House Energy and Commerce Committee Begins Cap-and-Trade Bill Markup

Government Relations Update

On Monday, May 18, the House Energy and Commerce Committee began the long delayed markup of H.R. 2454, the American Clean Energy Security Act (ACES). This bill, a draft of which was first released in late March by Committee Chairman Henry Waxman (D-CA) and Subcommittee on Energy and Environment Chair Ed Markey (D-MA), seeks to reform the domestic energy sector and reduce the United States’ emission of greenhouse gases.

Originally, Rep. Waxman hoped to begin the markup of the ACES bill on April 27, after an intense set of hearings covering the legislation, during which over seventy witnessed, including former Vice President Al Gore and Former Speaker of the House Newt Gingrich, testified. However, Committee Democrats representing districts with energy intensive industries continued to balk at some of the provisions in the legislation that could adversely affect their constituents. Every Committee Republican, outside of Rep. Mary Bono Mack (R-CA), announced his or her opposition to the bill.

The bill the committee is currently marking up represents the results of weeks of negotiation between Chairman Waxman and the moderate Committee Democrats, whose support the Chairman requires to move his bill to the House floor.

Republicans plan to offer hundreds of amendments this week, although they have backed away from a request to read the 900-plus page bill aloud, which would certainly have slowed down the committee’s proceedings. Waxman insists that the markup will be completed by the Memorial Day break and floor time is expected in June if this is the case. In addition, the bill has been referred to eight other House committees that will also be allowed to weigh in on certain components under their jurisdiction.

The heart of the ACES bill is an amendment to the Clean Air Act that would grant the government the power to limit domestic greenhouse gases. The bill requires entities engaging in specified activities that result in the release of greenhouse gases, and eventually any entity emitting more than twenty five thousand tons of greenhouse gases (carbon dioxide equivalent) annually, to procure emissions allowances from the government. The government reduces greenhouse gas emissions be reducing the number of emissions allowances available over time.

Under the Waxman-Markey bill, electricity generators, liquid fuel refiners and importers, and fluorinated gas manufacturers would have to begin securing emissions allowances in 2012, while industrial entities with annual emissions over twenty-five thousands tons would have to have allowances beginning in 2014. The cap-and-trade regime created by the bill would incorporate local distribution companies that deliver natural gas in 2016.

The ACES bill outlines a reduction strategy that calls for the government to issue emissions allowances representing ninety-seven percent of 2005 emissions in 2012, eighty percent of 2005 emission levels in 2020, fifty-eight percent by 2030, and seventeen percent by 2050. As result of Waxman-Markey, covered entities would have to emit eight-three percent less greenhouse gas in 2050 than they did in 2005.

The ACES bill allows covered entities to trade allowances or store them for use in future years. The legislation also enumerates a number of activities covered entities can undertake to offset their greenhouse gas emissions. Covered entities can use offset credits to meet a portion of their emissions quota.

The original ACES draft distributed emissions allowances via auctions. However, during negotiations, opponents of the bill won automatic allocation of allowances to certain covered entities. For instance, the current version of the measure allocates thirty percent of emissions allowances to local electric distribution companies, five percent for merchant coal generators, nine percent for local natural gas distributors, and one and a half percent for state programs to benefit users of home heating oil propane. A number of the automatic allotments will be phased out between 2026 and 2030, however. The government will distribute those allowances not allocated by the legislation through a single-round, sealed-bid, uniform-price auction.

In addition to reducing greenhouse gas emissions, the ACES bill contains a number of provisions designed to reform America’s energy economy. The act creates a federal renewable electricity standard by inserting language into the Public Utility Regulatory Policies Act (PURPA) to require retail electric suppliers to meet a certain percentage of their load with electricity from renewable sources. Beginning in 2012, retail electric suppliers must meet six percent of their load requirement with electricity from renewable sources or energy savings. This percentage gradually rises until 2020, at which point retail electric suppliers must use electricity generated from renewable sources to meet twenty percent of their load requirements. The bill gives the Federal Energy Regulatory Commission the authority to allow utilities to use energy efficiency gains to meet the renewable electricity standard.

For the purposes of meeting the renewable electricity standard, the ACES bill considers the following sources of energy renewable: wind, biomass, solar, geothermal, certain hydropower projects, marine and hydrokinetic energy, biogas and biofuels derived exclusively from eligible biomass sources, landfill gas, wastewater treatment gas, coal mine methane, and qualified waste-to-energy projects. The legislation defines a retail electric supplier as an entity that sells more than four million megawatt hours of electricity to consumers for purposes other than resale.

The ACES bill also contains provisions to promote carbon capture and sequestration, encourage the development of electricity transmission infrastructure capable of handling the increased use of electric vehicles and that incorporates smart grid technologies, establish more stringent energy efficiency building codes, and provide worker training for green jobs.

Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.