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Title VII - GLOBAL WARMING POLLUTION REDUCTION PROGRAM

Part A - Global Warming Pollution Reduction Goals and Targets

Section 701, Findings and Purposes:

Section 702, Economy-wide Reduction Goals:

States that the purpose of Title VII and Title VIII is to reduce economy-wide global warming pollution to 97% of 2005 levels by 2012, 80% by 2020, 58% by 2030, and 17% by 2050.

Section 703, Reduction Targets for Specified Sources:

Directs the EPA Administrator to issue regulations to reduce emissions of covered sources to 97% of 2005 levels by 2012, 83% by 2020, 58% by 2030, and 17% by 2050.

Section 704, Supplemental Pollution Reductions:

Directs the Administrator to achieve additional low-cost reductions in global warming pollution by using a small portion of the emissions allowances to provide incentives to reduce emissions from international deforestation.

Section 705, Review and Program Recommendations:

Directs the Administrator to submit a report to Congress every four years. These reports will include: an analysis of the latest science relevant to climate change, an analysis of capacity to monitor and verify greenhouse gas reductions, and an analysis of worldwide and domestic progress in reducing global warming pollution. The reports will identify steps that could be taken to better improve our understanding of climate impacts, improve monitoring and verification, and any additional reductions in emissions that may be needed to avoid dangerous climate change.

Section 706, National Academy Review:

Directs the Administrator to commission reports from the National Academy of Sciences every four years. These reports will include: an update on the progress of various clean technologies, and an evaluation of the most recent EPA report submitted under Section 705 . The reports will identify steps that could be taken to better improve our understanding of climate impacts, improve monitoring and verification, speed the deployment of clean technology, and any additional reductions in emissions that may be needed to avoid dangerous climate change.

Section 707, Presidential Response and Recommendations:

Directs the President to use existing authority to respond to recommendations in the reports. If the National Academy review confirms that further emissions reductions are needed, either domestically or globally, the President must submit a report to Congress recommending steps (including legislation) to achieve those reductions.

Part B - Designation and Registration of Greenhouse Gases

Section 711, Designation of Greenhouse Gases:

Establishes a list of greenhouse gases regulated under this title: carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons (HFCs) emitted as a byproduct, perfluorocarbons, and nitrogen trifluoride. The Administrator may designate additional anthropogenic greenhouse gases by rule.

Section 712, Carbon Dioxide Equivalent Value of Greenhouse Gases:

Lists carbon dioxide equivalents for each gas. Requires periodic review of equivalence values by the Administrator.

Section 713, Greenhouse Gas Registry:

Directs EPA to establish a federal greenhouse gas registry and comprehensive reporting system for greenhouse gas emissions.

Part C - Program Rules

Section 721, Emission Allowances:

Establishes an annual tonnage limit on greenhouse gas emissions from specified activities. Directs the Administrator to establish allowances equal to the tonnage limit for each year (with one allowance representing the permission to emit one ton of greenhouse gases, measured in tons of carbon dioxide equivalent).

Section 722, Prohibition of Excess Emissions:

Prohibits covered entities from emitting or having attributable greenhouse gases in excess of their allowable emissions level, which is determined by the number of emission allowances and offset credits they hold. Electricity generators, liquid fuel refiners and importer, and fluorinated gas manufacturers are covered starting with emissions in 2012. Industrial sources that emit more than 25,000 tons of carbon dioxide equivalent per year are covered starting with emissions in 2014. Local distribution companies that deliver natural gas are covered starting with emissions in 2016.

In addition to emission allowances, covered entities are able to offset up to 2 billion tons of emissions by using EPA-approved domestic and international offset credits, split evenly between international and domestic offsets. The ability to use these offsets is divided pro rata among all covered entities. If the Administrator determines an insufficient number of domestic offsets are available, the number of international offsets available may be increased up to 1.5 billion metric tons. Beginning in 2017, covered entities using offsets must submit five tons of international offset credits for every four tons of emissions being offset. Covered entities may also submit an international emission allowance or compensatory allowance in place of a domestic emission allowance.

Section 723, Penalty for Noncompliance:

Establishes penalties for parties that fail to comply with the program guidelines.

Section 724, Trading:

Clarifies that the legislation does not restrict who can hold an allowance, nor does it restrict the purchase, sale, or other transaction involving allowances.

