hold, sell, retire, or use consumption 
allowances to the importers and producers of HFCs covered under 
the bill. Based on information from industry representatives, 
CBO estimates that fewer than 30 entities would be considered 
covered entities. Given the estimate of the price for 
consumption allowances, which is described below, CBO expects 
that the size and value of the overall market created by the 
cap-and-trade program for HFCs would be small--less than $2 
billion annually in most years. Therefore, unlike the 
allowances for group I GHGs, these allowances would not be 
sufficiently cash-like to merit inclusion in the federal 
budget, in CBO's view.

Revenues

    The impact of S. 2191 on federal revenues would largely be 
determined by the value of allowances created by the bill. 
Penalties for noncompliance and fees collected to administer 
the legislation would add a very small amount to total 
revenues. The following sections discuss how CBO estimated the 
auction prices for group I and group II allowances.
    Estimating the Prices for Emission Allowances for Group I 
GHGs. CBO estimates that the auction price of emission 
allowances for the group I GHGs would rise from about $23 per 
metric ton of carbon dioxide equivalent (mt CO2e) 
emissions in 2009 to about $44 per mt CO2e in 2018. 
(In 2006 dollars, the auction price per mt CO2e 
would rise from about $21 in 2009 to $35 in 2018.) Covered 
emissions of group I gases would decline by 7 percent in 2012 
and by 17 percent in 2018 from base-case emissions; over the 
entire 2012-2050 period, they would decline by 42 percent from 
the base case. Table 2 provides CBO's estimates of annual 
allowance prices for group I and group II cap-and-trade 
programs.

                                      TABLE 2.--ESTIMATED ALLOWANCE PRICES
----------------------------------------------------------------------------------------------------------------
                                                           By fiscal year, in dollars--
                                 -------------------------------------------------------------------------------
                                   2009    2010    2011    2012    2013    2014    2015    2016    2017    2018
----------------------------------------------------------------------------------------------------------------
Estimated Emission Allowance          23      24      26      28      30      33      35      38      41      44
 Price (Group I)................
Estimated Consumption Allowance     n.a.       7       7       8       8       9       9       9       9      9
 Price (Group II)...............
----------------------------------------------------------------------------------------------------------------
Note: n.a. = not applicable.

    Estimating the price for those allowances required several 
steps:
            A forecast (or base case) of GHG emissions 
        expected in the United States in the absence of any 
        federal policies to control them, as well as 
        projections of future prices of fossil fuels, 
        electricity, and other products and services closely 
        associated with such emissions;
            An estimate of how firms and households 
        would respond to increases in prices for fossil fuels 
        and other sources of GHG emissions. CBO used those 
        estimated responses to determine the changes in prices 
        that would be required to induce firms and households 
        to change their behavior and reduce their demand for 
        electricity and other energy-intensive goods and 
        services sufficiently to meet the proposed caps on 
        GHGs; and
            An evaluation of provisions that would 
        influence the market-clearing price of allowances, 
        notably the opportunity for firms to bank allowances in 
        one year and use them in another.
    Base Case. For its base case, CBO relied primarily on 
projections of energy use, fossil fuel prices, and GHG 
emissions from the Annual Energy Outlook 2007 (AEO 2007) and 
Annual Energy Outlook 2008 (AEO 2008) published by the Energy 
Information Administration (EIA). CBO adjusted those 
projections to align them with estimates of historical 
emissions published by EPA, and extended the projections from 
2030 to 2050.\2\ We also adjusted the projections to take into 
account recent changes in how emissions of non-carbon-dioxide 
gases are measured in terms of carbon dioxide equivalents.\3\
---------------------------------------------------------------------------
    \2\ See U.S. Environmental Protection Agency, Inventory of U.S. 
Greenhouse Gas Emissions and Sinks: 1990-2005 (EPA 430-R-07-002, April 
2007). CBO also used information provided by EPA to project the 
consumption of HFCs.
    \3\ EPA's current practice, consistent with international treaty, 
is to use the carbon dioxide equivalent measures of the warming 
potential of other gases from the Second Assessment Report of the 
Intergovernmental Panel of Climate Change, published in 1996. By 2012, 
however, it is very likely that the relevant domestic and international 
agencies will adopt the updated measures reported last year in the 
Fourth Assessment Report.
---------------------------------------------------------------------------
    Under current law, CBO projects that, over the 2009-2050 
period, total U.S. emissions of GHGs covered under group I 
would increase by 42 percent, from 6,274 mmt CO2e 
\4\ to about 8,900 mmt CO2e.
---------------------------------------------------------------------------
    \4\ mmt CO2e = a million metric tons of carbon dioxide 
equivalent.
---------------------------------------------------------------------------
    Responses by Firms and Households. CBO drew from a variety 
of sources to estimate the responses of firms and households to 
changes in fossil fuel prices. To estimate how much firms and 
households would reduce their use of fossil fuels and fuel-
intensive products under different allowance prices, CBO 
reviewed economic models currently used in the United States to 
analyze energy use and GHG emissions, including models used by 
EIA and EPA as well as those used by academic researchers.\5\ 
The sensitivity of energy use by households and businesses to 
changes in the price of fossil fuels varies significantly among 
the models. Three factors influence that price sensitivity: the 
long-run ability of businesses to substitute low-carbon fuels 
for high-carbon fuels; the long-run sensitivity of energy usage 
to higher energy prices; and the speed at which those long-run 
responses unfold.
---------------------------------------------------------------------------
    \5\ The models analyzed include the EIA's National Energy Modeling 
System (NEMS), the Emissions Prediction and Policy Analysis (EPPA) 
Model used by climate researchers at the Massachusetts Institute of 
Technology, the Applied Dynamic Analysis of the Global Economy (ADAGE) 
Model developed at RTI International and used by EPA, the Second 
Generation Model (SGM) and MiniCAM models developed and used by the 
Joint Global Change Research Institute, the Model for Evaluating the 
Regional and Global Effects of GHG Reduction Policies (MERGE) developed 
by Stanford University and EPRI, and the Multi-region National-North 
American Electricity and Environment (MRN-NEEM) Model developed and 
used by CRA International.
---------------------------------------------------------------------------
    Following that review, CBO developed its own assessment of 
the sensitivity of carbon dioxide emissions to changes in the 
price of allowances.\6\ The price sensitivities that CBO used 
in this analysis reflect those in the reviewed models, with 
adjustments to assumptions about the pace at which the energy-
using capital stock is likely to be replaced. CBO concluded 
that the response to price increases would rise substantially 
over time as firms and households replace existing vehicles, 
equipment, structures, and electricity-generating capacity with 
newer items that use less energy or emit smaller quantities of 
GHGs.
---------------------------------------------------------------------------
    \6\ For a more detailed discussion of the techniques CBO used to 
develop this assessment, see Mark Lasky, The Economic Costs of Reducing 
Emissions of Greenhouse Gases: A Survey of Economic Models, CBO 
Technical Paper (May 2003).
---------------------------------------------------------------------------
    According to CBO's estimates, in 2015, a 10 percent 
increase in the average price of end-use energy produced from 
fossil fuels would induce about a 5 percent reduction in 
CO2 emissions. With sustained increases in allowance 
prices over time, however, by 2025, a 10 percent increase would 
result in a nearly 9 percent reduction in emissions, with the 
sensitivity continuing to increase over time at a gradually 
decreasing rate.
    Response to Opportunities for Banking of Emission 
Allowances. If covered entities were required to use all of 
their emission allowances in the year for which they were 
originally designated, the inflation-adjusted price of 
allowances would rise at a rate that is significantly greater 
than CBO's estimate of the expected long-run inflation-adjusted 
rate of return to capital in the U.S. nonfinancial corporate 
sector (5.8 percent). As a result, banking as allowed under S. 
2191 would create opportunities for covered entities to earn 
greater-than-normal profits by undertaking extra GHG mitigation 
efforts in the initial years of the program when the prices 
were relatively low, banking the additional allowances, and 
submitting those allowances in later years, when the increasing 
stringency imposed by the program's declining caps would drive 
prices considerably higher. CBO assumed that investing in 
allowances would have roughly the same risk characteristics as 
typical investments in the U.S. nonfinancial corporate sector 
and that, as a consequence, covered entities would bank 
allowances up to the point at which the expected rate of return 
for doing so--that is, the expected rate of increase of 
mitigation costs over time--was equal to the expected rate of 
return from firms' alternative investment opportunities in that 
sector (5.8 percent).
    In the early years of the program, the opportunity for 
banking allowances would have a significant impact on the 
amount of emissions reduced, and thus on the emissions 
allowance price. CBO estimates that by 2018, covered entities 
would undertake significantly more mitigation than necessary to 
meet their annual emission caps, banking about 1.3 million mt 
CO2e of allowances and raising the allowance price 
by about 27 percent, compared with a policy that prohibited 
banking. Assuming that covered entities bank allowances in such 
a way as to have no allowances left at the end of 2050--the 
last year of the program--banked allowances would be roughly 
equivalent to the annual emissions cap for group I gases for 
much of the 2030s.
    Response to Offsets. CBO assumed that covered entities 
would take as full advantage of opportunities to obtain 
domestic offsets as is economically sensible, with a 
significant effect on allowance prices. We also assumed that 
the opportunity to obtain international emission allowances 
from markets of ``comparable stringency'' would not influence 
the price of domestic allowances. CBO is uncertain at this time 
about whether comparable markets would exist over the next 10 
years, whether EPA would determine that any other markets for 
GHG emission allowances were of ``comparable stringency,'' or 
whether allowance prices in such markets would be higher than, 
similar to, or lower than the price of domestic allowances at 
any given time.
    Estimating the Price of Consumption Allowances for HFCs. 
CBO estimates that the auction price of consumption allowances 
for HFCs would be in the vicinity of $7 per mt CO2e 
beginning in 2010. The cap would reduce group II emissions by 
about 40 percent in 2015, from about 450 mmt CO2e to 
about 270 mmt CO2e. For this estimate, CBO 
constructed a base-case projection of HFC production similar to 
a base case produced by EPA and consulted with industry 
sources, including a manufacturer and a recycler of HFCs. Based 
on information provided by those sources, CBO concluded that 
the price for the allowances is likely to be driven by 
responses to increasing prices of HFCs, by prices paid for the 
recycling of HFCs, and, over time, by prices of less harmful 
substitutes.
    By restricting the domestic supply of new HFCs below 
demand, the cap would tend to raise the price of HFCs, reducing 
the quantity demanded. CBO assumed that in the short term, 
demand for HFCs would be roughly as responsive to price 
increases as the demand for gasoline is, but that demand would 
become increasingly responsive over time as alternatives became 
available and equipment was replaced. Higher prices also would 
encourage recyclers to meet some of the demand by removing 
existing HFCs from older products, processing them, and making 
them available for sale. Over time, the cap for HFCs also would 
encourage the development and deployment of new types of HFCs 
and products designed around them. However, such innovations 
would take time to penetrate markets, and it is difficult to 
estimate the extent to which they are likely to displace the 
demand for existing products over the next decade. Thus, CBO 
anticipates that in the early years of the program, importers 
and exporters of HFCs would most likely turn to recycling their 
HFCs--currently costing roughly $8 per pound--as a primary 
means of meeting the restrictions imposed by the cap set under 
this legislation. In later years, alternative products of 
roughly similar costs would likely displace the supply for HFCs 
in new equipment. Given the likely price trajectory for HFC 
allowances, CBO did not find that it would be profitable for 
firms to bank allowances for future use.
    Net Revenue Calculation. Based on the estimated auction 
price of allowances discussed above for both cap-and-trade 
programs, we estimate that auctioning the allowances would 
generate revenues net of income and payroll tax offsets of 
about $68 billion over the 2009-2013 period and $306 billion 
over the 2009-2018 period. In addition, creating and freely 
distributing the emission allowances for the group I GHGs to 
various recipients would generate revenues, net of income and 
payroll tax offsets, of about $236 billion and $889 billion 
over the same periods, respectively, by CBO's estimate.
    The receipts from selling or giving allowances away would 
be indirect business charges that reduce the federal tax base 
for income and payroll taxes. Except in certain cases, CBO 
estimates that a portion of the gross gain to the federal 
government from such receipts would be offset by reductions in 
those other revenues; we assume that offset totals 25 percent--
an approximate marginal tax rate on overall economic activity.
    That longstanding methodology is widely used in the federal 
budget process to estimate the effects of legislation and 
assumes that overall economic activity (GDP) is held constant. 
Under that assumption, higher amounts of indirect business 
charges reduce other income in the economy. For example, if 
firms that must purchase allowances would be unable to pass 
those costs along, their profits would fall. More likely, some 
substantial portion would be passed along to others in the 
economy, such as consumers and employees, and other income 
would fall. Either way, the result would be lower taxable 
income in the economy, which would reduce federal revenues from 
income and payroll taxes.
    For this estimate, CBO did not apply the 25 percent 
reduction to all of the gross revenues, however, depending on 
how those revenues would be used. To the extent that the 
revenues would be used in ways that would generate new taxable 
income, such uses would offset the loss of income and payroll 
taxes that would result from the initial purchase of 
allowances.
    Therefore, CBO did not apply the 25 percent reduction to 
any revenues that would be used to make transfer payments to 
taxable entities without any conditions placed on the recipient 
regarding the use of those payments. While such transfer 
payments do not directly affect GDP because they are not made 
in exchange for goods or services, they are typically taxable. 
Thus, providing transfers to taxable entities generates 
additional federal revenue that would essentially offset the 25 
percent reduction in revenue collections. Most of the estimated 
revenues from allowances given away under S. 2191 would be used 
for such purposes.
    CBO also did not apply the 25 percent reduction in revenues 
to any allowances that would be given away under the bill and 
would not be immediately taxable to the individuals or 
businesses that receive them, but would generate taxable income 
when they were used or sold to others. Such allowances include 
those given away to facilities that generate electric power 
from fossil fuels and to facilities that produce or import 
petroleum-based fuel.
    In contrast, we applied the 25 percent reduction to any 
revenues that would be spent by the government on goods and 
services (for example, on research and development activities) 
because such government spending would substitute for other 
economic activity (under the assumption that GDP is unchanged 
by the bill). As a result, revenue used in this way would not 
generate any new taxable income. All of the proceeds from the 
auction of allowances would be used for those purposes.
    Other Revenues. Under S. 2191 civil penalties would be 
assessed at $25,000 per day for those owners and operators who 
fail to meet the reporting requirements for the federal 
registry established under this legislation. Penalties also 
would be assessed at the greater of $200 or three times the 
market rate for an emission allowance for those owners and 
operators who fail to submit the adequate number of allowances 
for the pollutants covered under the bill. Because those fees 
would be substantial, we would expect most firms to comply with 
the requirements of the bill. However, the number of entities 
covered by this legislation is large and thus it is likely that 
some noncompliance would occur. Penalties collected on 
emissions of sulfur dioxide and nitrogen oxides in excess of 
submitted allowances under EPA's Acid Rain Program, a similar 
program, are usually small, though there have been two large 
collections over the past few years, totaling about $4 million. 
Based on those factors, CBO estimates that penalty collections 
under S. 2191 would total between $25 million and $50 million 
dollars annually, beginning in 2012.
    This legislation also would establish a Carbon Market 
Efficiency Board, which would be responsible for monitoring the 
emissions trading market, periodically reporting to the 
President and the Congress on its operations, and implementing 
cost-relief measures, such as increasing the amount of 
allowances that covered entities may borrow and lengthening the 
payback period of such loans, to ensure that the market for 
allowances is stable, functioning, and efficient. The board 
would consist of seven members appointed by the President with 
the advice and consent of the Senate, and would have the 
authority to levy on owners and operators of covered facilities 
an assessment sufficient to pay the board's estimated expenses, 
including the salaries of the board members. CBO estimates that 
over the next 10 years, the board would levy assessments 
totaling $2 million to $4 million annually; those amounts would 
be recorded on the budget as revenues.

