Analysis of the Clean Energy Jobs and American Power Act

On September 30th Senators John Kerry and Barbara Boxer introduced the Clean Energy Jobs and American Power Act.  This important step toward enacting effective and sustainable climate and energy policy will help power our economic recovery by investing in clean energy technologies and creating millions of good-paying jobs. The bill will also enhance America's security and global leadership by cutting our oil dependence and curbing the carbon pollution that drives global warming.

The bill combines standards and incentives in a powerful clean energy package:

  • The bill sets a firm limit on carbon dioxide and other heat-trapping emissions-gradually cutting global warming pollution 20 percent by 2020, 42 percent by 2030, and 83 percent by 2050, compared to 2005 levels.
  • The bill includes additional emission standards to cut carbon pollution from power plants, vehicles, and other industries.
  • The bill's valuable pollution allowances will be used to meet public objectives: protecting consumers, preserving and creating jobs, deploying renewable energy and energy efficiency technologies, cutting more carbon emissions, and coping with climate change impacts.

The Clean Energy Jobs and American Power Act will set us on the right path to a clean energy future.

Reducing Global Warming Pollution

Greenhouse Gas Emission Reduction Targets

The Clean Energy Jobs bill establishes national emissions reduction targets for carbon dioxide and other heat-trapping pollutants.

  • Covered entities. Facilities responsible for about 85 percent of U.S. emissions are under the overall pollution cap, including power plants, refineries, and industrial plants emitting at least 25,000 tons of carbon dioxide per year.
  • Emission targets. These emission limits are consistent with recommendations of the U.S. Climate Action Partnership of companies and environmental organizations:

Year        Reduction below 2005 levels

2012                  3%

2020                20%

2030                42%

2050                83%

  • The 20 percent reduction target for 2020 is an important improvement over the House bill.  This is eminently doable.  The Energy Information Administration, for example, has repeatedly lowered its forecasts of future U.S. emissions.  A recent NRDC analysis shows that the 20 percent reduction target would increase allowance prices by only six percent over the very modest prices estimated for the House bill. 
  • Scientific review. The bill directs the National Academy of Sciences to review the targets periodically, and the President is required to respond to latest scientific findings by recommending program changes to Congress.

Additional Carbon Pollution Reductions

The bill achieves more pollution cuts through three additional elements: 

  • Saving forests. A program to reduce tropical deforestation, which now accounts for about one-fifth of global carbon pollution. Funding comes from auctioning a share of the emissions allowances. The goal by 2020 is to cut carbon pollution from tropical deforestation in partner countries by an amount equal to 10 percent of our own 2005 emissions.
  • Net reductions from offsets. More emission reductions will come through a premium for the environment built into the international offsets provisions (described below).
  • Additional pollution standards. The bill also provides for performance standards to cut emissions from stationary sources that are not covered entities required to have emissions allowances (i.e., sources emitting between 10,000 and 25,000 tons of carbon pollution per year).
  • HFCs, PFCs, and black carbon.  The bill has special provisions for several groups of especially potent heat-trapping pollutants.  It establishes a separate, more rapid schedule for phasing down production of hydrofluorocarbons (HFCs) by at least 85 percent.  The bill gives EPA authority to set up a similar system for perfluorocarbons (PFCs).  It creates a program for studying and reducing emissions of black carbon.

All told, the bill passes the crucial "2 billion ton test" by reducing U.S. global warming pollution by 2.1 to 2.5 billion metric tons below 2005 levels in 2020. 

Accountability and Enforcement

The Clean Energy Jobs bill requires each covered source to report the amount of carbon pollution that it releases into the air each year-or in the case of refiners and some chemical producers, the amount that will be released when its products are burned or used downstream.

  • Accountability. Each covered entity must measure and report its emissions and have an emissions allowance for each ton of emissions. Starting in 2012, the bill sets a limit on the total number of emissions allowances, and this limit declines each year. The only other way to comply is to acquire offsets-qualifying emission reductions made at sources not covered by the emissions cap (see below).
  • Compliance. A firm that does not have enough emission allowances or offsets at the end of the year has to make up the missing allowances and pay a penalty of double the allowance cost, a strong incentive to comply.

The bill builds on today's Clean Air Act, adding the new program to limit and reduce overall carbon pollution while maintaining the tools for curbing global warming pollution that were upheld in the Supreme Court's landmark 2007 decision, Massachusetts v. EPA. 