Section 725, Banking and Borrowing:

Permits unlimited banking of allowances for use during future compliance years. Establishes a two-year rolling compliance period by allowing covered entities to borrow an unlimited number of allowances from one year into the future. Covered entities may also satisfy up to 15% of their compliance obligations by submitting emission allowances with vintage years 2 to 5 years in the future, but must pay an 8% premium (in allowances) to do so.

Section 726, Strategic Reserve:

Directs the Administrator to create a “strategic reserve” of 2.5 billion metric tons of emission allowances by setting aside a small number of allowances from each year’s tonnage limit. Establishes rules for releasing allowances from the reserve and for refilling the reserve if allowances from the reserve are sold.

Section 727, Permits:

Clarifies the obligations of stationary sources under the Clean Air Act’s Title V operating permit program under the newly-established Title VII program.

Section 728, International Emission Allowances:

Establishes criteria that must be met before allowances from foreign programs can be used for compliance by covered entities.

Part D - Offsets

Section 731, Offsets Integrity Advisory Board:

Establishes an independent Offsets Integrity Advisory Board composed of scientists and others with relevant expertise. The Advisory Board is charged with providing recommendations to the Administrator on: the types of offset project types that should be listed by EPA as eligible; potential levels of scientific uncertainty associated with certain offset types; appropriate quantification or other methodologies; and other areas of the offsets and deforestation provisions in the draft. The Board is also charged with conducting a regular review of all relevant areas.

Section 732, Establishment of Offsets Program:

Directs the EPA Administrator to establish an offsets program and requires that regulations ensure offsets are verifiable, additional, and permanent.

Section 733, Eligible Project Types:

Requires the Administrator to establish a list of offset project types that are eligible under the program, taking into account the recommendations of the Offsets Integrity Advisory Board. Provides guidelines for establishing and updating the list.

Section 734, Requirements for Offset Projects:

Requires that for each offset project type, the Administrator establish standardized methodologies for determining additionality; establishing baselines; measuring performance; accounting for leakage; discounting for uncertainty; and addressing reversals.

Sections 735 - 737, Approval and Verification of Offset Projects; Issuance of Offset Credits:

Establishes procedures to approve and verify offset projects. Requires the use of accredited third-party verifiers. Directs the Administrator to issue offset credits only if the emissions reduction or sequestration has already occurred and other specified conditions are met.

Section 738, Audits:

Requires the Administrator to conduct, on an on-going basis, random audits of offset projects, offset credits, and practices of third-party verifiers.

Section 739, Program Review and Revision:

Requires the periodic evaluation and updating of the offsets program, including revisions to project methodologies.

Section 740, Early Offset Supply:

To ensure a supply of offset credits in the early years of the program, allows for the issuance of offset credits for offsets from programs that meet specified criteria. Such credits may only be issued for a limited timeframe and only for reductions achieved for a specified time period.

Section 741, Environmental Considerations:

Provides requirements for additional environmental considerations for forestry projects.

Section 742, Trading:

Provides that the trading provisions applicable to allowances are also applicable to offset credits.

Section 743, International Offset Credits:

Allows the Administrator to issue international offset credits for activities that take place outside the United States. Requires that all international offset credits must meet the criteria established in preceding sections, unless for specified types of international offset credits compliance is infeasible and other safeguards for environmental integrity are established. In addition, requires that the United States be a party to a bilateral or multilateral agreement or arrangement with the country where an offset activity would take place before any international offset credits can be issued.

Requires the Administrator, in consultation with the Secretary of State, to identify sectors in specific countries in which the issuance of international offset credits on a sector-wide basis is appropriate. Establishes the terms under which the Administrator may issue international offset credits for other international instruments, specifically requiring a determination that the issuing international body has implemented substantive and procedural requirements for the relevant project type that provide equal or greater assurance of environmental integrity.

Establishes procedures and requirements regarding the issuance of international offset credits for activities that reduce deforestation. For major emitting nations, international offset credits can only be issued for national-scale activities, or for state or province-level activities in states or provinces that would themselves be considered major emitters. Smaller-scale offset projects are only allowed in countries that generate less than 1% of global greenhouse gas emissions as well as less than 3% of global forest sector and land use change emissions. All countries must transition to national baselines to continue generating credits.

Part E - Supplemental Emissions Reductions from Reduced Deforestation

Section 751-752, Definitions and Findings:

Defines forest carbon activities and finds that land use change, primarily deforestation, accounts for roughly 20% of global greenhouse gas emissions.