Direct spending

    CBO estimates that enacting this legislation would increase 
direct spending by $1.2 trillion over the 2009-2018 period. 
Outlays would stem from both spending of auction proceeds on 
several ongoing government programs and new federal initiatives 
that would be established by the legislation and from giving 
allowances to states and other entities free of charge. The 
components of the estimated direct spending are discussed 
below.
    Spending of Auction Proceeds. Revenues from the auction of 
emission allowances for the group I GHGs would be deposited 
into seven funds established by the Department of the Treasury. 
Spending from those funds would not require any further 
appropriation action. CBO's estimate of direct spending by 
funds over the 2009-2018 period is as follows:
           The Energy Assistance Fund ($64 billion) 
        would support various energy assistance programs for 
        low-income persons and other initiatives;
           The Climate Change Worker Training Fund ($12 
        billion) would primarily support training programs for 
        workers;
           The Adaptation Fund ($31 billion) would 
        primarily support research and education activities by 
        the Department of the Interior to assist fish and 
        wildlife in adapting to the impacts of climate change;
           The Climate Change and National Security 
        Fund ($16 billion) would finance steps to implement 
        recommendations stemming from the International Climate 
        Change Adaptation and National Security Program 
        established under this legislation;
           The Bureau of Land Management Emergency 
        Firefighting Fund ($2 billion) would support fire 
        suppression activities on federal wildlands;
           The Forest Service Emergency Firefighting 
        Fund ($6 billion) would support fire suppression 
        activities on federal wildlands; and
           The Energy Independence Acceleration Fund 
        ($6 billion) would support research activities by the 
        Department of Energy.
    In addition, auction proceeds would be allocated to the 
Energy Deployment Program, and the Corporation would have the 
authority to spend a specified percentage of the auction 
proceeds on that program without further appropriation action. 
CBO estimates that spending for that program would total about 
$123 billion over the next 10 years. In total, CBO estimates 
that spending from those funds and on the Energy Deployment 
Program would increase direct spending by about $30 billion 
over the 2009-2013 period and by about $260 billion over the 
2009-2018 period. In addition, some proceeds would be deposited 
into the Climate Security Act Management Fund; however, 
spending from this fund could not occur without further 
appropriation action.
    Revenues from the auction of consumption allowances for the 
group II GHGs also would be spent by the Corporation without 
further appropriation to support various initiatives. Those 
initiatives would include efforts to recover and destroy the 
maximum economically recoverable amount of chlorofluorocarbons 
and halons from existing and obsolete equipment and products 
and a program to provide incentives for consumers to purchase 
refrigeration and cooling equipment that contains refrigerants 
with no or low global-warming potential. We estimate that those 
provisions would increase direct spending by about $400 million 
over the 2009-2013 period and by about $3 billion over the 
2009-2018 period.
    Outlays Associated with Emission Allowances Freely 
Allocated. CBO estimates that direct spending would increase by 
about $250 billion over the 2009-2013 period and by $946 
billion over the 2009-2018 period when the government 
distributes the emission allowances free of charge to various 
recipients, beginning in 2010.
    Spending by the Tennessee Valley Authority (TVA) and Other 
Outlays. Implementing this bill would increase net direct 
spending by TVA by about $1 billion over the 2009-2018 period, 
but CBO estimates such spending should have no net impact on 
the budget over time. TVA is one of the nation's largest 
electricity marketers and currently accounts for about 5 
percent of the country's coal-generation capacity. For this 
estimate, CBO assumes that TVA would retire existing coal 
plants faster than under current law, possibly replacing about 
10 percent of its coal capacity by 2020. Given the time needed 
to plan and build new plants, we assume that such investments 
would begin after 2013 and total about $1 billion over the 
2013-2018 period. TVA is required to recover all of its costs 
over time through proceeds from electricity sales and typically 
recovers the cost of such capital investments over a 30-year 
period after the plant goes into service. Thus, CBO estimates 
that the additional capital spending necessary to comply with 
this bill would have no net effect on direct spending over 
time. Similarly, we estimate that purchases of allowances would 
have no net impact on TVA's direct spending because such 
operating expenses should be recovered immediately through 
higher receipts from sales of electricity.
    CBO estimates that direct spending by the Carbon Market 
Efficiency Board would total about $17 million over the 2009-
2013 period and $37 million over the 2009-2018 period. Such 
spending would stem from the fees collected by the board to 
cover its administrative costs.

Budgetary Impact After 2018

    After 2018 and through 2050, annual direct spending would 
continue to exceed net revenues attributable to this 
legislation, CBO estimates. Consequently, in each of the three 
10-year periods after 2018, the difference between revenues and 
direct spending would cause an increase in the on-budget 
deficit greater than $5 billion. The estimated on-budget 
deficits after 2018 stem from the budgetary consequences of 
auctioning allowances and spending the proceeds on government 
activities. As discussed in the earlier section entitled Net 
Revenue Calculation, net receipts to the government from those 
auctions, after accounting for their impact on receipts from 
income and payroll taxes, would equal about 75 percent of the 
amounts paid for the allowances that are auctioned. At the same 
time, the legislation would specify the spending of 100 percent 
of those proceeds. Thus, new direct spending under the 
legislation would exceed new revenues attributable to its 
enactment.

Spending Subject to Appropriation

    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing this legislation would increase 
discretionary spending by about $3.7 billion over the 2009-2018 
period.
    Funding for the Environmental Protection Agency. S. 2191 
would authorize the appropriation of whatever amounts are 
necessary from the Climate Security Act Management Fund 
established by the legislation for EPA to implement the bill's 
requirements, beginning in 2012. EPA could also distribute 
funds to various federal agencies that would help administer 
the proposed cap-and-trade programs.
    Based on our analysis of how similar large government 
programs have been implemented, CBO estimates that implementing 
S. 2191 would require the appropriation of $200 million in 2009 
and $1.7 billion over the 2009-2013 period. Such funding would 
primarily cover costs associated with hiring up to 400 
additional personnel, developing rules, implementing programs 
to monitor air quality programs, and reporting to the Congress 
on the pollution control programs that would be established by 
the bill.
    Funding for the Department of Energy. Under this 
legislation, the Department of Energy (DOE) would establish 
standards for increasing the energy efficiency of certain 
appliances, products, and buildings. In coordination with other 
federal agencies, DOE would also be required to assess the 
feasibility of constructing pipelines and other facilities 
related to the sequestration of carbon dioxide. Assuming 
appropriation of the necessary amounts, CBO estimates that 
those activities would cost $2 million in 2009 and $10 million 
over the 2009-2013 period, particularly for the cost of 
providing financial and technical assistance to states to 
update and enforce building codes. That estimate is based on 
historical costs for similar DOE activities.
    Funding for the Department of the Interior. Section 8002 
would require a national assessment by the U.S. Geological 
Survey of geological formations in the United States and their 
potential capacity for storing carbon dioxide. Section 8003 
would require the Secretary of Energy, in coordination with 
other agencies, to conduct a study to assess the feasibility of 
constructing pipelines to transport carbon dioxide for the 
purpose of sequestration or enhanced oil recovery. CBO 
estimates that carrying out the studies would cost $31 million 
over the 2009-2013 period.
    Estimated impact on State, local, and tribal governments: 
S. 2191 contains several intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act. CBO estimates that states 
would realize a net benefit as a result of the bill's enactment 
and that the threshold for intergovernmental mandates 
established in UMRA ($68 million for intergovernmental mandates 
in 2008, adjusted annually for inflation) would not be 
exceeded.
    Specifically, the bill would require covered facilities, 
including electric power plants, to participate in a cap-and-
trade program for GHGs. State and local governments own roughly 
10 percent of those electric power facilities and would be 
required to:
          Submit an emission allowance to EPA for each 
        metric ton of carbon dioxide equivalent produced, 
        imported, or emitted;
          Reduce emissions of GHGs annually though 
        2050;
          Participate in the Federal Greenhouse Gas 
        Registry by submitting periodic reports to EPA, 
        including annual and quarterly data regarding GHG 
        emissions and production; and
          Provide information to EPA to verify the 
        accuracy of data on fossil fuels and GHGs.
    As part of the requirement to submit emission allowances, 
the bill would give state, local, and tribal governments free 
allowances to offset the costs associated with the bill. CBO 
estimates that the number of allowances given to those 
governments collectively would exceed the amount they need to 
satisfy the requirements under the cap-and-trade program. In 
addition, states would be allowed to sell the surplus 
allowances at market value. CBO estimates that the proceeds 
from selling excess allowances would more than offset the costs 
of the mandates and would result in a net benefit to state, 
local, and tribal governments totaling approximately $33 
billion from fiscal year 2012 (the first year the mandates are 
effective) through fiscal year 2016.
    Although the bill would result in a net benefit to state, 
local, and tribal governments, variations among regions and 
among levels of government are likely. Utilities in some parts 
of the country rely more on technologies that emit high levels 
of carbon than those in other regions. In those cases, publicly 
owned power plants would face higher costs and might not have 
excess credits to sell. Similarly, local governments are more 
likely than state governments to own and operate utilities. 
Consequently, they could face costs while the benefits would 
accrue to state governments. Nationwide, however, state, local, 
and tribal governments would receive a net benefit from 
enacting the bill.
    S. 2191 also contains several smaller mandates. Some 
reporting requirements would begin in 2009, and covered 
facilities, including those owned and operated by state, local, 
and tribal governments, would incur costs before the start of 
the cap-and-trade programs in 2012. According to EPA, the 
majority of the electric energy sector is already required to 
report similar data to EPA under the Clean Air Act. In 
addition, the bill would require each state to certify that it 
has reviewed and updated the provisions of residential and 
commercial building codes for energy efficiency. CBO estimates 
that the costs associated with those mandates would be small.
    In addition, S. 2191 would give state governments free 
allowances in exchange for implementing voluntary regulations, 
assisting mass transportation systems, and augmenting recycling 
programs. CBO estimates the value of those additional 
allowances, which could be sold, would be approximately $58 
billion through 2016.
    Finally, the bill would create several grant programs for 
workforce training, state energy adaptation strategies, and 
research and development of energy efficiency technologies. 
Those grant programs would benefit participating state, local, 
and tribal governments, and any costs would be incurred 
voluntarily as a condition of receiving federal assistance.
    Estimated impact on the private sector: S. 2191 would 
impose several private-sector mandates as defined in UMRA. 
Those mandates would require entities in the private sector to 
comply with various measures to reduce emissions of GHGs. The 
most costly mandates would require certain types of private-
sector entities to participate in the cap-and-trade programs 
for GHGs created in the bill. CBO estimates that the direct 
cost of the mandates in the bill would substantially exceed the 
annual threshold established in UMRA for private-sector 
mandates ($136 million in 2008, adjusted annually for 
inflation).

