Climate Change Gets Specific –
Evolution of Legislation and ACES
Victor B. Flatt,
Tom and
Elizabeth Taft Distinguished
Professor of Environmental Law,
UNC-Chapel Hill; Distinguished
Scholar GEMI
Evolution of Cap and Trade Bills




McCain-Lieberman
Lieberman-Warner
Dingell-Boucher
Waxman-Markey (ACES), passed out of
house in June.
Important Issues in Federal Cap &
Trade








Target, and target timeline
How will GHG allowances be allocated
How much of the economy covered
Adaptation funding
Offset definition and restrictions
“Safety” Valve
Who will Administer
Pre-emption and Benefits of Early Action
Senate Timeline and Politics
 Originally scheduled vote before August recess –
now September
 Looking for Republican co-sponsors
– Snowe, Collins, Murkowski, McCain, Graham
– Alexander seems to be out
 60 votes possible (3 democratic defections
predicted with high certainty – Nelson, Landrieu,
Byrd)
 Compromises necessary?
 Alaska funding; possible natural gas role?
U.S. Federal Legislation
Waxman- Markey (now ACES) voted out of
house
 Important Details
– Coverage
– Target Reduction
– Allocation
– Administrative Oversight and Market
– Offsets
Target Goals
(G-8 agrees to 2 C rise limit)
83% reduction of 2005 levels by 2050
 17% reduction of 2005 levels by 2020
– Initial draft had 20% by 2020
– New draft claims with additional controls outside cap,
will still reach 20%
– IPCC recommends 25-40% below 1990 levels by
2020, but goal is only about 7% below 1990 levels by
2020.
– EU looking at 25%
 Large Coverage
– Over 85% of emissions
ACES How Allocated
 15 % auctioned per year
 Initially, other percentage given away
 Approx. 59% to industry; 25% for
needs/interest of public- adaptation, enviro,
etc…
Annual allowances (in millions)
(sec. 721)
YEAR
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
ALLOWANCES
4,627
4,544
5,099 *INC COVERAGE
5,003
5,482*INC COVERAGE
5,375
5,269
5,162
5,056
4,903
4,751
4,599
4,446
4,294
4,142
3,990
3,837
3,685
3,533
YEAR
ALLOWANCES
2031
3,408
2032
3,283
2033
3,158
2034
3,033
2035
2,908
2036
2,784
2037
2,659
2038
2,534
2039
2,409
2040
2,284
2041
2,159
2042
2,034
2043
1,910
2044
1,785
2045
1,660
2046
1,535
2047
1,410
2048
1,285
2049
1,160
2050 and each year thereafter 1,035
Allowance allocation to Regulated Entities
35% for electric utility sector;
– Last version gives percentage to rural electric
cooperatives; fight over allocation
 15% for carbon-intensive industries, such as steel and
cement, in 2014 (reduced by 2% every year)
 9% for local natural gas distribution companies, in
2016 (reduced to zero between 2026 and 2030)
 3% for automakers toward advanced technologies
through 2017 (reduced to 1% from 2018 and 2025)
 2% for oil refineries from 2014 to 2026
 2% for carbon capture and storage technology from
2014 to 2017 (increases to 5% after 2018)
Allowance allocation (cont.)
To states and other funds:
 10% for states for renewable energy and efficiency
investment from 2012 to 2015 (reduced to 5% between
2016 to 2022)
 5% for tropical deforestation prevention projects
 2% for domestic adaptation to climate change between
2012 and 2021 (increases to 4% between 2022 to 2026, to
8% in 2027)
 2% for international adaptation and clean technology
transfer from 2012 to 2021 (increases to 4% between 2022
to 2026, to 8% in 2027)
 1.5% for programs helping home heating oil and propane
users (reduced to zero between 2026 and 2030)
 1% for Clean Energy Innovation Centers for R&D funding
 0.5% for job training from 2012 to 2021 (increases to 1%
after 2022)
Modified Formula in passed bill
 Emission Allowance Rebate Program
 For Carbon Intensive Industry declining
through 2035
 Read in Conjunction with prior authorized
distributions
Offsets
 Larger amount available than prior
proposals– usually 2 billion tons of CO2
equivalent per year
 Varies between 15% and 70% of total over
life of bill
 Split between domestic and foreign
 Foreign subject to 25% penalty
 When Passed – set up list of existing
offsets
Offsets Cont.
 Domestic offset sequestration reversals that
are “unintentional” may not be made fully
whole (statute calls for 50% replacement)
 Possibility of offset failure could infect the
secondary markets
 Complexity and Controversy – Expect to see
changes with offsets
Offsets to USDA
 Major Change – USDA jurisdiction over all land
based offsets and sequestration – most
 Also “term” offsets
 Positive – USDA has more staffing worked with
farmers
 Negatives – role of watchdog? Loopholes?
 Negative – no environmental review; complication
with pre-emption – California
 EPA oversight role? Senate compromise
Market Details
 FERC in charge of initial allocation/auction
 Might be transferred to CFTC
 CFTC in charge of regulating “secondary”
markets, i.e. markets in all financial or other
contractual, risk-hedging instruments containing
carbon allocations or offsets (regulated like other
commodities)
 Initial offset contracting exempt from this
 Looking at a restriction in all commodity trading
from financial crisis.
 All OTC WILL have to be “cleared.”
 Safety Valve