H.R. 2454: American Clean Energy and Security Act of 2009

H.R. 2454

American Clean Energy and Security Act of 2009

Sponsor
Rep. Henry A. Waxman

Date
June 26, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

On June 26, 2009, the House will consider H.R. 2425, the American Clean Energy and Security Act (ACES), sponsored by Rep. Henry Waxman (D-CA) and Rep. Ed Markey (D-MA).  The rule, H.Res. 587, self-executes the Manager's Amendment, and makes in order one Republican amendment.  There will be three hours of debate on the bill, and 30 minutes of debate on the amendment. 

 

Bill Summary

Over 1,200 pages long, H.R. 2454 contains four sections outlining mandates for renewable energy, mandates for energy efficiency, a cap-and-tax proposal, and a "transitioning" section focused on forestalling expected job loss.  

 •  Higher Energy Prices:  The bill imposes a national cap-and-tax regime that ultimately every consumer in the U.S. would pay for.  Independent researchers, CBO, and the President all agree that this cost will be passed to consumers.  Furthermore, almost every other provision in the bill either increases the cost of energy directly or tried to keep it from increasing too much-such as a new federal renewable electricity standard that would likely cause electricity prices to spike. 

•  Fewer Jobs:  The bill does little to address the enormous loss of jobs that would ensue when U.S. industries absorb the cost of the cap-and-tax plan and other provisions, likely sending millions of American jobs overseas.  There is little debate that a national energy tax would outsource millions of manufacturing jobs to countries such as China and India.  According to the independent Charles River Associates International, H.R. 2454 would result in a "net reduction in U.S. employment of 2.3 million to 2.7 million jobs each year of the policy through 2030," even after the creation of new green jobs.

•  More Government Intrusion:  The bill creates a host of new federal mandates on everything from outdoor light bulbs and table lamps to water dispensers, commercial hot food cabinets, and Jacuzzis.  The bill would also increase the demand for electricity (to fuel plug-in vehicles via new hybrid incentives) at the same time as the other portions of the bill cause consumer electricity costs to spike. 

Although the bill includes "free" allowances for some sectors, economists agree that even if 100 percent of the industry's emissions were initially covered by free allocations, the bill's declining carbon cap will force higher and higher costs onto the American public.  According to the Heritage Foundation, by 2035 this legislation would:

•  Reduce aggregate gross GDP by $9.4 trillion;

•  Raise electricity rates 90 percent;

•  Raise gasoline prices by 58 percent;

•  Raise residential natural gas prices by 55 percent; and

•  Increase inflation-adjusted federal debt by 26 percent, or $28,728 additional federal debt per person, again after adjusting for inflation.

Furthermore, a recent poll shows that 78 percent of individuals questioned said that a $50 increase in monthly utility bills would be a hardship.  58 percent of respondents say that they are unwilling to pay any more than they currently pay for electricity to combat climate change.  To that end, one-half of those polled oppose enacting a carbon tax to fund energy research (up from 31 percent in 2007). 

 

TITLE I-HIGHER ENERGY PRICES ("Clean Energy")

 

Renewable Electricity Standard

 A renewable electricity standard is a mandate requiring electric providers to derive a certain amount of their production from renewable sources (including wind, solar, geothermal, biomass, and some hydropower sources).  The bill excludes existing nuclear power (a greenhouse gas neutral technology) from the list of approved renewable sources. 

The bill mandates a federal renewable electricity standard (RES).  The RES calls for a 20 percent renewable energy and energy efficiency standard by 2020.  By 2020, utilities would be required to obtain 15 percent of their electricity from renewable energy sources and demonstrate annual electricity savings of 5 percent from energy efficiency measures.  If the governor of a State determines that utilities in the State cannot meet the 15 percent renewable requirement, the governor may reduce the renewable requirement to 12 percent and increase the efficiency requirement to 8 percent. 