Cap-and-Trade Programs

    Group I Greenhouse Gases. The cap-and-trade program for 
group I GHG emissions would require covered facilities to 
submit one allowance per metric ton of carbon dioxide 
equivalent emitted beginning in 2012. The direct cost to the 
private sector would be equal to the cost to covered facilities 
to acquire allowances beyond the amount allocated to them for 
free under the bill, to purchase offsets to cover their 
emissions, and to directly reduce their emissions of GHGs. 
Based on the estimated allowance prices in Table 2, CBO 
estimates that the total cost of this requirement would amount 
to about $90 billion in 2012 and more in subsequent years. The 
allowance prices, purchases, and emission reductions used in 
estimating those costs account for the banking of allowances.
    While covered facilities would be responsible for the 
initial cost, CBO estimates that most of that cost would 
ultimately be passed on to consumers in the form of higher 
prices for energy and energy-intensive goods and services.\7\ 
The bill would create several mechanisms to mitigate some of 
the costs to consumers. The bill would provide allowances to 
electricity and natural gas companies that sell to retail 
consumers to mitigate the costs to low- and middle-income 
consumers or to promote energy efficiency. States also would 
receive allowances and could use the funds from the sale of 
those allowances to lessen the costs to low-income consumers. 
In addition, funds from auctioned allowances deposited into the 
Energy Assistance Fund would help mitigate the costs to low-
income consumers.
---------------------------------------------------------------------------
    \7\ See Congressional Budget Office, Trade-Offs in Allocating 
Allowances for CO2 Emissions (April 25, 2007) and Shifting 
the Burden of a Cap-and-Trade Program (July 2003).
---------------------------------------------------------------------------
    In addition to submitting allowances, covered facilities 
would be required to report GHG emissions data to the federal 
registry. Based on information from EPA, CBO expects that the 
cost to comply with this reporting requirement would be small. 
Covered facilities also would be required to pay a fee to the 
Carbon Market Efficiency Board to cover the operating costs of 
the board. CBO estimates that the fees would total $2 million 
to $4 million annually.
    Group II Greenhouse Gases. The cap-and-trade program for 
HFC consumption would require producers and importers of HFCs 
to submit consumption or destruction allowances annually, 
beginning in 2010, for each carbon dioxide equivalent of HFC 
produced or imported in the United States during the preceding 
calendar year. The direct cost to the private sector would be 
the cost to those entities to acquire consumption allowances 
beyond the amount allocated to them for free, to purchase 
destruction allowances, and to recycle HFCs. Based on the 
estimated consumption allowance prices in Table 2, CBO 
estimates that the cost to HFC producers and importers to 
purchase the auctioned allowances in 2010 would be about $100 
million and would increase in subsequent years.
    Carbon-Intensive Goods. The bill would direct EPA to 
establish a program for certain carbon-intensive goods that 
would require importers of those goods, beginning in 2020, to 
submit international reserve allowances. Specifically, this 
provision would target carbon-intensive goods imported from 
countries that do not have equivalent carbon-reduction policies 
in place. International reserve allowances could be purchased 
from the federal government or acquired through a trading 
system if one is established. Importers also could submit 
approved foreign allowances or credits. Because of uncertainty 
about the number of allowances that would be required per 
product and the countries whose goods would be required to be 
covered by allowances, CBO cannot estimate the cost of this 
mandate.

Other mandates

    S. 2191 would impose several other mandates on private-
sector entities. The bill would direct EPA to regulate the 
sale, distribution, use, and disposal of HFC refrigerants with 
a high global-warming potential used in appliances or 
industrial refrigeration equipment. It also would prohibit the 
sale of small containers of HFC refrigerants with a high 
global-warming potential for the servicing of motor vehicle air 
conditioners except to certified technicians. Based on 
information from EPA analyses of proposed rules to regulate HFC 
refrigerants, CBO expects that the cost of each of those 
mandates would be small relative to the threshold in UMRA.
    The bill also would impose a mandate by requiring fuel 
providers to reduce the average lifecycle GHG emissions in 
transportation fuel. The cost of that mandate would depend on 
the method used by EPA to measure lifecycle GHG emissions from 
all transportation fuels. Lastly, the requirement that state 
governments certify updates of building codes related to energy 
efficiency could impose a mandate on developers. Because of 
uncertainty about the number of buildings affected by those 
state codes, CBO cannot estimate the cost of that mandate.
    Comparison with other estimates: Estimates of the cost to 
purchase allowances created for a program to restrict GHG 
emissions can vary for many reasons. The most important 
differences among estimates of the price of those allowances 
are:
           Base case projections of GHG emissions and 
        energy prices;
           The assumed responsiveness of households and 
        firms to changes in prices of goods and services 
        associated with emissions;
           The discount rate that allowance holders are 
        assumed to apply to decisions about whether to bank 
        allowances and how many to bank. The lower the assumed 
        discount rate, the more emission reductions covered 
        entities are likely to undertake in early years of the 
        program so that they can have somewhat higher emissions 
        in later years. Thus, a lower discount tends to raise 
        the estimated allowance price in early years but lower 
        it in later years; \8\ and
---------------------------------------------------------------------------
    \8\ All else being equal, changing the assumed discount rate by one 
percentage point would change CBO's permit price for group I emissions 
in 2015 by roughly $6 to $7.
---------------------------------------------------------------------------
           The availability of offsets. The more 
        domestic or international offsets that would be 
        available, and the cheaper those offsets would be, the 
        lower the allowance price would be.
    CBO is not aware of any published analysis of S. 2191 that 
presents a 10-year estimated impact on federal revenues and 
expenditures. Three analyses of S. 2191 as ordered reported by 
the Senate Committee on Environment and Public Works are 
currently publicly available. Those studies report different 
estimates of allowance prices for group I GHGs than does CBO. 
That allowance price is perhaps the most important determinant 
of the estimated budgetary impact of the legislation.
    One of the analyses, published by the Massachusetts 
Institute of Technology's (MIT's) Joint Program on the Science 
and Policy of Global Change, uses the Emissions Prediction and 
Policy Analysis (EPPA) Model to estimate allowance prices.\9\ 
The MIT analysis reports an emission allowance price, measured 
in 2005 dollars, of nearly $48 per mt CO2e 
equivalent for the year 2015. In comparison, CBO's estimate of 
the allowance price in 2015 is about $29 in 2005 dollars. The 
difference in price occurs largely because:
---------------------------------------------------------------------------
    \9\ See Paltsev and others (2008), ``Appendix D: Analysis of the 
Cap and Trade Features of the Lieberman-Warner Climate Security Act (S. 
2191), available at http://web.mit.edu/globalchange/www/
MITJPSPGC_Rpt146_AppendixD.pdf.
---------------------------------------------------------------------------
           The MIT analysis assumes higher emissions in 
        its base case than CBO does, requiring higher allowance 
        prices to reach the cap.
           MIT uses a much lower discount rate than 
        CBO, resulting in more banking and thus higher 
        allowance prices in the early years of the program.
           MIT does not allow for the possibility of 
        offsets from domestic agriculture and forestry 
        activities, also resulting in higher allowance prices.
    Those differences are partially offset by the fact that the 
EPPA model used by MIT assumes more price responsiveness among 
households and firms than CBO's analysis, tending (all else 
being equal) to reduce the estimated allowance price.
    A second analysis, released by EPA, uses several different 
models to estimate allowance prices, including the 
Intertemporal General Equilibrium Model (IGEM) and Applied 
Dynamic Analysis of the Global Economy (ADAGE) models.\10\ That 
analysis reports a wide range of estimates for emission 
allowance prices in 2015--from $11 to $77 per mt 
CO2e, measured in 2005 dollars--based on varying 
assumptions about baselines and the projected availability of 
technologies and offsets as well as on different models. That 
range brackets CBO's estimate for 2015 of $29 per mt 
CO2e. Differences between EPA's estimates of 
allowance prices and those of CBO can be traced to several 
sources:
---------------------------------------------------------------------------
    \10\ See U.S. Environmental Protection Agency, EPA Analysis of the 
Lieberman-Warner Climate Security Act of 2008 S. 2191 in 110th Congress 
(March 14, 2008). Available at http://www.epa.gov/climatechange/
downloads/s2191_EPA_Analysis.pdf.
---------------------------------------------------------------------------
           EPA's reference case assumes more emissions 
        than CBO's base case. (For one scenario, EPA assumes an 
        alternative reference case that appears to be roughly 
        comparable to CBO's base case.)
           One of EPA's models (ADAGE) assumes more 
        responsiveness to changes in prices of goods and 
        services associated with emissions than does CBO's 
        analysis, while the other (IGEM) appears to assume 
        less. For any given policy proposal, all else being 
        equal, CBO's estimate of the allowance price should 
        fall between estimates from EPA's models.
           EPA assumes a somewhat lower discount rate 
        than CBO, and that assumption results in more banking 
        and higher allowance prices in the early years of the 
        program.
           For different scenarios, EPA assumes 
        domestic and international offsets ranging from zero to 
        unlimited. In its standard scenarios, EPA assumes that 
        domestic and international offsets can each equal 15 
        percent of the total number of submitted allowances in 
        each year, tending to moderate the price of emission 
        allowances.
    A third analysis, by the Clean Air Task Force (CATF), uses 
a version of the National Energy Modeling System (NEMS) to 
estimate allowance prices.\11\ That analysis reports an 
emission allowance price (measured in 2005 dollars) of about 
$16 per mt CO2e for the year, about 44 percent lower 
than CBO's cost estimate of $29 per mt CO2e. That 
difference in prices largely occurs because:
---------------------------------------------------------------------------
    \11\ See Clean Air Task Force, The Lieberman-Warner Climate 
Security Act--S. 2191: A Summary of Modeling Results from the National 
Energy Modeling System (February 2008). Available at http://
www.catf.us/publications/presentations/CATF_LWCSA_short-
Hill_Briefing_with_CAFE.pdf
---------------------------------------------------------------------------
           CATF uses a higher discount rate than CBO, 
        resulting in no emissions banking before 2018 and much 
        lower allowance prices.
           CATF assumes that domestic and international 
        offsets will each equal 15 percent of the number of 
        emission allowances in each year, also tending to 
        reduce allowance prices.
    A fourth analysis, by CRA International, uses the MRN-NEEM 
Model to estimate allowance prices.\12\ The CRA analysis 
indicates an emission allowance price, measured in 2007 
dollars, of about $50 per mt CO2e for 2015. In 
comparison, CBO's estimate of the allowance price in that year 
is about $30 in 2007 dollars. The difference in price occurs 
largely because CRA uses a much lower discount rate than CBO, 
resulting in more banking and thus higher allowance prices in 
the early years of the program.
---------------------------------------------------------------------------
    \12\ See Montgomery and Smith (2008), ``Economic Analysis fo the 
Lieberman-Warner Climate Security Act of 2007 Using CRA's MRN-NEEM 
Model,'' available at http://www.nma.org/pdf/
040808_crai_presentation.pdf.
---------------------------------------------------------------------------
    Previous CBO estimate: On April 10, 2008, in addition to 
this estimate, CBO provided a cost estimate for S. 2191 with a 
proposed amendment transmitted to CBO on April 9, 2008. That 
amendment would change the allocation of emission allowances 
that would be auctioned and given away at no charge. Compared 
with the version of S. 2191 including the proposed amendment, 
CBO estimates that, over the 2009-2018 period, the reported 
bill would result in $15 billion less in revenues, $79 billion 
more in direct spending outlays, and $81 billion less in 
spending subject to appropriation. Those differences result 
from provisions in the amendment that would increase the 
portion of allowances that would be auctioned, deposit a 
portion of auction proceeds into a Climate Change Deficit 
Reduction Fund, and make spending from that fund subject to 
appropriation.
    Estimate prepared by: Federal Revenues: Mark Booth; Direct 
Spending: Susanne S. Mehlman; All Other Federal Costs: Deborah 
Reis, Megan Carroll, Kathleen Gramp, and Tyler Kruzich. 
Allowance Prices: Robert G. Shackleton Jr. and Mark J. Lasky, 
and Terry Dinan and Natalie Tawil. Impact on State, Local, and 
Tribal Governments: Neil Hood. Impact on the Private Sector: 
Amy Petz.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis; G. Thomas Woodward, Assistant 
Director for Tax Analysis; Robert A. Dennis, Assistant Director 
for Macroeconomic Analysis.

S. 2191--America's Climate Security Act of 2007

    S. 2191 would set an annual limit or cap on the volume of 
certain greenhouse gases (GHGs) emitted from electricity-
generating facilities and from other activities involving 
industrial production and transportation. Under this 
legislation, the Environmental Protection Agency (EPA) would 
establish two separate regulatory initiatives known as cap-and-
trade programs--one covering most types of GHGs and one 
covering hydrofluorocarbons (HFCs).
    EPA would distribute allowances to emit specific quantities 
of those gases. Some of the allowances would be allocated to 
the Climate Change Credit Corporation (the Corporation), an 
entity created by this bill. The Corporation would auction 
those allowances and use the proceeds to finance various 
initiatives, such as developing renewable technologies, 
assisting in the education and training of workers, and 
providing energy assistance for low-income households. EPA 
would distribute the remaining allowances at no charge, to 
states and other recipients, which could then sell, retire, 
use, or give them away. Over the 40 years that the proposed 
cap-and-trade programs would be in effect, the number of 
allowances and emissions of the relevant gases would be reduced 
each year.
    The proposed amendment would change the allocation of those 
emission allowances that would be auctioned and given away at 
no charge. A larger portion of the available allowances each 
year would be auctioned, and some of the proceeds would be 
deposited into a Climate Change Deficit Reduction Fund in the 
Treasury, established by the amendment. Spending from this fund 
would be subject to appropriation.
    CBO estimates that enacting S. 2191, as amended, would 
increase revenues by about $1.21 trillion over the 2009-2018 
period, net of income and payroll tax offsets. Over that 
period, we estimate that direct spending from distributing 
those proceeds would total about $1.13 trillion. The additional 
revenues would exceed the new direct spending by an estimated 
$78 billion, thus decreasing future deficits (or increasing 
surpluses) by that amount over the next 10 years (see attached 
table). In addition, assuming appropriation of the necessary 
amounts, CBO estimates that implementing S. 2191 would increase 
discretionary spending by about $84 billion over the 2009-2018 
period.
    In years after 2018, annual direct spending would be less 
than the net revenues attributable to the legislation each 
year.
    S. 2191 contains several intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). CBO 
estimates that, during the first five years following 
enactment, states would realize a net benefit as a result of 
this bill's enactment (resulting from the allowances they would 
receive). Therefore, the annual threshold for intergovernmental 
mandate costs established in UMRA ($68 million in 2008, 
adjusted annually for inflation) would not be exceeded.
    S. 2191 also would impose private-sector mandates as 
defined in UMRA. The most costly mandates would require certain 
types of private-sector entities to participate in the cap-and-
trade programs for GHG emissions created by the bill. CBO 
estimates that the cost of those mandates would amount to more 
than $90 billion each year during the 2012-2016 period, and 
thus substantially exceed the annual threshold established in 
UMRA for private-sector mandates ($136 million in 2008, 
adjusted annually for inflation).
    On April 10, 2008, CBO transmitted a cost estimate for S. 
2191 as ordered reported by the Senate Committee on Environment 
and Public Works on December 5, 2007. Compared with the version 
of S. 2191 including the proposed amendment, CBO estimates 
that, over the 2009-2018 period, the version of the bill that 
was ordered reported would result in $15 billion less in 
revenues, $79 billion more in direct spending outlays, and $81 
billion less in spending subject to appropriation. Those 
differences result from provisions in the amendment that would 
increase the portion of allowances that would be auctioned, 
deposit a portion of auction proceeds into a Climate Change 
Deficit Reduction Fund, and make spending from that fund 
subject to appropriation.
    The staff contact for this estimate is Susanne S. Mehlman. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                                              ESTIMATED BUDGETARY IMPACT OF S. 2191, WITH A PROPOSED AMENDMENT TRANSMITTED TO CBO ON APRIL 9, 2008
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           By fiscal year, in billions of dollars--
                                                             -----------------------------------------------------------------------------------------------------------------------------------
                                                                 2009       2010       2011       2012       2013       2014       2015       2016       2017       2018    2009-2013  2009-2018
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Proceeds from Auctioning Allowances:
    Allocated for Government Activities.....................        0.9        3.0        5.4       24.9       29.9       35.4       40.2       43.8       47.7       53.3       64.1      284.5
    Allocated for Deficit Reduction.........................          0          0          0        9.9       10.9       12.0       13.1       14.3       15.6       17.5       20.9       93.4
Free Allocation of Allowances...............................          0        1.3        4.3      114.7      104.0      109.7      115.7      121.9      128.4      130.8      224.3      830.7
Other Revenues..............................................          0          *          *          *          *          *          *        0.1        0.1        0.1        0.1        0.3
                                                             -----------------------------------------------------------------------------------------------------------------------------------
      Total Estimated Revenues..............................        0.9        4.4        9.6      149.5      144.8      157.1      169.0      180.0      191.8      201.7      309.3    1,208.9

