On May 12, 2010, Senators John Kerry (D-MA) and Joe Lieberman (I-CT) unveiled their long-anticipated draft of the American Power Act. The almost 1,000 page draft bill has yet to be formally introduced in the Senate. While sharing many of the same goals as the American Clean Energy and Security Act, enacted by the House of Representatives in June 2009, the Kerry-Lieberman bill represents, in some ways, a less environmentally ambitious proposal—undoubtedly a reflection of the necessity of attracting 60 votes. At the same time, it includes significantly greater incentives for the development of nuclear power and offshore oil. If enacted, provisions of the American Power Act would take effect in 2013.
At its heart, the bill would establish a mandatory global warming pollution reduction program designed to reduce total annual greenhouse gas emissions for selected sectors of the economy (a more limited selection of sectors than covered by the House bill) to 17 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050. The reductions will be achieved by the distribution and/or auction of a fixed number of emissions allowances, which allowances can then be traded in a heavily regulated market and for which a hard price collar would be set. The proposed cap-and-trade program is designed to prevent speculation by limiting potential buyers of allowances to those entities with compliance obligations and those registered to participate in the carbon market. The House bill did not limit market participants.
In an effort to protect consumers in the event of energy price increases, the Kerry-Lieberman bill proposes to refund 75 percent of allowance sale proceeds, while the House bill provides for a refund of only 45 percent of such proceeds. The bill also seeks to protect domestic industry (and jobs) from “carbon leakage” by establishing a border adjustment mechanism by which imports from countries without emissions reductions will be subject to a fee.
In apparent recognition of the need to garner industry support, the bill includes provisions that would limit the ability of the EPA to employ existing provisions of the Clean Air Act to impose additional regulatory obligations on greenhouse gas emissions from facilities that are subject to the bill’s emissions reduction program. While states retain the authority to set vehicle standards and take certain other actions relating to the regulation of greenhouse gases, the proposed legislation would preempt state authority to impose cap-and-trade programs once the federal program was in place. Although portions of the bill were reworked following the disaster in the Gulf of Mexico, the bill incentivizes offshore drilling in previously protected areas by offering revenue sharing to coastal states (subject to state vetoes under certain circumstances). It also contains substantial incentives for nuclear power development and carbon capture and sequestration.
It remains to be seen whether the Obama administration will lend substantial support to this effort, and even if it does, it will be difficult to secure the required 60 votes for passage. The need for certainty by industry and EPA’s spate of regulations addressing greenhouse gas emissions from mobile and stationary sources may create a coalition of the willing for action by Congress.
To read more about the draft bill, see the following links:
- Full text of the draft bill (pdf)
- Short summary of the draft bill (pdf)
- Section by section summary of the draft bill (pdf)