The Federal Energy Regulatory Commission (FERC) has been given new responsibility to manage the RES program and would give utilities "credits" for renewable energy generated which can be sold, transferred, or exchanged.  If a utility cannot meet the RES it would have to purchase these credits.  Each year, utilities would submit their credits to FERC, verifying their compliance with the RES.  Many members may have the following concerns: 

•  Higher Electricity Prices:  The federal RES would likely cause electricity prices to spike.  It does not preempt State renewable electricity standards (at least 23 States have one), but would, instead, force utilities in States which have standards to comply with both a State and a federal program.  Many State programs include resources which are not eligible under the federal standard.  If renewable energy were already cost effective and competitive, there would be little need to federally mandate and subsidize it.  This bill does just that, putting the renewable energy market under the control of an extremely inefficient bureaucracy. 

•  Regional Disparities:  Members may be concerned that a RES would impose a uniform federal standard on States despite varying sources of renewable resources.  For instance, southeastern States would be especially hard hit.  In addition, forcing a RES on States who lack in renewable energy supply would transfer wealth between States in the renewable energy market.  A RES would also disproportionally affect low-income States that have yet to invest in renewable energy, whose budgets are already being stretched by the economic downturn.    

•  Unknown Economic Effects:  While there have been studies of the economic effects of cap-and-tax as well as RES, there has not been a study showing the compound effect of both in effect simultaneously.  If States continue their programs beyond the federal program, additional costs could be incurred. 

•  New Transmission Lines:  Nothing in the bill addresses the costs associated with new transmission lines needed for the RES, and these transmission lines would likely be subject to not-in-my-backyard opposition that often impedes permitting.  Additional costs could accrue for renewable energy transmitted from far away resources to renewable poor States.  The bill could also imperil the reliability of the electric system, which originally was not designed to incorporate high levels of intermittent renewable generation. 

State Renewable Energy and Energy Efficiency Programs

The bill sets aside 0.5 percent of the allowances for a new competitive Tribal Renewable Energy and Energy Efficiency Program managed by Indian tribes (section 133).  The bill also provides that States may use up to 10 percent of the allowances for their nonfederal share of transportation programs, such providing access to bicycles on public transportation, shelters and parking facilities for bicycles. 

Carbon Capture and Sequestration

Carbon capture and sequestration is the term used to describe a technology that captures carbon at its source and stores it before it is released into the atmosphere.  Carbon capture and sequestration (CCS) is designed to be a method of reducing the amount of carbon dioxide (CO2) emitted into the atmosphere.  In general, any CCS system would have the following components: (1) capturing and separating CO2 from other byproducts; (2) compressing and transporting the captured CO2 to the sequestration site; and (3) sequestering CO2 in geological reservoirs or in the oceans. 

The bill would prohibit any new coal-fired plants after 2009, unless they install CCS technology, and provides rebates to developers to expand CCS.  In acknowledgement of the cost that would be incurred to build a CCS pipeline infrastructure, the bill authorizes a task force to conduct a study of existing federal and State environmental statutes that apply to geologic sequestration, long term implications, financial burdens, and private sector funding options (insurance, bonding).  The bill also sets up a Carbon Storage Research Corporation to administer a program to accelerate the commercial availability of CO2 capture and sequestration and award competitive grants, contracts, and financial assistance to eligible entities to capture and convert CO2

The bill also requires the Environmental Protection Agency (EPA) to subsidize the commercial deployment of CCS technologies in electric power generation and other industrial operations.  Furthermore, the bill states that any regulations proposed should be reset in 2025 to reflect future emission limitations.  Members may have the following concerns: 

•  Unavailable and Untested Technology:  Members may be concerned that the bill's requirements rely too heavily on technology that is still largely unavailable and untested, inevitably restricting and perhaps halting new coal-fired plants from coming online.  Any new requirement should at least track the development of this technology. 

•  Unexpected Rise in Natural Gas Prices:  Members may be concerned that by placing new burdens on coal-fired plants, electricity generation would heavily rely on natural gas until renewable energy technology is available to completely replace coal.  This would cause the cost of natural gas to increase substantially, affecting every area of the country-most dramatically those already reliant on natural gas for electricity. 