                                                                                   CHANGES IN DIRECT SPENDING

Spending from Auction Proceeds:
    Estimated Budget Authority..............................        1.2        4.0        7.2       33.1       39.8       47.3       53.5       58.4       63.6       71.1       85.4      379.4
    Estimated Outlays.......................................        0.1        0.4        1.4        9.7       17.7       26.4       36.1       44.7       51.7       57.9       29.1      245.9
Spending from Freely Allocated Emission Allowances:
    Estimated Budget Authority..............................          0        1.3        4.3      121.1      110.8      116.8      123.2      129.8      136.8      139.5      237.4      883.6
    Estimated Outlays.......................................          0        1.3        4.3      121.1      110.8      116.8      123.2      129.8      136.8      139.5      237.4      883.6
TVA and Other Spending:
    Estimated Budget Authority..............................          0          *          *          *          *          *        0.1        0.1        0.3        0.5          *        1.0
    Estimated Outlays.......................................          0          *          *          *          *          *        0.1        0.1        0.3        0.5          *        1.0
Total Changes:
    Estimated Budget Authority..............................        1.2        5.4       11.4      154.3      150.6      164.1      176.8      188.3      200.7      211.2      322.9    1,264.0
    Estimated Outlays.......................................        0.1        1.7        5.6      130.8      128.4      143.2      159.4      174.7      188.8      197.9      266.6    1,130.5

                                                    NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS FROM CHANGES IN REVENUES AND DIRECT SPENDING

Impact on Deficit/Surplus \1\...............................        0.9        2.6        4.0       18.8       16.4       13.9        9.6        5.4        3.0        3.8       42.7       78.4

                                                                          CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...............................        0.2        0.3        0.4       10.3       11.3       12.4       13.5       14.7       16.0       18.0       22.7       97.5
Estimated Outlays...........................................        0.1        0.2        0.3        4.3        9.2       11.6       12.7       13.8       15.1       16.6       14.3      84.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Positive numbers indicate decreases in deficits (or increases in surpluses); negative numbers indicate increases in deficits (or decreases in surpluses).
Notes: * = less than $50 million; TVA = Tennessee Valley Authority. Components may not sum to totals because of rounding.


    MINORITY VIEWS OF SENATORS INHOFE, CRAIG, ISAKSON, AND VOINOVICH

    The Climate Bill, S. 2191 should be opposed and returned to 
the Environment and Public Works Committee by the full Senate 
because the Committee failed to address the important issues 
that are needed in order to craft a workable cap and trade 
system to control greenhouse gases, including protecting the 
American people from higher energy prices (and other adverse 
economic impacts) and ensuring that global greenhouse gas 
emissions actually decline.
    The Chairman spent the majority of the hearings leading up 
to the Committee markup exploring and defining the problem and 
almost no time examining the issues surrounding the potential 
solutions. The final legislative product reflects the process.
    Instead of focusing on the real issues necessary for the 
Committee to craft meaningful legislation, the Chairman chose 
to focus most of the legislative hearings on so-called impacts 
issues. A perfect example of this was a hearing held on May 24, 
2007 titled ``The Issue of the Potential Impacts of Global 
Warming on Recreation and the Recreation Industry.'' The 
apparent point of this hearing was to show that if there is no 
snow in fifty years that the skiing industry might suffer. A 
fact that while no one would dispute, can hardly be helpful in 
informing the Committee how to craft a cap and trade program.
    Contrast this Committee process with the process currently 
underway in the House Committee on Energy and Commerce. This 
Committee, which has jurisdiction over climate change and 
environmental issues in the House, is pursuing the issue under 
a much more methodical and deliberative process, as any 
legislation of this magnitude demands. Acknowledging the 
complexity of the issues surrounding any mandatory greenhouse 
gas reduction policy, the Committee has held a series of 
hearings and has released several White Papers. The topics have 
included the fundamental aspects of greenhouse gas cap and 
trade policy, including the point of regulation and the 
benefits of auction versus allocation schemes, the interaction 
of climate change policy with other environmental laws like the 
Clean Air Act, the Endangered Species Act and the National 
Environmental Policy Act, state and federal preemption issues, 
international competitiveness and how to engage the developing 
world, and technology barriers. These are only threshold 
issues, as each one lends itself to further examination.
    In addition to failing to consider issues studied by the 
House Committee, the Chairman also failed to examine several 
other major aspects of the legislation. Unfortunately, the list 
of issues unaddressed by this Committee is longer than the 
actual list of hearings the Chairman did hold. These topics, 
which were never explored by the Committee prior to drafting 
the legislation include; how to draft a Cap and Trade system, 
how to allocate credits, how to design an auction system, how 
many credits to assign each industrial sector, how to create 
the Climate Change Credit Corporation, the impact of 
hydrofluorocarbons, how to structure the Carbon Market 
Efficiency Board, how to create a domestic graphic offset 
program, what to do with international offsets, what the 
impacts would be on fuel switching, whether carbon capture and 
storage technologies will be available by 2030, whether the 
number of nuclear power plants can be built in time to provide 
the necessary electricity, how the impact on the natural gas 
supply will affect other industries, how many jobs will be sent 
overseas, how much world-wide emissions will increase, when 
U.S. jobs will be sent overseas, what the international 
provisions' impacts will be on trade and particularly exports, 
how to effectively contain costs through a transparent 
mechanism, and how a low carbon fuel standard interacts with 
other programs, including the recent revisions to the Renewable 
Fuels Standard in the Energy Independence and Security Act of 
2007.
    While there are too many issues outlined above to detail 
comprehensive minority views in the time allotted by the 
Majority, there are several that are highlighted below. During 
the mark-up of S. 2191, ``America's Climate Security Act of 
2007'', a mandatory low carbon fuels amendment was offered and 
accepted. This provision would place new and unrealistic 
requirements on refiners to change the formulation of 
transportation fuels. This standard could significantly raise 
fuel prices and limit supply. The effects will depend on the 
ability of suppliers to produce those alternatives. Subsequent 
to the Committee mark-up of S. 2191, Congress passed and the 
President signed the ``Energy Independence Security Act of 
2007'' (P.L.110-140) which mandates a Renewable Fuels Standard 
(RFS) and includes carbon reduction requirements for fuels. In 
essence, the RFS as enacted is a low carbon fuels standard 
which requires technology advancement and use of cellulosic 
ethanol. Cellulosic ethanol is key and could potentially be one 
of the lowest carbon fuels when the technology becomes viable. 
The provision in S. 2191 now directly conflicts with the new 
energy law. For example, targets, timing and scope conflict 
with the RFS requirements as well as not providing realistic 
mechanisms to move the technology forward.
    The inclusion of this fuels provision in S. 2191 sends the 
wrong signal at a time when refiners are deeply concerned about 
being able to implement and meet the requirements of the new 
law and consumers are facing record energy prices. The 
Renewable Fuels Standard in the new law will achieve the goals 
of this provision. Developing and advancing technology is a 
superior approach to meeting the challenges of providing 
affordable and clean fuels that American consumers need. This 
approach is already provided under the new law and no 
additional fuel requirements are needed. Given the enactment of 
the RFS, this provision should now be eliminated from the bill.
    Concerning electricity, for any carbon policy to reduce GHG 
emissions effectively and protect the U.S. economy, compliance 
time frames must correspond to the availability of technologies 
needed to reduce emissions, which the legislation fails to 
accomplish. To help meet and mitigate rising electricity 
demand, electric utilities are expanding the use of renewable 
energy and energy-efficiency measures. Yet, electric utilities 
also must be able to build more baseload generation with new, 
cleaner coal-based power plants and new nuclear facilities in 
order to provide reliable electricity. However, significant 
deployment of new nuclear plants is at least 10 years away, and 
CCS technologies are not expected to be commercially deployable 
on a large scale until around 2025.
    To make significant near-term emissions reductions without 
these technologies, electric utilities would be forced to 
switch from using coal to using large amounts of natural gas. 
This massive fuel switching would drive up natural gas prices, 
exposing consumers to sharply higher heating bills, and would 
constrain natural gas supply. Likewise, industries that use 
natural gas would be less competitive in global markets, making 
it even more likely that U.S. jobs would be exported overseas.
    Concerning natural gas, the bill as amended in Committee 
regulates natural gas-related emissions via a ``midstream'' 
approach that makes natural gas processors and importers the 
point of regulation. This midstream option creates a number of 
coverage and cost-pass-through complexities, and arguably 
creates a situation where natural gas processors would be 
compelled to seek reimbursement--without any mechanism to 
ensure recovery--for the cost of emission allowances from 
customers (largely natural gas producers) contracting for 
processing services. Furthermore, even if gas processors 
succeeded in passing such costs upstream to gas producers, the 
net effect would be to reduce the capital available to 
producers for investment in new natural gas exploration and 
production activities, thereby reducing domestic natural gas 
supply availability. This up front expenditure of cash for 
allowances would be required of producers even if the costs 
ultimately could be recovered as part of the commodity price 
for the sale of natural gas. Finally, there is no guarantee of 
100 percent recovery of such costs incurred by producers, 
because the price of natural gas is established in a 
competitive market and not pursuant to any kind of cost-plus 
pricing.
    Concerning nuclear energy, one result of climate change 
legislation is increasingly certain: reductions in carbon are 
contingent on the construction of extensive numbers of new 
nuclear plants. Of the many analyses conducted on S. 2191, the 
result of each analysis depends upon new nuclear development in 
order to achieve the emissions reductions mandated by S. 2191. 
EIA's analysis showed that merely limiting the construction of 
new nuclear plants dramatically increased allowance costs and 
electricity costs, while decreasing reductions in carbon 
emissions. This clearly indicates that nuclear energy is the 
key to reducing carbon emissions and mitigating the costs of 
any such effort. And yet, this bill fails to incorporate any 
provisions to address the challenges confronting new 
construction including financial and regulatory uncertainty, 
waste management, and supply infrastructure development.
    Attached is a White Paper detailing the severe economic 
impacts of S. 2191. This paper outlines more specific concerns 
with the legislation, including why the Kyoto Protocol set a 
bad precedent for carbon cap and trade and how economic 
stability is necessary for new clean energy technologies to 
develop. It also surveys several government and private sector 
economic analyses to establish why the legislation is a 
dramatic expansion in the size and scope of government that 
hurts families, including the poor who bear the biggest costs, 
jobs, and the economy. Finally, it explains how international 
action is not adequately addressed through the legislation. 
Climate change is a global issue which requires a global 
response. All major emitting countries, including developing 
nations, must participate in order for any U.S. program to 
produce meaningful reductions in atmospheric concentrations of 
greenhouse gases.

                                   James M. Inhofe.
                                   Larry E. Craig.
                                   Johnny Isakson.
                                   George V. Voinovich.
                                   