  • The bill tailors some existing Clean Air Act provisions, but avoids overbroad changes in the House bill. It also protects state authority to set more stringent clean energy, energy efficiency, and emission control programs. As in the House bill, one exception is a six-year suspension of state cap and trade programs.

Using Allowance Value Wisely

As already noted, the bill creates valuable pollution allowances that covered entities must have for compliance.  Eventually, most of these allowances will be auctioned.  But as in the House bill, most allowances will be distributed for a transitional period without charge to achieve specific objectives.  The bill identifies the categories of recipients and purposes that will receive emissions allowances will be distributed, although the precise percentages will not be determined until later in the legislative process.  It is expected, however, that as in the House-passed bill, a large portion of the allowance pool will go towards these purposes:

  • Consumer protection. For electricity and natural gas, allowances will go to local distribution companies (LDCs) that are regulated by state public utility commissions. The bill will strictly require the LDCs to use the value of allowances for the benefit of their customers-by investing in cost-saving energy efficiency measures or giving customers rebates. The bill requires gas LDCs to invest at least one-third of their allowances in efficiency, a requirement that also should apply to electric LDCs.
  • Low-income consumer assistance. Allowances will be set aside permanently for protecting low-income consumers, who spend a higher percentage of their income on energy costs embedded in food, transportation, and other necessities. The revenue from auctioning these allowances is to be delivered to low-income families through tax credits and energy refunds.
  • Assuring domestic competiveness. For the first two decades, the bill will provide allowances to energy-intensive manufacturers making products (such as steel, aluminum, cement, and chemicals) that are subject to strong international competition.  The purpose is to avoid shifting production, jobs, and emissions to countries without comparable carbon reduction programs. The bill signals support for phasing in a border measure (requiring imports of these products to obtain emissions allowances at ports of entry), consistent with our international trade and climate treaty obligations and designed to work together with the allowances described above.  (The Finance Committee will develop the border measure language.)  Refinements are needed to promote energy efficiency investments, ensure that firms are not overcompensated, and phase both measures out as other countries step up to the plate.
  • State and local clean energy allocations.  Allowances will be allocated to states, tribes, and local governments to promote energy efficiency and renewable energy.  Allocations will support implementation and enforcement of state building energy codes and building energy efficiency retrofit programs. 
  • Research, development and demonstration.  Allocations will also support research, development and demonstration through Energy Innovation Hubs and the Advanced Research Projects Agency-Energy (ARPA-E). 
  • Green jobs and worker transition. The bill will create worker training and education programs to promote clean energy jobs. It also provides transition assistance to qualifying workers who may be displaced by the effects of the legislation.
  • Adaptation to climate change impacts. The bill provides funding for public health authorities to prepare for and respond to health consequences from climate change impacts. It creates a National Climate Change Adaptation Program, including a National Climate Service to serve as a clearinghouse for climate information, data, forecasts and warnings and to help develop and implement strategies to reduce vulnerability to climate change impacts. The bill establishes funding for water systems adaptation, flood control and prevention, wildfire protection, and coastal watershed adaptation.
  • International cooperation. Allowances will be devoted to encouraging international cooperation in the fight against climate change-reducing deforestation, helping the most vulnerable countries adapt to climate change impacts, and promoting clean technology exports. The bill recognizes that avoiding the worst impacts of global warming can significantly enhance our national security. It also recognizes the economic opportunity in building new markets for American innovators' clean technologies.

Reducing Costs and Assuring Market Stability

The bill includes many tools to reduce the costs of meeting carbon pollution targets and assure a safe and stable marketplace.

  • Investing in efficiency. Energy efficiency is the cheapest way to reduce carbon emissions, offering billions of dollars in savings for consumers and businesses. Supplementing the incentives already mentioned, the bill dedicates one-third of the emissions allowances given to natural gas local distribution companies to helping their customers make cost-saving energy efficiency investments. If Congress did the same for electricity local distribution companies, national energy efficiency investments would increase by about $10 billion per year, lowering consumer energy bills and allowance prices for all sources.
  • Emissions trading. The bill employs tried-and-true tools of allowance trading, banking, and limited borrowing, measures that allow firms to find their cheapest compliance path.
  • Offsets.  Covered sources may use up to two billion tons per year of offsets-reductions achieved outside the cap-split between domestic and international sources. The bill includes an Offsets Integrity Advisory Board and other requirements to assure the quality of offsets. Starting in 2017, a company using international offsets must have 1.25 tons of those offsets to cover a ton of its own emissions-the extra quarter ton is a net emission reduction. This will significantly increase the total carbon pollution reduction achieved.
  • Market stabilization. To assure stable markets, the bill creates a large reserve of emissions allowances (drawn mainly from future year allocations) that can flow into the marketplace if unexpected carbon price spikes take place. As much as an additional 25 percent of the annual pollution limit can be injected in any year to effectively dampen price volatility. These reserve allowances will be auctioned for a minimum price (starting in 2012 at $28/ton and rising above inflation at set rates), and each covered entity can purchase as much as 20 percent of its needs from the reserve. EPA is directed to replenish the reserve (if it is used at all) using auction proceeds to purchase extra offsets. The reserve improves on the House bill to provide even greater security against market volatility.
  • Minimum auction price. In case allowance prices move in the other direction-much lower than expected-the bill includes a minimum price (starting at $10 per ton and rising five percent above inflation each year) below which allowances are withheld from auction and added to the market stabilization reserve.

