TEXAS TRANSNATIONAL LAW QUARTERLY - Vinson & Elkins LLP

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TEXAS TRANSNATIONAL LAW QUARTERLY – June 2009Abbreviated Guide to the American Clean Energy and Security Act of 2009ByChristopher Carr, Larry Nettles, and Gregory StapleAlso known as H.R. 2454, the 1,427-pageAmerican Clean Energy and Security Act of2009 (ACESA) was primarily authored byCongressmen Henry Waxman (D-CA) andEdward Markey (D-MA) and adopted by the U.S.House of Representatives on June 26, 2009.This abbreviated guide 1 provides an introductionto select sections of ACESA that havepotentially international implications.Overview of ACESAThis comprehensive energy and climate billcontains five titles.Title I, which focuses on clean energy,establishes a new standard for combined energyefficiency and renewable electricity that requiresmajor electric utilities to use an increasingamount of power from renewable sourcesbeginning at 6 percent in 2012 and escalating to20 percent in 2020. Up to one-quarter of thismandate can be met by energy efficiency orconservation measures, however, and statesmay also petition to have up to two-fifths of themandate met by such activities.Title I also creates the framework for a newratepayer funded program to implement carboncapture and sequestration (CCS) technologiesat fossil fuel power plants and industrial facilities;sets emission performance standards for newcoal-fired power plants; authorizes new fundingfor the large scale introduction of electric andother advanced technology vehicles; promotesthe deployment of smart electricity grids; andcreates a new “Green Bank” known as the“Clean Energy Investment Fund” within theDepartment of Energy.Title II concentrates on energy efficiency acrossmultiple sectors of the economy by advancingnew efficiency standards and programs forbuildings, appliances, industrial facilities, andtransportation vehicles. The title also createsvarious new federal grant programs to promoteenergy efficiency, including a new state blockgrant program and a state revolving loan fund tohelp manufacturers of clean energy and energyefficient products. In addition, the bill directs theDepartment of Housing and Urban Development(HUD) to integrate energy efficiency standardsinto the agency’s public housing programs;Fannie Mae and Freddie Mac are also directedto foster second mortgages to finance energyefficiency improvements.Title III, which focuses on global warming, wouldestablish an economy-wide cap-and-tradeprogram to reduce U.S. emissions of CO2 andother greenhouse gases (GHGs) by 17 percentfrom 2005 levels by 2020, and just over80 percent by 2050. Under this program, theEnvironmental Protection Agency (EPA) wouldissue a capped and steadily declining number oftradable emissions allowances to achieve thesegoals — hence the popular reference to “capand-trade.”Large GHG emitters, suppliers ofpetroleum-based fuels, and certain other partieswould be required to have a sufficient number ofallowances or GHG offset credits each year tocover their activities. Offsets are issued foractivities that reduce or sequester GHGs (e.g.,by trapping methane from landfills) by partiesnot covered by ACESA’s emissions cap.To mitigate the cost of transitioning to a lowercarboneconomy, ACESA would initiallydistribute free allowances to electric and gasutilities (for the benefit of rate payers), to energyintensive and trade-exposed industries, smallrefiners and state governments. Otherallowances would be directed to fund a variety ofGHG-reducing programs, such as energyefficiency, CCS, and renewable energy. Someallowances would also be auctioned to providefunds to reduce the impact of any energy priceincreases on low income tax payers. The newcap-and-trade program contemplated by Title IIIgenerally would preclude the EPA fromregulating GHG emissions under existingprovisions of the Clean Air Act (CAA) and wouldalso impose a temporary moratorium onanalogous state cap-and-trade programs.Title IV of ACESA contains provisions to helpenergy intensive U.S. manufacturers addressunfair competition from importers that are not- 13 -
TEXAS TRANSNATIONAL LAW QUARTERLY – June 2009subject to similar GHG regulations. This titlealso contains provisions to promote green jobs;to increase the export of clean energytechnologies; and to help communities andhabitats adapt to the physical impacts of climatechange. Climate change adaption plans arealso mandated for all federal agencies and anew foreign aid program is established toprovide climate adaption assistance to the mostvulnerable developing countries.Title V creates a new program within theDepartment of Agriculture for issuing offsetsbased on domestic agricultural and forestrypractices (e.g., altered tillage practices;reforestation activities). This program is intendedto complement the EPA’s issuance of offsetsrelated to other domestic activities as well asfrom non-U.S. offset projects.This abbreviated guide focuses on Titles III andIV of ACESA, which may be of particular interestto the international lawyer.Title III – Reducing Global Warming PollutionThis title would establish a new long termeconomy-wide program to reduce U.S.emissions of carbon dioxide and six otherGHGs 2 by issuing a steadily declining number oftradable emissions allowances. The stated goalof ACESA is to reduce total GHG emissions by17 percent from 2005 levels by 2020, and justover 80 percent by 2050.The program would be implemented by addingtwo new titles (VII and VIII) to the CAA to beprimarily administered by the EPA. Under theseamendments, each year the owners of fossilfuel-fired electric power plants, major industrialemitters, natural gas utilities, producers andimporters of petroleum-based fuels, and certainother parties are obliged to hold EPA-issuedemissions allowances or equivalent carbonrights. The allowances (and/or offset credits)must be equal in amount to the metric tons ofCO2e that were either (a) emitted in the prioryear or (b) would be released upon combustionof a covered fuel produced or imported in theprior year for sale or distribution in interstatecommerce.The new obligations would be phased in fordifferent covered entities from 2012 to 2016.Entities that emit less than 25,000 metric tons ofCO2e annually would not generally be requiredto hold GHG emissions allowances.Based on the foregoing scheme, the point ofregulation would vary by industry. Emissionsfrom coal and natural gas would be regulateddownstream at or near the point of combustion.Emissions from petroleum-based fuels andnatural gas liquids (NGLs) would be regulatedupstream where the product is first supplied tothe market. Large stationary sources of GHGemissions that are subject to the permitrequirements of the CAA (e.g., because theyemit other regulated pollutants) would also berequired to have a new or amended Title V airpermit. The permit would incorporate the newGHG compliance mandates in the bill and wouldbe predicated upon an advance compliancecommitment by the sources’ owner or operator.To reduce the compliance costs for coveredentities, the program would create a market foremissions allowances and offsets. Once issued,allowances and offsets generally could be freelytraded, and the EPA would be required toregister and track all transfers. Accordingly,entities with excess allowances would be able tosell them to entities whose annual emissionsmay exceed their own store of allowances. Thetotal number of allowances generally woulddecrease by approximately 3 percent each yearand the program contemplates that allowanceprices would rise over time — thus incentivizingreduced emissions. From 2012 to 2020,allowance prices are expected to range between$13 to $26 per ton of CO2.Distribution of Free AllowancesTo provide covered entities and consumers witha period to adjust to the compliance costsassociated with the GHG caps adopted in TitleIII, the bill distributes free allowances for aninitial period to electric and gas utilities,merchant coal generators, energy intensiveindustries, small refiners, state governments,and certain other parties. These freeallowances are typically phased out after 2025.Some allowances are also set aside to supportCCS and other clean energy technologies.Other allowances are to be auctioned to fundvarious U.S. and international climate adaptionprograms.- 14 -
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