                                   
                        Changes in Existing Law

    In compliance with section 12 of rule XXVI of the Standing 
Rules of the Senate, changes in existing law made by the bill 
as reported are shown as follows: Existing law proposed to be 
omitted is enclosed in [black brackets], new matter is printed 
in italic, existing law in which no change is proposed is shown 
in roman:

           *       *       *       *       *       *       *

                                ------                                


ENERGY POLICY AND CONSERVATION ACT

           *       *       *       *       *       *       *


    Sec. 325. (a) Purposes.--The purposes of this section are 
to--
          (1) provide Federal energy conservation standards 
        applicable to covered products; and
          (2) authorize the Secretary to prescribe amended or 
        new energy conservation standards for each type (or 
        class) of covered product.
    (b) * * *

           *       *       *       *       *       *       *

    (f) Standards for Furnaces and Boilers._(1) Furnaces (other 
than furnaces designed solely for installation in mobile homes) 
manufactured on or after January 1, 1992, shall have an annual 
fuel utilization efficiency of not less than 78 percent, 
[except that--
          (A) boilers (other than gas steam boilers) shall have 
        an annual fuel utilization efficiency of not less than 
        80 percent and gas steam boilers shall have an annual 
        fuel utilization efficiency of not less than 75 
        percent; and] except that
          [(B) the Secretary] the Secretary shall prescribe a 
        final rule not later than January 1, 1989, establishing 
        an energy conservation standard--
                  [(i)](A) which is for furnaces (other than 
                furnaces designed solely for installation in 
                mobile homes) having an input of less than 
                45,000 Btu per hour and manufactured on or 
                after January 1, 1992;
                  [(ii)](B) which provides that the annual fuel 
                utilization efficiency of such furnaces shall 
                be a specific percent which is not less than 71 
                percent and not more than 78 percent; and
                  [(iii)](C) which the Secretary determines is 
                not likely to result in a significant shift 
                from gas heating to electric resistance heating 
                with respect to either residential construction 
                or furnace replacement.
    (2) Furnaces which are designed solely for installation in 
mobile homes and which are manufactured on or after September 
1, 1990, shall have an annual fuel utilization efficiency of 
not less than 75 percent.
    (3) Boilers.--
          (A) In general.--Subject to subparagraphs (B) and 
        (C), boilers manufactured on or after September 1, 
        2012, shall meet the following requirements:

------------------------------------------------------------------------
                                    Minimum Annual
    Boiler Type Requirements       Fuel Utilization         Design
                                      Efficiency
------------------------------------------------------------------------
Gas hot water...................   82 percent.......  No constant
                                                       burning pilot,
                                                       automatic means
                                                       for adjusting
                                                       water temperature
Gas steam.......................   80 percent.......  No constant
                                                       burning pilot
Oil hot water...................  84 percent........  Automatic means
                                                       for adjusting
                                                       temperature
Oil steam.......................   82 percent.......   None
Electric hot water..............  None..............  Automatic means
                                                       for adjusting
                                                       temperature
Electric steam..................  None..............  None
------------------------------------------------------------------------

          (B) Automatic means for adjusting water 
        temperature.--
                  (i) In general.--The manufacturer shall equip 
                each gas, oil, and electric hot water boiler 
                (other than a boiler equipped with tankless 
                domestic water heating coils) with an automatic 
                means for adjusting the temperature of the 
                water supplied by the boiler to ensure that an 
                incremental change in inferred heat load 
                produces a corresponding incremental change in 
                the temperature of water supplied.
                  (ii) Certain boilers.--For a boiler that 
                fires at 1 input rate, the requirements of this 
                subparagraph may be satisfied by providing an 
                automatic means that allows the burner or 
                heating element to fire only when the means has 
                determined that the inferred heat load cannot 
                be met by the residual heat of the water in the 
                system.
                  (iii) No inferred heat load.--When there is 
                no inferred heat load with respect to a hot 
                water boiler, the automatic means described in 
                clauses (i) and (ii) shall limit the 
                temperature of the water in the boiler to not 
                more than 140 degrees Fahrenheit.
                  (iv) Operation.--A boiler described in clause 
                (i) or (ii) shall be operable only when the 
                automatic means described in clauses (i), (ii), 
                and (iii) is installed.
          (C) Exception.--A boiler that is manufactured to 
        operate without any need for electricity, any electric 
        connection, any electric gauges, electric pumps, 
        electric wires, or electric devices of any sort, shall 
        not be required to meet the requirements of this 
        subsection.
    [(3)](4)(A) The Secretary shall publish a final rule no 
later than January 1, 1992, to determine whether the standards 
established by paragraph (2) for mobile home furnaces should be 
amended. Such rule shall provide that any amendment shall apply 
to products manufactured on or after January 1, 1994.
    (B) The Secretary shall publish a final rule no later than 
January 1, 1994, to determine whether the standards established 
by this subsection for furnaces (including mobile home 
furnaces) should be amended. Such rule shall provide that any 
amendment shall apply to products manufactured on or after 
January 1, 2002.
    (C) After January 1, 1997, and before January 1, 2007, the 
Secretary shall publish a final rule to determine whether 
standards in effect for such products should be amended. Such 
rule shall contain such amendment, if any, and provide that any 
amendment shall apply to products manufactured on or after 
January 1, 2012.
    (D) Notwithstanding any other provision of this Act, if the 
requirements of subsection (o) are met, the Secretary may 
consider and prescribe energy conservation standards or energy 
use standards for electricity used for purposes of circulating 
air through duct work.

           *       *       *       *       *       *       *

    Sec. 327. (a) Preemption of Testing and Labeling 
Requirements.--(1) Effective on the date of enactment of the 
National Appliance Energy Conservation Act of 1987, this part 
supersedes any State regulation insofar as such State 
regulation provides at any time for the disclosure of 
information with respect to any measure of energy consumption 
or water use of any covered product if--
          (A) * * *

           *       *       *       *       *       *       *

    (b) General Rule of Preemption for Energy Conservation 
Standards Before Federal Standard Becomes Effective for a 
Product.--Effective on the date of enactment of the National 
Appliance Energy Conservation Act of 1987 and ending on the 
effective date of an energy conservation standard established 
under section 325 for any covered product, no State regulation, 
or revision thereof, concerning the energy efficiency, energy 
use, or water use of the covered product shall be effective 
with respect to such covered product, unless the State 
regulation or revision--
          (1) was prescribed or enacted before January 8, 1987, 
        and is applicable to products before January 3, 1988, 
        or in the case of any portion of any regulation which 
        establishes requirements for fluorescent lamp ballasts, 
        was prescribed or enacted before the date of the 
        enactment of the National Appliance Energy Conservation 
        Amendments of 1988, or in the case of any portion of 
        any regulation which establishes requirements for 
        fluorescent or incandescent lamps, flow rate 
        requirements for showerheads or faucets, or water use 
        requirements for water closets or urinals, was 
        prescribed or enacted before the date of the enactment 
        of the Energy Policy Act of 1992;
          (2) is a State procurement regulation described in 
        [subsection (e)] subsection (f);
          (3) is a regulation described in [subsection (f)(1)] 
        subsection (g)(1) or is prescribed or enacted in a 
        building code for new construction described in 
        [subsection (f)(2)] subsection (g)(2);
          (4) * * *

           *       *       *       *       *       *       *

    (c) General Rule of Preemption for Energy Conservation 
Standards When Federal Standard Becomes Effective for a 
Product.--* * *

           *       *       *       *       *       *       *

          (3) is in a building code for new construction 
        described in [subsection (f)(3)] subsection (g)(3);
          (4) * * *

           *       *       *       *       *       *       *

    (d) Waiver of Federal Preemption.--(1)(A) Any State or 
river basin commission with a State regulation which provides 
for any energy conservation standard or other requirement with 
respect to energy use, energy efficiency, or water use for any 
type (or class) of covered product for which there is a Federal 
energy con- servation standard under section 325 may file a 
petition with the Secretary requesting a rule that such State 
regulation become ef- fective with respect to such covered 
product.
    (B) * * *

           *       *       *       *       *       *       *

    (e) Regional Standards for Space Heating and Air 
Conditioning Products.--
          (1) Standards.--
                  (A) In general.--The Secretary may establish 
                regional standards for space heating and air 
                conditioning products, other than window-unit 
                air-conditioners and portable space heaters.
                  (B) National minimum and regional 
                standards.--For each space heating and air 
                conditioning product, the Secretary may 
                establish--
                          (i) a national minimum standard; and
                          (ii) 2 more stringent regional 
                        standards for regions determined to 
                        have significantly differing climatic 
                        conditions.
                  (C) Maximum savings.--Any standards 
                established for a region under subparagraph 
                (B)(ii) shall achieve the maximum level of 
                energy savings that are technically feasible 
                and economically justified within that region.
                  (D) Economic justifiability study.--
                          (i) In general.--As a preliminary 
                        step in determining the economic 
                        justifiability of establishing a 
                        regional standard under subparagraph 
                        (B)(ii), the Secretary shall conduct a 
                        study involving stakeholders, 
                        including--
                                  (I) a representative from the 
                                National Institute of Standards 
                                and Technology;
                                  (II) representatives of 
                                nongovernmental advocacy 
                                organizations;
                                  (III) representatives of 
                                product manufacturers, 
                                distributors, and installers;
                                  (IV) representatives of the 
                                gas and electric utility 
                                industries; and
                                  (V) such other individuals as 
                                the Secretary may designate.
                          (ii) Requirements.--The study under 
                        this subparagraph--
                                  (I) shall determine the 
                                potential benefits and 
                                consequences of prescribing 
                                regional standards for heating 
                                and cooling products; and
                                  (II) may, if favorable to the 
                                standards, constitute the 
                                evidence of economic 
                                justifiability required under 
                                this Act.
                  (E) Regional boundaries.--Regional boundaries 
                used in establishing regional standards under 
                subparagraph (B)(ii) shall--
                          (i) conform to State borders; and
                          (ii) include only contiguous States 
                        (other than Alaska and Hawaii), except 
                        that on the request of a State, the 
                        Secretary may divide the State to 
                        include a part of the State in each of 
                        2 regions.
          (2) Noncomplying products.--If the Secretary 
        establishes standards for a region, it shall be 
        unlawful under section 332 to offer for sale at retail, 
        sell at retail, or install within the region products 
        that do not comply with the applicable standards.
          (3) Distribution in commerce.--
                  (A) In general.--Except as provided in 
                subparagraph (B), no product manufactured in a 
                manner that complies with a regional standard 
                established under paragraph (1) shall be 
                distributed in commerce without a prominent 
                label affixed to the product that includes--
                          (i) at the top of the label, in print 
                        of not less than 14-point type, the 
                        following statement: ``It is a 
                        violation of Federal law for this 
                        product to be installed in any State 
                        outside the region shaded on the map 
                        printed on this label.'';
                          (ii) below the notice described in 
                        clause (i), an image of a map of the 
                        United States with clearly defined 
                        State boundaries and names, and with 
                        all States in which the product meets 
                        or exceeds the standard established 
                        pursuant to paragraph (1) shaded in a 
                        color or a manner as to be easily 
                        visible without obscuring the State 
                        boundaries and names; and
                          (iii) below the image of the map 
                        required under clause (ii), the 
                        following statement: ``It is a 
                        violation of Federal law for this label 
                        to be removed, except by the owner and 
                        legal resident of any single-family 
                        home in which this product is 
                        installed.''
                  (B) Energy-efficiency rating.--A product 
                manufactured that meets or exceeds all regional 
                standards established under this paragraph 
                shall bear a prominent label affixed to the 
                product that includes at the top of the label, 
                in print of not less than 14-point type, the 
                following statement: ``This product has 
                achieved an energy-efficiency rating under 
                Federal law allowing its installation in any 
                State.''
          (4) Recordkeeping.--A manufacturer of space heating 
        or air conditioning equipment subject to regional 
        standards established under this subsection shall--
                  (A) obtain and retain records on the intended 
                installation locations of the equipment sold; 
                and
                  (B) make such records available to the 
                Secretary on request.
    [(e)] (f) Exception for Certain State Procurement 
Standards.--Any State regulation which sets forth procurement 
standards for a State (or political subdivision thereof) shall 
not be superseded by the provisions of this part if such 
standards are more stringent than the corresponding Federal 
energy conservation standards.
    [(f)] (g) Exception for Certain Building Code 
Requirements.--(1) A regulation or other requirement enacted or 
prescribed before January 8, 1987, that is contained in a State 
or local building code for new construction concerning the 
energy efficiency or energy use of a covered product is not 
superseded by this part until the effective date of the energy 
conservation standard established in or prescribed under 
section 325 for such covered product.
    (2) * * *

           *       *       *       *       *       *       *

    [(g)] (h) No Warranty.--Any disclosure with respect to 
energy use, energy efficiency, or estimated annual operating 
cost which is required to be made under the provisions of this 
part shall not create an express or implied warranty under 
State or Federal law that such energy efficiency will be 
achieved or that such energy use or estimated annual operating 
cost will not be exceeded under conditions of actual use.

           *       *       *       *       *       *       *


ENERGY CONSERVATION AND PRODUCTION ACT

           *       *       *       *       *       *       *


    Sec. 101. This title may be cited as the ``Federal Energy 
Administration Act Amendments of 1976''.

           *       *       *       *       *       *       *


                              DEFINITIONS

    Sec. 303. As used in this title:
          (1) The term ``Administrator'' means the 
        Administrator of the Federal Energy Administration; 
        except that after such Administration ceases to exist, 
        such term means any officer of the United States 
        designated by the President for purposes of this title.
          (2) * * *

           *       *       *       *       *       *       *

          (16) The term ``ASHRAE'' means the American Society 
        of Heating, Refrigerating, and Air-Conditioning 
        Engineers.
          (17) IECC.--The term ``IECC'' means the International 
        En- ergy Conservation Code.

[SEC. 304. UPDATING STATE BUILDING ENERGY EFFICIENCY CODES.