•  Cost of Transporting CO2Members may have concerns with the cost to be incurred by building new pipeline infrastructure to transport CO2 from emission sites to sequestration sites.  Furthermore, the cost of transporting CO2 alone would be very high (not including the cost to build the necessary infrastructure), and there is still considerable technical and scientific uncertainty over how large quantities of injected CO2 would be permanently stored underground.  To that end, the DoE has initiated numerous CO2 injection tests in a variety of geologic reservoirs, the results of which are still unavailable.  While the scientific community continues to explore alternative methods to capture and store CO2, all methods still remain experimental.

 

Smart Grid Requirement

 A Smart Grid is a distribution system that allows for information to flow from a customer's electric meter in two directions: both inside the house to thermostats and appliances and other devices, and back to the utility.  The goal of a Smart Grid is to use technologies to increase power grid efficiency, reliability, and flexibility, and reduce the rate at which additional electric utility infrastructure needs to be built.

H.R. 2454 facilitates the deployment of a Smart Grid, including measures to use it to reduce utility peak loads and promote capabilities in new home appliances.  The bill also directs FERC to reform the regional planning process to modernize the electric grid and provide for new transmission lines to carry electricity generated from renewable sources. 

Transportation Subsidies

 H.R. 2454 would require the DoE to provide grants or loan guarantees to cities, States, or private entities to subsidize the deployment of plug-in hybrid vehicles.  The bill also authorizes DoE to provide financial assistance to vehicle manufacturers to produce these plug-in hybrid vehicles.  The legislation amends the Energy Independence and Security Act of 2007 to increase the funding amount for advanced technology vehicle manufacturing loans from $25 million to $50 million.  Finally, the bill establishes an open fuel standard by which automobiles made after 2015, must be able to operate with gasoline blends up to E85 (85 percent) ethanol or M85 (85 percent methanol), or be warranted to operate on biodiesel, if required by the Secretary of Energy or the EPA Administrator.  Members may have the following concern: 

•  Increased Federal Mandates:  Some Members may be concerned that this section allows the federal government to subsidize preferred vehicle types and manufacturers, essentially a form of corporate welfare.  Finally, this section would increase the demand for electricity (to fuel vehicles) at the same time as the cap-and-tax portion of the bill causes consumer electricity costs to spike.  Consumers will end up paying more to fuel their more expensive plug-in cars during a recession.

Transmission Planning & Federal Purchases

 The bill amends the Federal Power Act to require the FERC to adopt grid planning principles to achieve national policy goals.  These goals would include facilitating the deployment of zero-carbon energy, reducing congestion, and ensuring cyber-security.  The planning principles would incorporate energy efficiency, a Smart Grid, and underground transmission technologies.  The bill does not give FERC any additional sitting authority over transmission lines.

The bill amends the Energy Policy Act of 2005, so that federal government contracts to acquire renewable energy can be made for a period of up to 30 years.  Members may have the following concern: 

Nationalizing the Grid:  While transmission infrastructure development is important for reliability purposes, this provision does not provide the structure necessary to ensure that transmission is developed in a timely manner.  It creates a confusing and slow planning process with no clear benefit. 

Clean Energy Innovation Hubs

The bill would establish eight regional "Clean Energy Innovation Hubs" to be selected by the Secretary of Energy.  These Hubs would be located at research universities, private research entities, industry sites, or State institutions.  Each of these Centers would have a specific technology focus that would consume at least 50 percent of each site's funding.  The bill reduces the allowance allocation for Energy Innovation Hubs from 1.5 percent to .45 percent.  The bill also requires that for at least three of the Hubs, special consideration be given to a Land Grant Institution, one Predominantly Black Institution, Tribal College or University and one Hispanic serving Institution.  Members may have the following concern:

•  Picking Winners and Losers:  These Clean Energy Innovation Centers would not be allowed to conduct research on emissions-free nuclear power development or clean coal technology-two alternative energy sources which if developed could lead to greater American energy supply and thousands of jobs.

Green Bonds

The bill requires the new revolving Clean Energy Investment Fund to be initially capitalized by the issuance of green bonds. 

