Kerry-Lieberman American Power Act on Shelf but in Focus

The American Power Act (“APA”), released as a discussion draft on May 12, 2010, by Senators Kerry and Lieberman, lays out the most comprehensive blueprint to date of a federal carbon cap-and-trade system.  While the legislation would preempt regional or state-based initiatives such as the Regional Greenhouse Gas Initiative (“RGGI”), RGGI proponents will recognize many of the hallmarks of that and other regional cap-and-trade programs subsumed within the APA.  Upon Senate Majority Leader Harry Reid’s announcement on Thursday, July 22, 2010, that no cap-and-trade legislation will be acted upon until next fall at the earliest, draft APA remains a primary focus of the climate-change-legislation discussion.   

The provisions of the APA range far beyond carbon emissions regulation, encompassing incentives for: nuclear power development and regulatory approval; offshore drilling (seemingly hastily tempered with a call for a moratorium post-Deepwater Horizon disaster until “the Secretary of the Interior certifies that it is safe to continue proposed drilling plans”); coal, accompanied by promotion of carbon capture and sequestration technology and the institution of performance standards for coal-fired power plants circa 2009 and more recent; voluntary renewable energy markets; electric vehicle (“clean transportation”) infrastructure; and clean energy research and development.  Nonetheless, the carbon cap-and-trade provisions surely are the most noteworthy and closely-watched. 

Title II of the APA, entitled “Global Warming Pollution Reduction” establishes a nationwide cap on carbon emissions by amending the Clean Air Act to include a new title, “Title VII – Greenhouse Gas Pollution Reduction and Investment Program,” the first section of which establishes “Greenhouse Gas Pollution Reduction Targets.”  The emissions reduction goals of the cap are to reduce: by 2013 emissions to 95.25 percent of 2005 levels; by 2020 emissions to 83 percent of 2005 levels; by 2030 emissions to 58 percent of 2005 levels; and by 2050 emissions to 17 percent of 2005 levels.  Greenhouse gases are designated as: (1) Carbon dioxide; (2) Methane; (3) Nitrous oxide; (4) Sulfur hexafluoride; (5) Hydrofluorocarbons from a chemical manufacturing process at a stationary source; (6) any perfluorocarbon that is an anthropogenic gas 1 metric ton of which makes the same or greater contribution to global warming over 100 years as 1 metric ton of carbon dioxide; and (7) Nitrogen trifluoride.  The EPA Administrator is vested with authority to designate additional greenhouse gases meeting certain criteria.

Covered entities will be afforded a certain number of allowances to emit greenhouse gases.  Provisions are included for updating the Federal greenhouse gas registry and reporting regulations.  A total number of allowances is designated in the legislation, beginning with 4,722 (MtCO2e or metric tons of carbon dioxide equivalent) in 2013 and diminishing to 1,043 in 2050 and each calendar year thereafter.  Provisions are made for compensatory allowances, for conversion, destruction or non-emission of greenhouse gases, and retirement of allowances.  On a phased-in, staggered-start schedule that begins in 2015, covered entities are prohibited from emitting amounts of greenhouse gases in excess of their allotted allowances.  Existing Title V sources would have allowance or offset requirements for “a quantity that is at least equal to the total annual quantity of carbon dioxide equivalents for the combined greenhouse gas emissions and attributable greenhouse gas emissions” of the source.  (States with state-delegated Title V permitting programs will be required to submit revised permit programs for approval). 

Distributed (as opposed to auctioned) emissions allowances are to benefit electricity consumers, natural gas consumers, and home heating oil and propane consumers, disproportionately impacted consumers, and trade-exposed industries, and to promote industrial energy efficiency and clean energy technology development and deployment. 

An “Offset Credit Program For Domestic Emission Reductions” also is included.  Rather than delineating categories of allowable offsets at the outset, the Kerry-Lieberman draft bill establishes an Advisory Committee to recommend the “types of offset projects that should be considered to be eligible to generate offset credits” and “relevant scientific data regarding emission reduction practices for those project types.”  The bill does list certain specific types of offset projects that are to be designated as “eligible project types,” including:

• Methane collection at mines, landfills, and natural gas systems
• Recapture of fugitive emissions within the oil and gas sector
• Non-landfill projects involving the collection, combustion, or avoidance of emissions from organic waste streams, such as manure management, composting, or anaerobic digestion projects
• Afforestation or reforestation of acreage not forested as of January 1, 2009
• Forest management resulting in an increase in forest carbon stores, including harvested wood products
• Forest-based manufactured products
• Capture and sequestration of greenhouse gas emissions
• Recycling and waste minimization projects
• Abatement of nitrous oxide production at stationary sources not subject to regulation by the APA
• Biochar production and use projects
• Projects that destroy ozone-depleting substances that have been phased out of production
• Agricultural, grassland, and rangeland sequestration and management practices and similar agricultural-related projects

The bill also provides for the establishment of methodologies and performance standards to accompany and govern offset credits and their calculation, integrity, approval and verification.

Auction procedures are set forth that resemble those in RGGI.  Only “covered entities” and “regulated greenhouse gas market participants as defined pursuant to the Commodity Exchange Act (7 U.S.C. 1 et seq.)” can participate and participants must provide financial assurance of performance on bids and disclosure of beneficial ownership.  Reserve auction prices are proposed, starting with $12.00 (in constant 2009 dollars) for auctions occurring during calendar year 2010. 

Aside from the cap-and-trade program, the APA proposes to pre-empt the current authority of the EPA to regulate greenhouse gases, in favor of its own regulatory schematic for “ensuring regulatory predictability for greenhouse gases.”  It proposes corresponding amendments to the Clean Air Act and Commodity Exchange Act. 

Other sections of the APA propose to address “fast mitigation” of hydrofluorocarbons, black carbon, and international methane. 

The EPA Administrator is charged with reporting to Congress by July 1, 2013, and every four years thereafter, on updated analyses of scientific information and data examining all aspects of global climate change and its repercussions. 

For more information on these issues, please contact Malinda Lawrence.