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U.S. Climate Change Legislation and Regulation –
State of Play and Cross-Border Aspects Jan Bohanes
21 May 2009
Geneva
jbohanes@sidley.com
Major Concerns
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Loss of
Carbon
Loss of
Competitiveness
Leakage
Effectiveness
2
Policy Options
• Internal measures
– Free allowances
– Output-based rebates
• External measures
– Border tax
– Allowance requirement
– Sectoral carbon-intensity standard
3
Overview
Regulatory
Action
Legislative Action
Environmental Protection
US Congress
Agency (EPA)
Waxman/Markey bill
Clean Air Act
International
Negotiations
4
Waxman-Markey Bill (1)
American Clean Energy and Security Act of 2009
• 110th Congress saw a number of cap-and-trade bills
– many of them with border measures, none voted on
• 111th Congress: “dramatically improved” prospects for
climate change legislation
– President Obama called on lawmakers to send him
“legislation with a market-based cap on carbon pollution”
– Well-placed advocates in Congress
• Waxman/Markey bill released on 15 May 2009
– currently in the mark-up process in the Committee on
Energy and Commerce in the House of Representatives
– previous Discussion Draft, hearings, and adjustments
5
Waxman-Markey Bill (2)
American Clean Energy and Security Act of 2009
“A legislative
Susan Boyle”
Chairman Waxman
6
Waxman-Markey Bill (3)
American Clean Energy and Security Act of 2009
• Deals with:
– Renewable Energy Standards
– Energy Efficiency
– Emissions Trading Scheme (“cap-and-trade” regime)
– Transition to a Clean Energy Economy (including
competitiveness and adaptation provisions)
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Waxman-Markey Bill (4)
American Clean Energy and Security Act of 2009
• Reductions under the cap-and-trade regime and overall
economy
– 3% below 2005 levels by 2012
– 17% by 2020 (overall economy 20%)
– 42% by 2030
– 83% by 2050
• Creates a market-place for allowances
– allows banking and borrowing
• Start 2012, phase in complete by 2016
8
Waxman-Markey Bill (5)
• Specifies distribution of emission allowances to key
sectors or for certain key purposes; rest auctioned off
• Carbon-based rebates
– Available to eligible industrial sectors with
• 5 percent – energy or GHG intensity
• 15 percent - trade intensity
• Which sectors? Determined by 2011
– Rebate calculated based on sum of
• direct carbon factor
• indirect carbon factor
– 100 percent through 2025, phase out by 2035
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Waxman-Markey Bill (6)
• Allowance requirement on imports (border
measure)
– President must assess by 2017 effectiveness of rebates in
mitigating carbon leakage.
– Report must also include recommendations on the International
Reserve Allowance Program (IRAP); and on assistance to
affected industries by other developed countries
– By 2020, President must “notify foreign countries that an [IRAP]
may apply”
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Waxman-Markey Bill (7)
• Allowance requirement on imports
– By 2022, President must determine whether more than 70
percent of global output for covered sectors comes from
countries that
“responsible
countries”
• are party to an international climate change agreement (overall
or sectoral)
• have an energy or GHG intensity same or lower as US
• have implemented policies that impose an incremental cost
increase at least 60 percent of cost of US program
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Waxman-Markey Bill (8)
• Allowance requirement on imports
– If 30 percent or more from countries that do not satisfy any of
these criteria, President must assess rebates and the IRAP and
• modify amount of rebates and/or
• implement the IRAP for the relevant sector
– The IRAP may not begin until 2025
• exemptions for LDCs and low emission countries
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Waxman-Markey Bill (9)
• What is the stated purpose of the IRAP?
– Administrator is to design the IRAP program “in a manner that
addresses, consistent with international agreements to which the
United States is a party, the competitive imbalance in the costs of
[production] ...”
– Explicitly stated preference for achieving goals through international
negotiations
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Waxman-Markey Bill (10)
• What is the support for such legislation?
– Administration and well-placed advocates
– difficult economic times
– Party lines not a wholly accurate predictor
• Further steps:
– Mark-up finished by Memorial Day (25 May)?
– Approval by the House of Representatives
– Subsequent action by the Senate
– Signature by President
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Van Hollen “Cap and Dividend” Bill (H.R. 1862)
(introduced April 1, 2009)
• Implements cap-and-trade system on entities selling fuel
• Permits auctioned by US Government, proceeds distributed as
“dividends” to US taxpayers
• Imposes carbon equivalency fee at border
– on imports of carbon-intensive goods
– equal to carbon cost to domestic producers
• Pays carbon equivalency amount to exporters
– of carbon-intensive goods
– equal to carbon cost to domestic producers
• Border measures cease if
– international climate change agreement reached
– exporting country implements measures equivalent to US measures
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Overview
Regulatory
Action
Legislative Action
Environmental Protection
US Congress
Agency (EPA)
Waxman/Markey bill
Clean Air Act
International
Negotiations
16
Regulatory Action by the EPA
under the Clean Air Act
• In 2007 Supreme Court rules that CO2 fits within the
definition of “air pollutant” in the Clean Air Act
• Pres. Bush directs EPA to respond
• EPA has issued an Advance Notice of Proposed Rulemaking
(ANPR)
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Regulatory Action by the EPA
under the Clean Air Act (2)
• Far-reaching regulatory action
– mobile sources (from lawnmowers to heavy-duty trucks)
– stationary sources? (residential and industrial)
– standards on renewable energy, energy efficiency
– product lifecycle standards, e.g. for fuels (including GHG
emissions during production)
• But may not implement a cap-and-trade regime (?) and
cannot provide subsidies to affected industries
– also no authority to impose border measures
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EPA action vs. legislative action
• EPA regulatory action runs parallel to legislative process,
until legislation is enacted
– Waxman/Markey bill would preempts EPA action
• EPA regulatory process provides Obama administration with
leverage to get legislation enacted
– EPA regulation comes without any subsidies or cap-and-trade
flexibility
• However, EPA regulatory process might also be an incentive
for Administration and Congress to avoid passing legislation
that might cost a lot of jobs
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How do these developments affect
international negotiations?
• Enactment of legislation would signal willingness and ability
of US to commit to binding reduction targets
• What if by December a bill has cleared only the House, and
not yet the Senate?
• Provision for border measures – its effects on international
negotiations
– source of leverage gone?
– less confrontational/unilateral
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