Clean Energy Technology Deployment

 The bill adds a new section authorizing credit support, including direct loans, letters of credit and loan guarantees to back portfolios of taxable debt obligations originated by State, local, and private sector entities for the purpose of enhancing the availability of private financing for clean energy technology deployment.  This includes support for enabling owners and users of buildings and industrial facilities to significantly increase the energy efficiency their buildings; install renewable energy generators; and energy storage applications for electric drive vehicles, stationary applications, and electricity transmission and distribution. Members may have the following concern:

 •  Loan Limits:  The loan program limits any one technology to no more than 30 percent of the available funds.  This could disadvantage nuclear energy, which is a capital-intensive technology, and severely limit the number of new nuclear plants which could benefit from this provision.

 

TITLE II-GOVERNMENT INTRUSION ("Energy Efficiency")

 

Building Energy Efficiency

 The bill contains several "energy efficiency programs" for commercial and residential buildings.  For example, the legislation requires 30 percent reduction in energy use immediately after passage and an additional 50 percent reduction in energy use by 2014 for residential buildings and 2015 for commercial buildings.  DoE would provide funding to States to implement these requirements.  If a State is out of compliance with the codes, it cannot receive emission allowances under any cap-and-tax plan.  Also, States would lose federal funding from other parts of the bill on a sliding scale for each year of non-compliance.

Additionally, the bill establishes an EPA program to retrofit commercial, residential, and public housing buildings to improve the energy efficiency of these buildings.  The legislation also creates a DoE program to provide grants of up to $7,500 for low-income households living in pre-1976 manufactured homes to purchase new Energy Star-qualified homes.  Members may have the following concern: 

•  Mandates:  Some Members may be concerned that these provisions essentially impose a new national model building code on States for energy efficiency, while creating a new federal housing grant program with an unknown level of funding. 

 Lighting and Appliance Energy Efficiency

 The bill establishes several new federal standards for lighting and household appliances.  Regarding lighting, the bill would create a new standard for outdoor lighting fixtures effective in 2011, with more stringent standards in 2013 and 2015.  Additionally, in 2012, new standards would take effect for some outdoor light bulbs and portable light fixtures (such as table lamps).  The legislation would also put new energy standards on appliances such as water dispensers, commercial hot food cabinets, and Jacuzzis.  Importantly, the bill requires DoE to estimate the value of CO2 emission reductions achieved by these higher energy standards and these values would then be used to determine whether the standards should be made stricter.  The Federal Trade Commission would also require that manufactures label appliances to show their CO2 output.  The bill also allows the Federal Energy Regulatory Commission or the Attorney General of a State to bring action in U.S. District Courts against any person who sells products not in compliance with energy standards under this Act. 

The bill gives U.S. District Courts the authority to restrain persons distributing through commerce products which do not meet the energy standards of this section.  The bill also includes a provision to reward appliance manufacturers who add Smart Grid capability to high-efficiency appliances.  Finally, H.R. 2454 creates a DoE program to give retailers "best-in-class" rewards for the successful marketing of high-efficiency appliances.  The bill authorizes $300 million annually for these rewards from 2010 through 2014.  Members may have the following concern: 

•  Excessive Regulation:  Some Members may be concerned that this section excessively regulates and increases the cost for a wide range of household appliances and would make it a federal crime for a person to sell appliances which do not meet the new energy standards prescribed in the legislation.  The new lighting could cost businesses, colleges and cities millions of dollars which they can ill-afford. 

Transportation Efficiency

 This section would amend the Clear Air Act to enable the EPA to develop standards for new heavy-duty motor vehicles or new heavy-duty motor vehicle engines regarding greenhouse gas emissions.  The Administrator would also identify classes of new nonroad vehicles or engines that, in the judgment of the Administrator, contribute significantly to emissions of greenhouse gases.  The Administrator would promulgate standards for these new nonroad engines or vehicles by December 31, 2012.

H.R. 2454 also enables the EPA to establish federal transportation-related greenhouse gas emissions reduction goals, as well as standardized models and methodologies for use in developing surface transportation-related greenhouse gas emissions reduction targets.  States would be required to develop surface transportation-related greenhouse gas emission reduction targets, as well as strategies to meet such targets.

Public Institutions

 The bill would authorize grants for "community development organizations" to provide financing for energy efficiency projects and increased energy conservation in low income rural and urban communities.  The bill authorizes $50 million annually between 2010-2015 for this purpose.