Technology Deployment

Carbon Capture and Storage

The bill includes standards and incentives to shift away from building conventional industrial facilities and coal-burning power plants and toward newer designs that employ carbon capture and storage (CCS) technology. The bill also promotes the use of CCS on existing plants. 

  • CCS regulation and R&D.  EPA is to issue CCS regulations to prevent leakage from underground reservoirs. A Carbon Storage Research Corporation is tasked with developing and demonstrating new CCS technologies, financed by a small "wires charge" on existing fossil generation.
  • CCS deployment incentives. The bill creates a large-scale deployment program (approximately 72 gigawatts) funded by allowance allocations. Industrial facilities (e.g., ethanol and fertilizer plants) are also eligible. Participants are rewarded for performance, with more compensation provided for early projects and higher capture rates.
  • Coal-fired power plant standards. New coal-fired power plants must reduce their emissions by at least 65 percent if they receive air permits after 2020. Plants permitted between 2009 and 2020 have to cut emissions by at least 50 percent within four years after a threshold amount of CCS-equipped capacity is operating. Earlier adoption of CCS is encouraged by time limits on new plants' eligibility for incentives.

Clean Transportation

The bill encourages cleaner transportation through standards and incentives that will reduce oil dependence and curb global warming.

  • Clean vehicle incentives.  The bill provides financial incentives to improve the vehicle fleet, including support to plan and build an electric "refueling" infrastructure to meet the needs of a growing plug-in electric fleet. Auction revenues are also provided for grants to reduce diesel emissions.
  • Cleaning up trucks and taxis. The bill requires EPA to set carbon pollution standards for medium and heavy trucks. It expands the support for EPA's SmartWay transport program which supplies loans to truckers for technologies that save fuel and cut pollution. The bill also allows states and cities to require taxis to meet higher fuel economy and emissions standards.
  • Transportation planning.  The bill directs states and large metropolitan regions, with technical assistance from EPA and the Transportation Department, to set targets for reducing carbon pollution from transportation, and to develop attainment strategies in their transportation plans.  The bill also creates a grant program to assist states and regions with plan development and project construction.

Areas of Concern

The bill needs to be improved in several areas:

  • Carbon Emissions from Biofuels and Bioenergy. The Senate bill (like the House bill) creates a large loophole for the carbon emissions from producing and burning biomass. The loophole is created by treating the burning of "renewable biomass" as though it has no net carbon emissions. Covered firms are allowed to ignore the emissions associated with renewable biomass when determining how many allowances are needed to cover their emissions. Exempting the emissions from biomass production and combustion can seriously erode the carbon pollution reductions from the bill-decreasing the 20 percent reduction expected in 2020 by close to a third (by as much as six percent) according to NRDC analysis (here, page 34). Closing the biomass loophole is necessary to ensure the integrity of the bill's emissions targets.
  • Nuclear incentives. The bill includes various incentives for the nuclear power industry, including job trainingsupport for nuclear workers and a new research programto help industry studyreactor aging. It also authorizes money forR&D onnuclear waste technologies-including reprocessing spent nuclear fuel, a technology that is unsafe, uneconomical, and poses greater risks of nuclear weapons proliferation than current nuclear plants.

Now is the Time to Pass Clean Energy and Global Warming Legislation

We must act now to develop clean sources of energy and curb emissions of global warming pollution. The Clean Energy Jobs and American Power Act includes the major policies needed to generate millions of jobs, break our dependence on oil, and reduce the pollution that causes global warming. Congress must strengthen and pass this critically important legislation. Tell your senator!