Section 753, Supplemental Emissions Reductions through Reduced Deforestation:

Directs the Administrator of EPA, in consultation with the Administrator of USAID, to establish a program to build capacity in developing countries to reduce emissions from deforestation (including preparation to participate in international markets for deforestation reduction credits), to achieve emissions reductions in addition to those achieved under the domestic emissions limit, and to protect intact forest from any shifts in land use as a result of reduced deforestation in other areas.

Section 754, Requirements for International Deforestation Reduction Program:

Directs the Administrators of EPA and USAID to support a broad range of activities to reduce deforestation, create markets for deforestation reduction credits, and reduce the leakage of emissions. Activities supported through this program must be environmentally sound and should protect the rights of indigenous groups and local communities. Support for emissions reductions must ensure that countries are transitioning to nationwide accounting of reduced deforestation.

Section 755, Reports and Reviews:

Directs the Administrators of EPA and USAID to report annually to Congress on progress in reducing deforestation through this program and perform a review of the program every four years.

Section 756, Legal Effect of Part:

Clarifies that this program does not supersede or limit any other federal or international law.

Part F - Ensuring Real Reductions in Industrial Emissions

Section 761, Purposes:

Outlines the purposes of Subtitle A and the additional purposes of Part 1 of Subtitle A. The purposes of Subtitle A include: promoting a strong global effort to significantly reduce greenhouse gas emissions and preventing an increase in greenhouse gas emissions in foreign countries as a result of compliance costs incurred under title VII of the Clean Air Act, as added by ACES of 2009. The additional purposes of Part 1 include: compensating eligible domestic industrial sectors and subsectors for costs incurred under Title VII; limiting such compensation to amounts that meet the goals of the program; and rewarding innovation and facility-level investments in efficiency upgrades and performance improvements.

Section 762, International Negotiations:

Finds that the purposes of this subtitle can be most effectively achieved through international agreements and states that it is the policy of the United States to work proactively under the UNFCCC and in other forums to establish binding agreements committing all major-emitting countries to contribute equitably to the reduction of global greenhouse gas emissions.

Section 763, Definitions:

Provides relevant definitions.

Subpart 1 - Emission Allowance Rebate Program

Section 764, 765, Eligible Industrial Sectors, Distribution of Emission Allowance Rebates:

Establishes a program that rebates to eligible industrial sectors and subsectors a sum intended to compensate entities in those sectors for the costs they incur as a result of complying with the pollution limit established by Title VII.

Instructs the EPA Administrator to annually distribute rebates to the owners and operators of entities in eligible industrial sectors. The Administrator is required to determine which facilities should be eligible for rebates through a rule based on an assessment of economic factors, including (1) the energy or greenhouse gas intensity in a sector and (2) the trade intensity in such sectors. Sectors meeting the listed criteria for both factors would be deemed eligible to receive rebates.

Rebates are distributed to eligible facilities on a product output basis, with compensation provided for both direct and indirect compliance costs. For direct compliance costs, allowance distribution is calculated by multiplying a facility’s product output by the sector average tonnage of greenhouse gas emissions per unit of product output. For indirect costs passed on by electric utilities, allowance distribution is calculated by multiplying a covered or uncovered facility’s product output (1) by the “emissions intensity” of each facility’s electric power supplier and (2) by the sector average electricity use per unit of product output.

Subpart 2 - International Reserve Allowance Program

Section 766, International Reserve Allowance Program:

Establishes an international reserve allowance program, which may be implemented by the President beginning in 2025 pursuant to a determination under Part 3.

Subpart 3 - Presidential Determination

Section 767, Presidential Reports and Determinations:

Requires the President to submit a report to Congress no later than January 1, 2018, regarding the effectiveness of the distribution of emission allowance rebates under Part 1 in mitigating the risk of increased greenhouse gas emissions in foreign countries resulting from compliance costs incurred under title VII.

Requires the President to make a determination, no later than June 30, 2022, and every four years thereafter, for each sector eligible for rebates under Part 1, of whether more than 70% of global output of that sector is produced in countries that meet at least one of the following criteria: (1) party to an international treaty to which the U.S. is a party that includes a nationally enforceable emissions reduction commitment that is at least as stringent as that of the U.S.; (2) party to an international sectoral agreement for that sector to which the U.S. is a party; (3) energy or greenhouse gas intensity for that sector that is equal or less than that of the U.S.; or (4) implemented emissions reduction policies that together impose a cost on that sector that is at least 60% of the cost of complying with Title VII for that sector in the United States.