 

TITLE III-NATIONAL ENERGY TAX ("Reducing Global Warming Pollution")

 

Economy-Wide Target Reductions

 A cap-and-tax plan would impose controls on emissions of greenhouse gases by entities that emit such gases (including the power industry and manufacturing industry).  This cost would likely be passed on to the consumer of the energy product being produced.

The bill amends the Clean Air Act to establish a Global Warming Pollution Reduction Program.  The program sets targets for covered entities greenhouse gas emissions at 17 percent below 2005 levels by 2020, 42 percent below 2005 levels by 2030, and 83 percent below 2005 by 2050.  The reduction targets for 2050 would bring us back to CO2 levels equivalent to those in 1907, before the automobile came into popular use. 

The bill defines a covered entity as any electricity source; any stationary source that sells or distributes petroleum-based or coal-based liquid or natural gas fuel, fossil fuel-based CO2, or other greenhouse gases; any geological sequestration site; any stationary source including ammonia manufacturing plants, cement production, and lime manufacturing plants; any stationary source in the chemical or petrochemical sector that manufactures carbon black, or ethylene (used to make plastics); any stationary source that participates in ethanol (alcohol) production, food processing, glass production, hydrogen production, iron and steel production, lead production, pulp and paper manufacturing, and zinc production; any fossil fuel-fired combustion device (such as a boiler); or natural gas local distribution companies.  NOTE:  This list is not meant to be exhaustive.  A stationary source is any operation comprised of a plant, building, structure, or stationary equipment, located within one or more contiguous or adjacent properties, that emits a greenhouse gas.

The bill defines capped emissions as any greenhouse gas emission for which an emission allowance must be held, including any emissions from natural gas plants, petroleum-based or coal-based liquid or gaseous fuel, petroleum coke, or natural gas liquid. 

The bill defines capped sector as any sector of the economy that directly emits capped emissions, including the industrial sector, the electricity generation sector, the transportation sector, and the residential and commercial sectors (does not include the agricultural or forestry sectors).

 New Listing of Greenhouse Gases

 According to the United Nations Framework Convention of Climate Change, the current list of greenhouse gases include carbon dioxide (CO2), methane, nitrous oxide (laughing gas), sulfur hexafluoride (used in medicine), hydrofluorocarbons (a by-product of industrial manufacturing, also found in refrigerators and insulation), and perfluorocarbons (a by-product of aluminum production).

The bill expands the list of greenhouse gases (GHG) recognized by the U.S., which currently recognizes and accepts the U.N. framework list, by adding nitrogen trifluoride (a by-product of electronics production, specifically microelectronic devices).  Furthermore, the bill would allow other gases emitted by human activity to be added later at the discretion of the Administration.  The bill also establishes a "Federal Greenhouse Gas Registry" to list all covered entities and vehicle fleets emitting more than 25,000 tons of CO2 annually.

Emission Allowances

 An emission allowance is generally defined as a limited authorization by the government to emit one ton of pollutant annually (not only CO2, but other GHGs).  Auctions and allowances are currently used by the U.S. in pollution control schemes in numerous ways.  Under this bill, allowances can also be banked and borrowed or purchased from a strategic reserve.  Although allowances are generally allocated on an annual basis, participants can either use the allowance in the year purchased or save them for the next year.  Saving allowances to be traded or used in a future year is referred to as "banking".  Furthermore, the bill allows for covered entities to purchase and use international emission allowances, a tradable authorization to emit one ton of CO2 (or GHG equivalent) issued by a foreign government. 

The bill sets out compliance obligations for all currently operating covered entities, phasing in the compliance requirements for industrial and natural gas sources, and sets penalties for noncompliance.  With regard to allowance purchasing, the bill permits the trading and sale of allowances between emission allowance holders, as well as the banking and borrowing of allowances across years.  The bill also allows covered entities to use international emission allowances from foreign programs so long as the Administration deems the foreign programs as stringent as that of the U.S.