    [(a) Consideration and Determination Respecting Residential 
Building Energy Codes.--[(1) Not later than 2 years after the 
date of the enactment of the Energy Policy Act of 1992, each 
State shall certify to the Secretary that it has reviewed the 
provisions of its residential building code regarding energy 
efficiency and made a determination as to whether it is 
appropriate for such State to revise such residential building 
code provisions to meet or exceed CABO Model Energy Code, 1992.
    [(2) The determination referred to in paragraph (1) shall 
be--
          [(A) made after public notice and hearing;
          [(B) in writing;
          [(C) based upon findings included in such 
        determination and upon the evidence presented at the 
        hearing; and
          [(D) available to the public.
    [(3) Each State may, to the extent consistent with 
otherwise applicable State law, revise the provisions of its 
residential building code regarding energy efficiency to meet 
or exceed CABO Model Energy Code, 1992, or may decline to make 
such revisions.
    [(4) If a State makes a determination under paragraph (1) 
that it is not appropriate for such State to revise its 
residential building code, such State shall submit to the 
Secretary, in writing, the reasons for such determination, and 
such statement shall be available to the public.
    [(5)(A) Whenever CABO Model Energy Code, 1992, (or any 
successor of such code) is revised, the Secretary shall, not 
later than 12 months after such revision, determine whether 
such revision would improve energy efficiency in residential 
buildings. The Secretary shall publish notice of such 
determination in the Federal Register.
    [(B) If the Secretary makes an affirmative determination 
under subparagraph (A), each State shall, not later than 2 
years after the date of the publication of such determination, 
certify that it has reviewed the provisions of its residential 
building code regarding energy efficiency and made a 
determination as to whether it is appropriate for such State to 
revise such residential building code provisions to meet or 
exceed the revised code for which the Secretary made such 
determination.
    [(C) Paragraphs (2), (3), and (4) shall apply to any 
determination made under subparagraph (B).
    [(b) Certification of Commercial Building Energy Code 
Updates.--(1) Not later than 2 years after the date of the 
enactment of the Energy Policy Act of 1992, each State shall 
certify to the Secretary that it has reviewed and updated the 
provisions of its commercial building code regarding energy 
efficiency. Such certification shall include a demonstration 
that such State's code provisions meet or exceed the 
requirements of ASHRAE Standard 90.1-1989.
    [(2)(A) Whenever the provisions of ASHRAE Standard 90.1-
1989 (or any successor standard) regarding energy efficiency in 
commercial buildings are revised, the Secretary shall, not 
later than 12 months after the date of such revision, determine 
whether such revision will improve energy efficiency in 
commercial buildings. The Secretary shall publish a notice of 
such determination in the Federal Register.
    [(B)(i) If the Secretary makes an affirmative determination 
under subparagraph (A), each State shall, not later than 2 
years after the date of the publication of such determination, 
certify that it has reviewed and updated the provisions of its 
commercial building code regarding energy efficiency in 
accordance with the revised standard for which such 
determination was made. Such certification shall include a 
demonstration that the provisions of such State's commercial 
building code regarding energy efficiency meet or exceed such 
revised standard.
    [(ii) If the Secretary makes a determination under 
subparagraph (A) that such revised standard will not improve 
energy efficiency in commercial buildings, State commercial 
building code provisions regarding energy efficiency shall meet 
or exceed ASHRAE Standard 90.1-1989, or if such standard has 
been revised, the last revised standard for which the Secretary 
has made an affirmative determination under subparagraph (A).
    [(c) Extensions.--The Secretary shall permit extensions of 
the deadlines for the certification requirements under 
subsections (a) and (b) if a State can demonstrate that it has 
made a good faith effort to comply with such requirements and 
that it has made significant progress in doing so.
    [(d) Technical Assistance.--The Secretary shall provide 
technical assistance to States to implement the requirements of 
this section, and to improve and implement State residential 
and commercial building energy efficiency codes or to otherwise 
promote the design and construction of energy efficient 
buildings.
    [(e) Availability of Incentive Funding.--(1) The Secretary 
shall provide incentive funding to States to implement the 
requirements of this section, and to improve and implement 
State residential and commercial building energy efficiency 
codes, including increasing and verifying compliance with such 
codes. In determining whether, and in what amount, to provide 
incentive funding under this subsection, the Secretary shall 
consider the actions proposed by the State to implement the 
requirements of this section, to improve and implement 
residential and commercial building energy efficiency codes, 
and to promote building energy efficiency through the use of 
such codes.
    [(2) Additional funding shall be provided under this 
subsection for implementation of a plan to achieve and document 
at least a 90 percent rate of compliance with residential and 
commercial building energy efficiency codes, based on energy 
performance--
          [(A) to a State that has adopted and is implementing, 
        on a statewide basis--
                  [(i) a residential building energy efficiency 
                code that meets or exceeds the requirements of 
                the 2004 International Energy Conservation 
                Code, or any succeeding version of that code 
                that has received an affirmative determination 
                from the Secretary under subsection (a)(5)(A); 
                and
                  [(ii) a commercial building energy efficiency 
                code that meets or exceeds the requirements of 
                the ASHRAE Standard 90.1-2004, or any 
                succeeding version of that standard that has 
                received an affirmative determination from the 
                Secretary under subsection (b)(2)(A); or
          [(B) in a State in which there is no statewide energy 
        code either for residential buildings or for commercial 
        buildings, to a local government that has adopted and 
        is implementing residential and commercial building 
        energy efficiency codes, as described in subparagraph 
        (A).
    [(3) Of the amounts made available under this subsection, 
the Secretary may use $500,000 for each fiscal year to train 
State and local officials to implement codes described in 
paragraph (2).
    [(4)(A) There are authorized to be appropriated to carry 
out this subsection--
          [(i) $25,000,000 for each of fiscal years 2006 
        through 2010; and
          [(ii) such sums as are necessary for fiscal year 2011 
        and each fiscal year thereafter.
    [(B) Funding provided to States under paragraph (2) for 
each fiscal year shall not exceed one-half of the excess of 
funding under this subsection over $5,000,000 for the fiscal 
year.]

SEC. 304. UPDATING STATE BUILDING ENERGY EFFICIENCY CODES.

    (a) Updates.--
          (1) In general.--The Secretary shall support updating 
        the national model building energy codes and standards 
        not later than 3 years after the date of enactment of 
        the America's Climate Security Act of 2007, and not 
        less frequently every 3 years thereafter, to achieve 
        overall energy savings, as compared to the IECC (2006) 
        for residential buildings and ASHRAE Standard 90.1 
        (2004) for commercial buildings, of at least--
                  (A) 30 percent by 2010;
                  (B) 50 percent by 2020; and
                  (C) goals to be established by the Secretary 
                in intermediate and subsequent years, at the 
                maximum level of energy efficiency that is 
                technologically feasible and lifecycle cost 
                effective.
          (2) Revisions to iecc and ashrae.--
                  (A) In general.--If the IECC or ASHRAE 
                Standard 90.1 regarding building energy use is 
                revised, not later than 180 days after the date 
                of the revision, the Secretary shall determine 
                whether the revision will--
                          (i) improve energy efficiency in 
                        buildings; and
                          (ii) meet the energy savings goals 
                        described in paragraph (1).
                  (B) Modifications.--
                          (i) In general.--If the Secretary 
                        makes a determination under 
                        subparagraph (A)(ii) that a code or 
                        standard does not meet the energy 
                        savings goals established under 
                        paragraph (1) or if a national model 
                        code or standard is not updated for 
                        more than 3 years, not later than 1 
                        year after the determination or the 
                        expiration of the 3-year period, the 
                        Secretary shall propose a modified code 
                        or standard that meets the energy 
                        savings goals.
                          (ii) Requirements.--
                                  (I) Energy savings.--A 
                                modification to a code or 
                                standard under clause (i) 
                                shall--
                                          (aa) achieve the 
                                        maximum level of energy 
                                        savings that is 
                                        technically feasible 
                                        and economically 
                                        justified; and
                                          (bb) incorporate 
                                        available appliances, 
                                        technologies, and 
                                        construction practices.
                                  (II) Treatment as baseline.--
                                A modification to a code or 
                                standard under clause (i) shall 
                                serve as the baseline for the 
                                next applicable determination 
                                of the Secretary under 
                                subparagraph (A)(i).
                  (C) Public participation.--The Secretary 
                shall--
                          (i) publish in the Federal Register a 
                        notice relating to each goal, 
                        determination, and modification under 
                        this paragraph; and
                          (ii) provide an opportunity for 
                        public comment regarding the goals, 
                        determinations, and modifications.
    (b) State Certification of Building Energy Code Updates.--
          (1) General certification.--
                  (A) In general.--Not later than 2 years after 
                the date of enactment of the America's Climate 
                Security Act of 2007, each State shall certify 
                to the Secretary that the State has reviewed 
                and updated the provisions of the residential 
                and commercial building codes of the State 
                regarding energy efficiency.
                  (B) Energy savings.--A certification under 
                subparagraph (A) shall include a demonstration 
                that the applicable provisions of the State 
                code meet or exceed, as applicable--
                          (i)(I) the IECC (2006) for 
                        residential buildings; or
                          (II) the ASHRAE Standard 90.1 (2004) 
                        for commercial buildings; or
                          (ii) the quantity of energy savings 
                        represented by the provisions referred 
                        to in clause (i).
          (2) Revision of codes and standards.--
                  (A) In general.--If the Secretary makes an 
                affirmative determination under subsection 
                (a)(2)(A)(i) or proposes a modified code or 
                standard under subsection (a)(2)(B), not later 
                than 2 years after the determination or 
                proposal, each State shall certify that the 
                State has reviewed and updated the provisions 
                of the residential and commercial building 
                codes of the State regarding energy efficiency.
                  (B) Energy savings.--A certification under 
                subpara- graph (A) shall include a 
                demonstration that the applicable provisions of 
                the State code meet or exceed--
                          (i) the modified code or standard; or
                          (ii) the quantity of energy savings 
                        represented by the modified code or 
                        standard.
                  (C) Failure to determine.--If the Secretary 
                fails to make a determination under subsection 
                (a)(2)(A)(i) by the date specified in 
                subsection (a)(2), or if the Secretary makes a 
                negative determination, not later than 2 years 
                after the specified date or the date of the 
                determination, each State shall certify that 
                the State has--
                          (i) reviewed the revised code or 
                        standard; and
                          (ii) updated the provisions of the 
                        residential and commercial building 
                        codes of the State as necessary to meet 
                        or exceed, as applicable--
                                  (I) any provisions of a 
                                national code or standard 
                                determined to improve energy 
                                efficiency in buildings; or
                                  (II) energy savings achieved 
                                by those provisions through 
                                other means.
    (c) Achievement of Compliance by States.
          (1) In general.--Not later than 3 years after the 
        date on which a State makes a certification under 
        subsection (b), the State shall certify to the 
        Secretary that the State has achieved compliance with 
        the national building energy code that is the subject 
        of the certification.
          (2) Rate of compliance.--The certification shall 
        include documentation of the rate of compliance based 
        on independent inspections of a random sample of the 
        new and renovated buildings covered by the State code 
        during the preceding calendar year.
          (3) Compliance.--A State shall be considered to 
        achieve compliance for purposes of paragraph (1) if--
                  (A) at least 90 percent of new and renovated 
                buildings covered by the State code during the 
                preceding calendar year substantially meet all 
                the requirements of the code; or
                  (B) the estimated excess energy use of new 
                and renovated buildings that did not meet the 
                requirements of the State code during the 
                preceding calendar year, as compared to a 
                baseline of comparable buildings that meet the 
                require- ments of the code, is not more than 10 
                percent of the estimated energy use of all new 
                and renovated buildings covered by the State 
                code during the preceding calendar year.
    (d) Failure to Certify.--
          (1) Extension of deadlines.--The Secretary shall 
        extend a deadline for certification by a State under 
        subsection (b) or (c) for not more than 1 additional 
        year, if the State demonstrates to the satisfaction of 
        the Secretary that the State has made--
                  (A) a good faith effort to comply with the 
                certification requirement; and
                  (B) significant progress with respect to the 
                compliance.
          (2) Noncompliance by state.--
                  (A) In general.--A State that fails to submit 
                a certifi- cation required under subsection (b) 
                or (c), and to which an extension is not 
                provided under paragraph (1), shall be 
                considered to be out of compliance with this 
                section.
                  (B) Effect on local governments.--A local 
                government of a State that is out of compliance 
                with this section may be considered to be in 
                compliance with this section if the local 
                government meets each applicable certification 
                requirement of this section.
    (e) Technical Assistance.--
          (1) In general.--The Secretary shall provide 
        technical assistance (including building energy 
        analysis and design tools, building demonstrations, and 
        design assistance and training) to ensure that national 
        model building energy codes and standards meet the 
        goals described in subsection (a)(1).
          (2) Assistance to states.--The Secretary shall 
        provide technical assistance to States--
                  (A) to implement this section, including 
                procedures for States to demonstrate that the 
                codes of the States achieve equivalent or 
                greater energy savings than the national model 
                codes and standards;
                  (B) to improve and implement State 
                residential and commercial building energy 
                efficiency codes; and
                  (C) to otherwise promote the design and 
                construction of energy-efficient buildings.
    (f) Incentive Funding.--
          (1) In general.--The Secretary shall provide 
        incentive funding to States--
                  (A) to implement this section; and
                  (B) to improve and implement State 
                residential and commercial building energy 
                efficiency codes, including increasing and 
                verifying compliance with the codes.
          (2) Amount.--In determining whether, and in what 
        amount, to provide incentive funding under this 
        subsection, the Secretary shall take into consideration 
        actions proposed by the State--
                  (A) to implement this section;
                  (B) to implement and improve residential and 
                commercial building energy efficiency codes; 
                and
                  (C) to promote building energy efficiency 
                through use of the codes.
          (3) Additional funding.--The Secretary shall provide 
        additional funding under this subsection for 
        implementation of a plan to demonstrate a rate of 
        compliance with applicable residential and commercial 
        building energy efficiency codes at a rate of not less 
        than 90 percent, based on energy performance--
                  (A) to a State that has adopted and is 
                implementing, on a statewide basis--
                          (i) a residential building energy 
                        efficiency code that meets or exceeds 
                        the requirements of the IECC (2006) (or 
                        a successor code that is the subject of 
                        an affirmative determination by the 
                        Secretary under subsection 
                        (a)(2)(A)(i)); and
                          (ii) a commercial building energy 
                        efficiency code that meets or exceeds 
                        the requirements of the ASHRAE Standard 
                        90.1 (2004) (or a successor standard 
                        that is the subject of an affirmative 
                        determination by the Sec- retary under 
                        subsection (a)(2)(A)(i)); or
                  (B) in the case of a State in which no 
                statewide energy code exists for residential 
                buildings or commercial buildings, or in which 
                the State code fails to comply with 
                subparagraph (A), to a local government that 
                has adopted and is implementing residential and 
                commercial building en- ergy efficiency codes, 
                as described in subparagraph (A).
          (4) Training.--Of the amounts made available to carry 
        out this subsection, the Secretary may use not more 
        than $500,000 for each State to train State and local 
        officials to implement State or local energy codes in 
        accordance with a plan described in paragraph (3).''.