If the President determines that less than 70% of global output of a sector is produced in countries that meet one or more of the above criteria, then the President shall continue emission allowance rebate program under Part 1 or implement the International Reserve Allowance Program under Part 2 or a combination of the two for that sector. In the absence of such a determination, the emission allowance rebates for entities in the sector will decline by 10% per year.

Part G - Petroleum Refineries

Section 771, Domestic Fuel Production:

Provides 2% of allowances to domestic oil refiners starting in 2014 and ending in 2026.

Part H - Disposition of Allowances

Section 781, Allocation of Allowances for Supplemental Reductions:

Directs the Administrator to allocate allowances for the program under part E to achieve supplemental emissions reductions from reduced deforestation. Allocates 5% of allowances for the years 2012-2025, 3% for 2026-2030, and 2% for 2031-2050.

Section 782, Allocation of Emission Allowances:

Provides for allocation of allowances to electricity consumers; natural gas consumers; home heating oil and propane consumers; low-income consumers, trade-vulnerable industries; investment in clean energy from coal; investment in energy efficiency and renewable energy; centers of excellence; clean vehicle technology; domestic fuel production; workers; domestic, wildlife, and natural resources adaptation; international adaptation; clean technology transfer; deficit reduction; and consumer rebates.

Section 783, Electricity Consumers:

Provides approximately 30% of allowances to local electric distribution companies, whose rates are regulated by states, to protect consumers from electricity price increases. Provides approximately 5% of allowances for merchant coal generators and certain generators with long-term power purchase agreements. Provides for phase-out of allowances over a five-year period from 2026 through 2030.

Section 784, Natural Gas Consumers:

Provides 9% of allowances to local natural gas distribution companies, whose rates are regulated by states, to protect consumers from electricity price increases. Provides for phase-out of allowances over a five-year period from 2026 through 2030.

Section 785, Home Heating Oil and Propane Consumers:

Provides 1.5% of allowances to states for programs to benefit users of home heating oil and propane. Provides for phase-out of allowances over a five-year period from 2026 through 2030.

Section 786-788 [Reserved]

Section 789, Climate Change Rebates:

Any unallocated allowances beginning in 2026 will be auctioned and the proceeds returned to consumers on a per capita basis as a climate change rebate.

Section 790, Exchange for State-Issued Allowances:

Provides for fair compensation and exchange of allowances issued by the State of California, the Regional Greenhouse Gas Initiative and the Western Climate Initiative prior to commencement of federal program.

Section 791, Auction Procedures:

Establishes single-round, sealed-bid, uniform-price auction procedures, which may be modified by the Administrator.

Section 792, Auctioning Allowances for Other Entities:

Establishes rules by which the Administrator may auction allowances on behalf of other entities.

Section 793, Establishment of Funds:

Establishes the Strategic Reserve Fund and the Climate Change Dividend Fund in the U.S. Treasury.

Title VIII - ADDITIONAL GREENHOUSE GAS STANDARDS

Section 801, Definitions:

Part A - Stationary Source Standards

Section 811, Standards of Performance:

Requires the Administrator to use existing Clean Air Act authority (section 111) to set greenhouse gas emission performance standards for certain sources with greenhouse gas emissions that are not subject to the annual tonnage limit in Title VII. Precludes the Administrator from using existing Clean Air Act section 111 authority to issue standards for entities covered by Title VII that directly emit greenhouse gases.

Part C - Exemptions from Other Programs

Section 831, Criteria Pollutants:

Provides that greenhouse gases may not be listed as criteria air pollutants on the basis of their effect on climate change.

Section 832, Hazardous Air Pollutants:

Provides that greenhouse gases may not be listed as hazardous air pollutants on the basis of their effect on climate change.

Section 833, New Source Review:

Provides that New Source Review shall not apply to greenhouse gas emissions.

Section 834, Title V Permits:

Provides that greenhouse gases shall not be considered when determining whether a stationary source is required to operate pursuant to a permit under Title V.

Section 835, Existing Proceedings:

Provides that this Act does not affect the requirements to be applied in existing administrative proceedings or litigation initiated under the Clean Air Act prior to the date of enactment, such that this legislation does not interfere with or determine the outcome of ongoing permit appeals. Further provides that new electric utility units subject to performance standards adopted under this Act are not subject to any new source review requirements with respect to greenhouse gas emissions.