Strategic Reserve

 The proposal would create a "strategic reserve" of emission allowances to create a cushion should allowance prices rise faster than expected.  The reserve would consist of approximately 2.5 billion allowances-composed of one percent of the total allowances each year from 2012-2019, two percent each year from 2020-2029, and three percent each year from 2030-2050.  The bill also adds unsold emission allowances from a regular auction to supplement the strategic reserve.  The bill allows covered entities to purchase strategic reserve allowances to meet up to 20 percent of their compliance obligation at quarterly auctions.  The bill sets the minimum price for reserve allowances at 60 percent above the rolling 36 month average cost after 2015, intending the proceeds from the reserve auction to be used to purchase additional allowances to replenish the strategic reserve. 

Offsets

 The bill references the use of offsets (both offset credits and offset projects) as a way for a covered entity to reduce their need for emission allowances-by incurring emission credits.  Examples of offsets projects include forestry and agricultural activities that absorb CO2, and the reduction is achieved by entities that are not regulated by the bill.  Both domestic and international offsets are allowed. 

The bill establishes an Offsets Integrity Advisory Board and Offset Registry to oversee the integrity system.  The bill requires that for every one ton of CO2 being offset, covered entities must submit one offset credit.  The bill includes a lengthy and detailed list of qualitative restrictions governing the eligibility, requirements, and approval process for such projects.  The bill grants FERC complete authority to regulate the allowance and offset trading markets.  There are some concerns among affected entities that the authority given to FERC is too extreme, and goes beyond authorities given to other regulating agencies in similar markets. 

The bill also establishes an EPA/USAID program to build capacity in developing countries to reduce emissions from deforestation.  This program would seek to reduce deforestation, create markets for "deforestation reduction credits," and reduce the leakage of emissions from the United States to developing countries.  Members may have the following concern: 

•  Offset projects:  Because of the uncertainty in offset project successes, it is difficult to know exactly how much CO2 reduction actually takes place with a deforestation project.

 

Allowances

After weeks of negotiations with industry groups and Energy and Commerce Committee Democrats, Chairmen Waxman and Markey released a proposed emission allowance allocation scheme (the numbers are approximations since the bill changes allowance allocation numbers over time):

•  Electricity Sector:  35.5 percent of allowances would be allocated to the electricity sector (31 percent for local electric distribution, four percent for merchant coal generators, and 0.5 percent for small distribution companies).  These allowances would phase out over a five-year period from 2026 through 2030.

•  Natural Gas Companies:  Nine percent of allowances would be allocated to local natural gas distribution companies in 2016.  These would phase out over a five-year period from 2026 through 2030.

•  States:  1.5 percent of allowances would be allocated to States for home heating oil and propane programs.  These would phase out over a five-year period from 2026 through 2030.  Additionally, States would be given 7 percent of allowances for investment in renewable energy and energy efficiency.  This level of allocation would decrease gradually over time.

•  Energy-Intensive Industries:  14.4 percent of allowances would be allocated to "energy-intensive, trade-exposed" industries.  These allocations would decrease after 2016, based on emissions target reductions and would phase out after 2034, unless the President decides otherwise.

•  Oil Refiners:  2.25 percent of allowances would be allocated to domestic oil refiners, starting in 2014 and ending in 2026.

•  Carbon Capture and Sequestration:  1.75 percent of allowances would be given to electric utilities to offset the costs of installing and operating (not yet available) carbon capture and sequestration technologies.  After 2019, 5 percent of allowances would be allocated for this purpose.

•  Automobile Industry:  Three percent of allowances would be given to the automobile industry for investment in electric vehicles and other "advanced automobile technology and development."  Beginning in 2018, the industry would receive 1 percent of allowances.

•  Research and Development:  1.05 percent of allowances would be allocated to research universities and institutions for R&D on clean energy technologies.

•  Tropical Deforestation:  Five percent of allowances would be allocated to "prevent tropical deforestation" and to generate international deforestation offsets.  The amount of allowances given for this purpose would decrease gradually.

 •  Domestic Adaptation:  Two percent of allowances would be allocated for "domestic adaptation" purposes.  This level of allocation would increase over time.  These allowances would be used for wildlife and natural resource protections and public health.