           *       *       *       *       *       *       *


  TITLE XIV OF THE PUBLIC HEALTH SERVICE ACT (THE SAFE DRINKING WATER 
ACT)

           *       *       *       *       *       *       *


    Sec. 1400. This title may be cited as the ``Safe Drinking 
Water Act''.

Part A--* * *

           *       *       *       *       *       *       *


    Sec. 1421. (a)(1) * * *

           *       *       *       *       *       *       *

    (b)(1) Regulations under subsection (a) for State 
underground injection programs shall contain minimum 
requirements for effective programs to prevent underground 
injection which endangers drinking water sources within the 
meaning of [subsection (d)(2)] subsection (e)(2). Such 
regulations shall require that a State program, in order to be 
approved under section 1422--
          (A) * * *

           *       *       *       *       *       *       *

    (c)(1) The Administrator may, upon application of the 
Governor of a State which authorizes underground injection by 
means of permits, authorize such State to issue (without regard 
to subsection (b)(1)(B)(i)) temporary permits for underground 
injection which may be effective until the expiration of four 
years after the date of enactment of this title, if--
          (A) * * *

           *       *       *       *       *       *       *

    (d) Carbon Dioxide.--
          (1) Regulations.--Not later than 1 year after the 
        date of enactment of the America's Climate Security Act 
        of 2007, the Administrator shall promulgate regulations 
        for permitting commercial-scale underground injection 
        of carbon dioxide for purposes of geological 
        sequestration to address climate change, including 
        provisions--
                  (A) for monitoring and controlling the long-
                term storage of carbon dioxide and avoiding, to 
                the maximum extent practicable, any release of 
                carbon dioxide into the atmosphere, and for 
                ensuring protection of underground sources of 
                drinking water, human health, and the 
                environment; and
                  (B) relating to long-term liability 
                associated with commercial-scale geological 
                sequestration.
          (2) Subsequent reports.--Not later than 5 years after 
        the date on which regulations are promulgated pursuant 
        to paragraph (1), and not less frequently than once 
        every 5 years thereafter, the Administrator shall 
        submit to Congress a report that contains an evaluation 
        of the effectiveness of the regulations, based on 
        current knowledge and experience, with particular 
        emphasis on any new information on potential impacts of 
        commercial-scale geological sequestration on drinking 
        water, human health, and the environment.
          (3) Revision.--If the Administrator determines, based 
        on a report under paragraph (2), that regulations 
        promulgated pursuant to paragraph (1) require revision, 
        the Administrator shall promulgate revised regulations 
        not later than 1 year after the date on which the 
        applicable report is submitted to Congress under 
        paragraph (2).
    [(d)] (e) For purposes of this part:
          (1) * * *

           *       *       *       *       *       *       *

    Sec. 1447. (a) In general.--Each department, agency, and 
instrumentality of the executive, legislative, and judicial 
branches of the Federal Government--
          (1) owning or operating any facility in a wellhead 
        protection area;
          (2) engaged in any activity at such facility 
        resulting, or which may result, in the contamination of 
        water supplies in any such area;
          (3) owning or operating any public water system; or
          (4) engaged in any activity resulting, or which may 
        result in, underground injection which endangers 
        drinking water (within the meaning of [section 
        1421(d)(2)] section 1421(e)(2),

           *       *       *       *       *       *       *


CLEAN AIR ACT

           *       *       *       *       *       *       *


    Sec. 101. (a) The Congress finds--
          (1) * * *

           *       *       *       *       *       *       *


SEC. 608. NATIONAL RECYCLING AND EMISSION REDUCTION PROGRAM.

    (a) Definition of Hydrofluorocarbon Substitute.--In this 
section, the term ``hydrofluorocarbon substitute'' means a 
hydrofluorocarbon--
          (1) with a global warming potential of more than 150; 
        and
          (2) that is used in or for types of equipment, 
        appliances, or processes that previously relied on 
        class I or class II substances.
    [(a)] (b) In General.--(1) The Administrator shall, by not 
later than January 1, 1992, promulgate regulations establishing 
stand- ards and requirements regarding the use and disposal of 
class I substances during the service, repair, or disposal of 
appliances and industrial process refrigeration. Such standards 
and requirements shall become effective not later than July 1, 
1992.
    (2) The Administrator shall, within 4 years after the 
enactment of the Clean Air Act Amendments of 1990, promulgate 
regulations establishing standards and requirements regarding 
use and disposal of class I and II substances not covered by 
paragraph (1), including the use and disposal of class II 
substances during service, repair, or disposal of appliances 
and industrial process refrigeration. Such standards and 
requirements shall become effective not later than 12 months 
after promulgation of the regulations.
          (3)(A) Not later than 1 year after the date of 
        enactment of the Lieberman-Warner Climate Security Act 
        of 2007, the Administrator shall promulgate regulations 
        establishing standards and requirements regarding the 
        sale or distribution, or offer for sale and 
        distribution in interstate commerce, use, and disposal 
        of hydrofluorocarbon substitutes for class I and class 
        II substances not covered by paragraph (1), including 
        the use, recycling, and disposal of those 
        hydrofluorocarbon substitutes during the maintenance, 
        service, repair, or disposal of appliances and 
        industrial process refrigeration equipment.
          (B) The standards and requirements established under 
        subparagraph (A) shall take effect not later than 1 
        year after the date of promulgation of the regulations.
    [(3)] (4) The regulations under this subsection shall 
include requirements that--
          (A) reduce the use and emission of such substances to 
        the lowest achievable level, and
          (B) maximize the recapture and recycling of such 
        substances.
[Such regulations] (5) The regulations may include requirements 
to use alternative substances (including substances which are 
not class I or class II substances) or to minimize use of class 
I or class II substances, or to promote the use of safe 
alternatives pursuant to section 612 or any combination of the 
foregoing.
    [(b)] (c) [Safe Disposal.--The regulations under subsection 
(a) shall establish standards and requirements for the safe 
disposal of class I and II substances. Such regulations shall 
include each of the following--]
    (c) Safe Disposal.--The regulations under subsection (b) 
shall--
          (1) establish standards and requirements for the safe 
        disposal of class I and II substances and 
        hydrofluorocarbon substitutes for those substances; and
          (2) include each of the following:
          [(1)] (A) Requirements that class I or class II 
        substances (or hydrofluorocarbon substitutes for those 
        substances) contained in bulk in appliances, machines 
        or other goods shall be removed from each such 
        appliance, machine or other good prior to the disposal 
        of such items or their delivery for recycling.
          [(2)] (B) Requirements that any appliance, machine or 
        other good containing a class I or class II substance 
        (or a hydrofluorocarbon substitutes for such a 
        substance) in bulk shall not be manufactured, sold, or 
        distributed in interstate commerce or offered for sale 
        or distribution in interstate commerce unless it is 
        equipped with a servicing aperture or an equally 
        effective design feature which will facilitate the 
        recapture of such substance during service and repair 
        or disposal of such item.
          [(3)] (C) Requirements that any product in which a 
        class I or class II substance (or a hydrofluorocarbon 
        substitutes for such a substance) is incorporated so as 
        to constitute an inherent element of such product shall 
        be disposed of in a manner that reduces, to the maximum 
        extent practicable, the release of such substance into 
        the environment. If the Administrator determines that 
        the application of this paragraph to any product would 
        result in producing only insignificant environmental 
        benefits, the Administrator shall include in such 
        regulations an exception for such product.
    [(c)] (d) Prohibitions.--(1) Effective July 1, 1992, it 
shall be unlawful for any person, in the course of maintaining, 
servicing, repairing, or disposing of an appliance or 
industrial process refrigeration, to knowingly vent or 
otherwise knowingly release or dispose of any class I or class 
II substance used as a refrigerant in such appliance (or 
industrial process refrigeration) in a manner which permits 
such substance to enter the environment. De minimis releases 
associated with good faith attempts to recapture and recycle or 
safely dispose of any such substance shall not be subject to 
the prohibition set forth in the preceding sentence.
    (2) Effective 5 years after the enactment of the Clean Air 
Act Amendments of 1990, paragraph (1) shall also apply to the 
venting, release, or disposal of any substitute substance for a 
class I or class II substance by any person maintaining, 
servicing, repairing, or disposing of an appliance or 
industrial process refrigeration which contains and uses as a 
refrigerant any such substance, unless the Administrator 
determines that venting, releasing, or disposing of such 
substance does not pose a threat to the environment. For pur- 
poses of this paragraph, the term ``appliance'' includes any 
device which contains and uses as a refrigerant a substitute 
substance and which is used for household or commercial 
purposes, including any air conditioner, refrigerator, chiller, 
or freezer.

SEC. 609. SERVICING OF MOTOR VEHICLE AIR CONDITIONERS.

    (a) Regulations.--Within 1 year after the enactment of the 
Clean Air Act Amendments of 1990, the Administrator shall 
promulgate regulations in accordance with this section 
establishing standards and requirements regarding the servicing 
of motor vehicle air conditioners.
    (b) Definitions.--As used in this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) The term ``hydrofluorocarbon substitute'' means a 
        hydrofluorocarbon--
                  (A) with a global warming potential of more 
                than 150; and
                  (B) that is used in or for types of 
                equipment, appliances, or processes that 
                previously relied on class I or class II 
                substances.

           *       *       *       *       *       *       *

    [(e) Small Containers of Class I or Class II Substances.--
Effective]
    (e) Small Containers of Class I or Class II Substances and 
Hydrofluorocarbon Substitutes.--
          (1) Class I or class II substances.--Effective 
        beginning 2 years after the date of the enactment of 
        the Clean Air Act Amendments of 1990, it shall be 
        unlawful for any person to sell or distribute, or offer 
        for sale or distribution, in interstate commerce to any 
        person (other than a person performing service for 
        consideration on motor vehicle air-conditioning systems 
        in compliance with this section) any class I or class 
        II substance that is suitable for use as a refrigerant 
        in a motor vehicle air-conditioning system and that is 
        in a container which contains less than 20 pounds of 
        such refrigerant.
          (2) Hydrofluorocarbon substitutes.--Effective 
        beginning January 1, 2010, it shall be unlawful for any 
        person to sell or distribute, or offer for sale or 
        distribution, in interstate commerce to any person 
        (other than a person performing service for 
        consideration on motor vehicle air-conditioning systems 
        in compliance with this section) any hydrofluorocarbon 
        substitute that is--
                  (A) suitable for use in a motor vehicle air-
                conditioning system; and
                  (B) in a container that contains less than 20 
                pounds of the hydrofluorocarbon substitute.

           *       *       *       *       *       *       *

    Sec. 202. (a) * * *

           *       *       *       *       *       *       *


                          REGULATION OF FUELS

    Sec. 211. (a) * * *

           *       *       *       *       *       *       *

    (c)(1) The Administrator may, from time to time on the 
basis of information obtained under subsection (b) of this 
section or other information available to him, by regulation, 
control or prohibit the manufacture, introduction into 
commerce, offering for sale, or sale of any fuel or fuel 
additive for use in a motor vehicle, motor vehicle engine, or 
[nonroad engine or nonroad vehicle (A) if in the judgment of 
the Administrator] nonroad vehicle-(A) if, in the judgment of 
the Administrator, any fuel or fuel additive or any emission 
product of such fuel or fuel additive causes, or contributes, 
to [air pollution which] air pollution which or water pollution 
(including any degradation in the quality of groundwater) that 
may reasonably be anticipated to endanger the public health or 
welfare[, or (B) if]; or (B) if emission products of such fuel 
or fuel additive will impair to a significant degree the 
performance of any emission control device or system which is 
in general use, or which the Administrator finds has been 
developed to a point where in a reasonable time it would be in 
general use were such regulation to be promulgated.

