Search Penny Hill Press

Friday, May 28, 2010

Market-Based Greenhouse Gas Control: Selected Proposals in the 111th Congress

Larry Parker
Specialist in Energy and Environmental Policy

Brent D. Yacobucci
Specialist in Energy and Environmental Policy

Jonathan L. Ramseur
Specialist in Environmental Policy

As of the date of this report, Members in the 111th Congress have introduced nine stand-alone proposals that would control greenhouse gas (GHG) emissions. The proposals offered to date would employ market-based approaches—either a cap-and-trade or carbon tax system, or some combination thereof—to reduce GHG emissions. The legislative proposals are varied in their overall approaches in controlling GHG emissions. Some control emissions by setting a quantity (or cap); others control emissions by setting a price (or tax/fee). In addition, the proposals differ in their inclusion of particular design elements, such as whether or not to allow offsets (emission reduction opportunities from economic sectors not directly addressed by the primary approach). 

H.R. 2454, the American Clean Energy and Security Act of 2009 (Waxman/Markey), and S. 1733, the Clean Energy Jobs and American Power Act (Kerry/Boxer), have been the primary energy and climate change legislative vehicles in the 111th Congress. On June 26, 2009, the House passed H.R. 2454. On November 5, the committee approved Senator Boxer's "Manager's Amendment" as a substitute, and ordered S. 1733 reported. In addition to establishing a cap-andtrade system to regulate GHG emissions, both H.R. 2454 and S. 1733 would address energy efficiency, renewable energy, and other energy topics. Other proposals—H.R. 1862 (Van Hollen) and H.R. 1666 (Doggett)—would control emissions by limiting quantity, but would differ in their structure and implementation. 

Three of the proposals—H.R. 594 (Stark), H.R. 1337 (Larson), and H.R. 2380 (Inglis)—would use a carbon tax approach to address carbon dioxide (CO2) emissions from fossil fuel combustion. 

Other proposals do not fit precisely into either a price or quantity control category. H.R. 1683 (McDermott) would establish a program that may be described as a dynamic carbon tax: its tax rate would be linked with annual emission allocations (or caps). S. 2877 (Cantwell) would establish a CO2 emission control program on fossil fuel producers and importers. Although the bill would limit the number of carbon shares auctioned each year, the auctions would include a price safety valve, allowing for the purchase of additional shares. To counter the emissions from these additional shares (above the cap), the price safety-valve revenues would be used to support mitigation efforts outside of the emission control program. 

On May 12, 2010, Senators Kerry and Lieberman released a draft of new climate change legislation. A comprehensive energy and climate change policy proposal, the draft would set GHG reduction goals similar to those of H.R. 2454. The proposal would employ a market-based cap-and-trade scheme for electric generators and industry with a separate set-price mechanism to allocate allowances to cover transportation fuels. 

A key element in GHG emission reduction bills is how, to whom, and for what purpose the value of emission allowances or carbon tax revenue would be distributed. The distribution strategy is a critical policy decision, because it would affect (1) the overall cost of the program and (2) how program costs are distributed throughout the economy. In the early years of the program, H.R. 2454 and S. 1733 would distribute allowances at no cost to both covered and non-covered entities to support various policy objectives. In addition, an increasing percentage of the allowances would be sold through auction. As with the distribution of no-cost allowances, auction revenues would be used to further various policy objectives. 

Date of Report: May 18, 2010
Number of Pages: 29
Order Number: R40556
Price: $29.95

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.