           *       *       *       *       *       *       *

    (o) Renewable Fuel Program.--
          (1) Definitions.--In this section:
                  (A) Cellulosic biomass ethanol.--The term 
                ``cellulosic biomass ethanol'' means ethanol 
                derived from any lignocellulosic or 
                hemicellulosic matter that is available on a 
                renewable or recurring basis, including--
                          (i) dedicated energy crops and trees;
                          (ii) wood and wood residues;
                          (iii) plants;
                          (iv) grasses;
                          (v) agricultural residues;
                          (vi) fibers;
                          (vii) animal wastes and other waste 
                        materials; and
                          (viii) municipal solid waste.
    The term also includes any ethanol produced in facilities 
where animal wastes or other waste materials are digested or 
otherwise used to displace 90 percent or more of the fossil 
fuel normally used in the production of ethanol.
                  (B) Cultivated noxious plant.--The term 
                ``cultivated noxious plant'' means a plant that 
                is included on--
                          (i) the Federal noxious weed list 
                        maintained by the Animal and Plant 
                        Health Inspection Service; or
                          (ii) any equivalent State list.
                  (C) Fuel emission baseline.--The term ``fuel 
                emission baseline'' means the average lifecycle 
                greenhouse gas emissions per unit of energy of 
                conventional transportation fuels in commerce 
                in the United States in calendar year 2008, as 
                determined by the Administrator under paragraph 
                (11).
                  (D) Fuel provider.--
                          (i) In general.--The term ``fuel 
                        provider'' means an obligated party (as 
                        described in section 80.1106 of title 
                        40, Code of Federal Regulations (or a 
                        successor regulation)).
                          (ii) Inclusions.--The term ``fuel 
                        provider'' includes, as the 
                        Administrator determines to be 
                        appropriate, an individual or entity 
                        that produces, blends, or imports 
                        gasoline or any other transportation 
                        fuel in commerce in, or into, the 
                        United States.
                  (E) Greenhouse gas.--The term ``greenhouse 
                gas'' means any of--
                          (i) carbon dioxide;
                          (ii) methane;
                          (iii) nitrous oxide;
                          (iv) hydrofluorocarbons;
                          (u) perfluorocarbons;
                          (vi) sulfur hexafluoride; and
                          (vii) any other emission or effect 
                        (such as particulate matter or a change 
                        in albedo) that the Administrator 
                        determines to be a significant factor 
                        in global warming as a result of the 
                        use of transportation fuel.
                  (F) Lifecycle greenhouse gas emissions.--
                          (i) In general.--The term ``lifecycle 
                        greenhouse gas emissions'' means, with 
                        respect to a transportation fuel, the 
                        aggregate quantity of greenhouse gases 
                        emitted per British thermal unit of 
                        fuel, as determined by the 
                        Administrator, from production through 
                        use of the fuel, as calculated to 
                        ensure that any nonrecurring emission 
                        is not amortized over a period of more 
                        than 20 years to ensure that required 
                        improvements in greenhouse gas 
                        emissions occur within that period.
                          (ii) Inclusions.--The term 
                        ``lifecycle greenhouse gas emissions'' 
                        includes emissions associated with--
                                  (I) feedstock production 
                                (including direct and indirect 
                                land-use changes) or 
                                extraction;
                                  (II) feedstock refining;
                                  (III) distribution of a fuel; 
                                and
                                  (IV) use of a fuel.
                  [(C)] (G) Renewable fuel.--
                          (i) In general.--The term ``renewable 
                        fuel'' means motor vehicle fuel that--
                                  (I)(aa) is produced from 
                                grain, starch, oilseeds, 
                                vegetable, animal, or fish 
                                materials including fats, 
                                greases, and oils, sugarcane, 
                                sugar beets, sugar components, 
                                tobacco, potatoes, or other 
                                biomass; or
                                  (bb) is natural gas produced 
                                from a biogas source, including 
                                a landfill, sewage waste 
                                treatment plant, feedlot, or 
                                other place where decaying 
                                organic material is found; and
                                  (II) is used to replace or 
                                reduce the quantity of fossil 
                                fuel present in a fuel mixture 
                                used to operate a motor 
                                vehicle.
                          (ii) Inclusion.--The term ``renewable 
                        fuel'' includes--
                                  (I) cellulosic biomass 
                                ethanol and ``waste derived 
                                ethanol''; and
                                  (II) biodiesel (as defined in 
                                section 312(f) of the Energy 
                                Policy Act of 1992 (42 U.S.C. 
                                13220(f))) and any blending 
                                components derived from 
                                renewable fuel (provided that 
                                only the renewable fuel portion 
                                of any such blending component 
                                shall be considered part of the 
                                applicable volume under the 
                                renewable fuel program 
                                established by this 
                                subsection).
                  [(D)] (H) Small refinery.--The term ``small 
                refinery'' means a refinery for which the 
                average aggregate daily crude oil throughput 
                for a calendar year (as determined by dividing 
                the aggregate throughput for the calendar year 
                by the number of days in the calendar year) 
                does not exceed 75,000 barrels.
                  (I) Transportation fuel.--The term 
                ``transportation fuel'' means fuel used to 
                power motor vehicles, nonroad engines, or 
                aircraft.
                  [(B)] (J) Waste derived ethanol.--The term 
                ``waste derived ethanol'' means ethanol derived 
                from--
                          (i) animal wastes, including poultry 
                        fats and poultry wastes, and other 
                        waste materials; or
                          (ii) municipal solid waste.

           *       *       *       *       *       *       *

          (10) Ethanol market concentration analysis.--
                  (A) Analysis.--
                          (i) In general.--Not later than 180 
                        days after the date of enactment of 
                        this paragraph, and annually 
                        thereafter, the Federal Trade 
                        Commission shall per- form a market 
                        concentration analysis of the ethanol 
                        production industry using the 
                        Herfindahl-Hirschman Index to determine 
                        whether there is sufficient competition 
                        among industry participants to avoid 
                        price-setting and other anticompetitive 
                        behavior.
                          (ii) Scoring.--For the purpose of 
                        scoring under clause (i) using the 
                        Herfindahl-Hirschman Index, all 
                        marketing arrangements among industry 
                        participants shall be considered.
                  (B) Report.--Not later than December 1, 2005, 
                and annually thereafter, the Federal Trade 
                Commission shall submit to Congress and the 
                Administrator a report on the results of the 
                market concentration analysis performed under 
                subparagraph (A)(i).
          (11) Advanced clean fuel performance standard.--
                  (A) Standard.--
                          (i) In general.--Not later than 
                        January 1, 2010, the Administrator 
                        shall, by regulation--
                                  (I) establish a methodology 
                                for use in determining the 
                                lifecycle greenhouse gas 
                                emissions of all transportation 
                                fuels in commerce;
                                  (II) determine the fuel 
                                emission baseline;
                                  (III) establish a 
                                transportation fuel 
                                certification and marketing 
                                process to determine the 
                                lifecycle greenhouse gas 
                                emissions of conventional 
                                transportation fuels and 
                                renewable fuels being sold or 
                                introduced into commerce in the 
                                United States that allows--
                                          (aa) for a simple 
                                        certification using 
                                        default values; and
                                          (bb) fuel providers 
                                        to opt in to the use of 
                                        a standardized 
                                        certification tool that 
                                        would provide 
                                        verifiable and 
                                        auditable greenhouse 
                                        gas ratings for fuels 
                                        of the providers 
                                        through the use of 
                                        additional, certified 
                                        data;
                                  (IV) in accordance with 
                                clause (ii), establish a 
                                requirement applicable to each 
                                fuel provider to reduce the 
                                average lifecycle greenhouse 
                                gas emissions per unit of 
                                energy of the aggregate 
                                quantity of transportation fuel 
                                produced, blended, or imported 
                                by the fuel provider to a level 
                                that is, to the maximum extent 
                                practicable--
                                          (aa) by not later 
                                        than calendar year 
                                        2011, at least equal to 
                                        or less than the fuel 
                                        emission baseline;
                                          (bb) by not later 
                                        than calendar year 
                                        2015, 5 percent less 
                                        than the fuel emission 
                                        baseline; and
                                          (cc) by not later 
                                        than calendar year 
                                        2020, 10 percent less 
                                        than the fuel emission 
                                        baseline; and
                                  (V) permit alternative 
                                reliable estimation methods to 
                                be used for the purpose of this 
                                clause during the first 5 years 
                                that the requirement described 
                                in subclause (IV) is in effect.
                          (ii) Air quality impacts.--For the 
                        purpose of this subparagraph, in the 
                        case of any air quality-related adverse 
                        lifecycle impact resulting from 
                        emissions from motor vehicles using 
                        renewable fuel, the Administrator shall 
                        ensure, by regulation promulgated under 
                        this title, that gasoline containing 
                        renewable fuel does not result in--
                                  (I) average per-gallon motor 
                                vehicle emissions (measured on 
                                a mass basis) of air pollutants 
                                in excess of those emissions 
                                attributable to gasoline sold 
                                or introduced into commerce in 
                                the United States in calendar 
                                year 2007; or
                                  (II) a violation of any motor 
                                vehicle emission or fuel 
                                content limitation under any 
                                other provision of this Act.
                          (iii) Calendar year 2025 and 
                        thereafter.--For calendar year 2025, 
                        and each fifth calendar year 
                        thereafter, the Administrator, in 
                        consultation with the Secretary of 
                        Agriculture and the Secretary of 
                        Energy, shall revise the applicable 
                        performance standard to require that 
                        each fuel provider shall additionally 
                        reduce, to the maximum extent 
                        practicable, the average lifecycle 
                        greenhouse gas emissions per unit of 
                        energy of the aggregate quantity of 
                        transportation fuel introduced by the 
                        fuel provider into commerce in the 
                        United States.
                          (iv) Revision of regulations.--In 
                        accordance with the purposes of the 
                        Lieberman-Warner Climate Security Act 
                        of 2007, the Administrator may, as 
                        appropriate, revise the regulations 
                        promulgated under clause (i) as 
                        necessary to reflect or respond to 
                        changes in the transportation fuel 
                        market or other relevant circumstances.
                          (v) Method of calculation.--In 
                        calculating the lifecycle greenhouse 
                        gas emissions of hydrogen or 
                        electricity (when used as a 
                        transportation fuel) pursuant to clause 
                        (i)(I), the Administrator shall--
                                  (I) include emissions 
                                resulting from the production 
                                of the hydrogen or electricity; 
                                and
                                  (II) consider to be 
                                equivalent to the energy 
                                delivered by 1 gallon of 
                                ethanol the energy delivered 
                                by--
                                          (aa) 6.4 kilowatt-
                                        hours of electricity;
                                          (bb) 132 standard 
                                        cubic feet of hydrogen; 
                                        or
                                          (cc) 1.25 gallons of 
                                        liquid hydrogen.
                          (vi) Best available science.--In 
                        carrying out this paragraph, the 
                        Administrator shall use the best 
                        available scientific and technical 
                        information to determine the lifecycle 
                        greenhouse gas emissions of 
                        transportation fuels derived from--
                                  (I) planted crops and crop 
                                residue produced and harvested 
                                from agricultural land that--
                                          (aa) has been cleared 
                                        and, if the land was 
                                        previously wetland, 
                                        drained before the date 
                                        of enactment of this 
                                        paragraph, and that is 
                                        actively managed or 
                                        fallow and nonforested; 
                                        and
                                          (bb) is in compliance 
                                        with a conservation 
                                        plan that meets the 
                                        standards, guidelines, 
                                        and restrictions under 
                                        subtitles B and C of 
                                        chapter 1 of subtitle D 
                                        of title XII of the 
                                        Food Security Act of 
                                        1985 (16 U.S.C. 3831 et 
                                        seq.);
                                  (II) planted trees and tree 
                                residue from actively-managed 
                                tree plantations on non-Federal 
                                land that has been cleared and, 
                                if the land was previously 
                                wetland, drained before the 
                                date of enactment of this 
                                paragraph;
                                  (III) animal waste material, 
                                and animal by-products;
                                  (IV) slash and pre-commercial 
                                thinnings from non-Federal 
                                forestland other than--
                                          (aa) old-growth 
                                        forest or late 
                                        successional forest; 
                                        and
                                          (bb) ecological 
                                        communities with a 
                                        global or State ranking 
                                        of critically 
                                        imperiled, imperiled, 
                                        or rare pursuant to a 
                                        State natural heritage 
                                        program;
                                  (V) biomass obtained from the 
                                immediate vicinity of buildings 
                                and other areas regularly 
                                occupied by individuals, or of 
                                public infrastructure, that is 
                                at risk from wildfire;
                                  (VI) algae;
                                  (VII) separated food waste or 
                                yard waste;
                                  (VIII) electricity, including 
                                the entire lifecycle of the 
                                fuel;
                                  (IX) 1 or more fossil fuels, 
                                including the entire lifecycle 
                                of the fuels; and
                                  (X) hydrogen, including the 
                                entire lifecycle of the fuel.
                          (vii) Equivalent emissions.--In 
                        carrying out this paragraph, the 
                        Administrator shall consider 
                        transportation fuel derived from 
                        cultivated noxious plants, and 
                        transportation fuel derived from 
                        biomass sources other than those 
                        sources described in clause (vi), to 
                        have emissions equivalent to the 
                        greater of--
                                  (I) the lifecycle greenhouse 
                                gas emissions; or
                                  (II) the fuel emission 
                                baseline.
                  (B) Election to participate.--An electricity 
                provider may elect to participate in the 
                program under this section if the electricity 
                provider provides and separately tracks 
                electricity for transportation through a meter 
                that--
                          (i) measures the electricity used for 
                        transportation separately from 
                        electricity used for other purposes; 
                        and
                          (ii) allows for load management and 
                        time-of-use rates.
                  (C) Credits.--
                          (i) In general.--The regulations 
                        promulgated to carry out this paragraph 
                        shall permit fuel providers to receive 
                        credits for achieving, during a 
                        calendar year, greater reductions in 
                        lifecycle greenhouse gas emissions of 
                        the fuel provided, blended, or imported 
                        by the fuel provider than are required 
                        under subparagraph (A)(i)(IV).
                          (ii) Method of calculation.--The 
                        number of credits received by a fuel 
                        provider as described clause (i) for a 
                        calendar year shall be calculated by 
                        multiplying--
                                  (I) the aggregate quantity of 
                                fuel produced, distributed, or 
                                imported by the fuel provider 
                                in the calendar year; and
                                  (II) the difference between--
                                          (aa) the lifecycle 
                                        greenhouse gas 
                                        emissions of that 
                                        quantity of fuel; and
                                          (bb) the maximum 
                                        lifecycle greenhouse 
                                        gas emissions of that 
                                        quantity of fuel 
                                        permitted for the 
                                        calendar year under 
                                        subparagraph 
                                        (A)(i)(IV).
                  (D) Compliance.--
                          (i) In general.--Each fuel provider 
                        subject to this paragraph shall 
                        demonstrate compliance with this 
                        paragraph, including, as necessary, 
                        through the use of credits banked or 
                        purchased.
                          (ii) No limitation on trading or 
                        banking.--There shall be no limit on 
                        the ability of any fuel provider to 
                        trade or bank credits pursuant to this 
                        subparagraph.
                          (iii) Use of banked credits.--A fuel 
                        provider may use banked credits under 
                        this subparagraph with no discount or 
                        other adjustment to the credits.
                          (iv) Borrowing.--A fuel provider may 
                        not borrow credits from future years 
                        for use under this subparagraph.
                          (v) Types of credits.--To encourage 
                        innovation in transportation fuels--
                                  (I) only credits created in 
                                the production of 
                                transportation fuels may be 
                                used for the purpose of 
                                compliance described in clause 
                                (i); and
                                  (II) credits created by or in 
                                other sectors, such as 
                                manufacturing, may not be used 
                                for that purpose.
                  (E) No effect on state authority or more 
                stringent requirements.--Nothing in this 
                subsection--
                          (i) affects the authority of a State 
                        to establish, or to maintain in effect, 
                        any transportation fuel performance 
                        standard or other similar standard that 
                        is more stringent than a standard 
                        established under this paragraph; or
                          (ii) supercedes or otherwise affects 
                        any more stringent requirement under 
                        any other provision of this Act.

           *       *       *       *       *       *       *


                                  
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