 •  International Adaptation:  Two percent of allowances would be allocated for "international adaptation and clean technology transfer."  This percentage of allowances would increase gradually

•  Worker Assistance and Job Training:  0.5 percent of allowances would be given for worker assistance and job training from 2012 through 2021.  After 2021, 1 percent of allowances would go to this purpose.

 •  Energy Innovation Hubs:  .45 percent of allowances would be given to Energy Innovation Hubs.

 •  Unallocated Allowances:  Some of the remaining unallocated allowances would be auctioned "to ensure budget neutrality" and the rest would be used for "consumer protection."  For example, after 2026 unallocated allowances would be auctioned with the proceeds returned to consumers on a per capita basis as a "climate change rebate".  No further details on this rebate are disclosed in the bill.

The draft also outlines how auctions are to be conducted, and provides technical information regarding the auctioning procedure.  Members may have the following concerns:

•  Huge New Energy Tax:  CBO confirms that this cap-and-tax proposal would burden each and every U.S. household with a new energy tax.  The inevitable loss of jobs due to forced carbon mandates on every sector of the economy would devastate the economy.  In many areas of the country where unemployment rates are already high, there is a strong correlation with manufacturing jobs-jobs which would be the first to go under a cap-and-tax regime. 

•  Forcing Energy Producers to Shut Down:  Due to the mandated emission caps in the bill, if not enough allowances are distributed to cover all their emissions, existing emitters would either have to reduce carbon to be below the cap or purchase emission allowances to do so.  It is likely that many would not be able to reduce their carbon emissions enough in the time frame outlined, and they may not have the funds to purchase the amount of allowances necessary.  The only economic choice for such plants would be to shut down.  If these plants close, we would see a severe reduction in coal-powered electricity generation across the country and increasing unemployment. 

Additional Greenhouse Gas Standards

The bill exempts CO2 and other capped GHGs from regulation under the Clean Air Act (seemingly going against all previous statements and intentions by Chairman Waxman and Markey to regulate CO2 and GHG through the Clean Air Act).  However, another section of the bill opens up further regulation by the EPA (Sec. 111) under the Clean Air Act.  The bill specifically grants new regulatory authority for uncapped GHG emissions.  Members may have the following concern:

•  Excessive Regulation:  Members are concerned that increasing the authority to regulate under the Clean Air Act would allow the EPA to further regulate fossil-fuel fired power plants, a request of many environmental groups, and ultimately threaten our entire electric supply system.  In particular, the Chief Climate Counsel for the Sierra Club has said publically that the Clean Air Act should be used to block the construction of new coal-fired power plants and shut down existing plants.  Members may be concerned that exempting CO2 and GHG from further regulation under the Clean Air Act is intended to veil Democrat's intentions to use back door methods to shut down coal-fired power plants. 

The bill also regulates and caps hydrofluorocarbons (previously uncapped) in a way similar to the capping and trading of CO2.  The bill requires reports on emission sources and ways of controlling the emission of black carbon-a by-product of incomplete combustion of fossil fuels or biomass-as well as directing the EPA to propose regulations for black carbon within two years.  Currently, black carbon is mostly emitted by diesel transportation sources, forest and agriculture burning operations, and residential cooking and heating appliances in developing nations. 

 

TITLE IV-FEWER JOBS ("Transitioning to a Clean Energy Economy")

 

Domestic Competitiveness

 In an effort to ensure that U.S. manufacturers are not put at a disadvantage relative to overseas competitors, the bill would give rebates to specific industrial sectors affected by the new energy tax imposed under the bill.  As part of the rebate program, the bill requires that emissions from all covered entities be considered and inspected.  Members may have the following concern:

•  Admission of Increased Cost:  This provision is a complete admission that a cap-and-tax regime in the U.S. would assuredly put U.S. manufactures on an unequal playing field with foreign manufacturers.  Many Members would question the ability of any rebate or requirement on international manufactures to actually save American jobs from moving overseas.   

 International Reserve Allowance Program

 Border adjustments, also known as tariffs, are import fees levied by carbon-capping countries on goods manufactured in non-carbon-capping countries.

The bill establishes U.S. policy to set up binding agreements committing all major GHG emitting nations to contribute equitably to the reduction of global GHG emissions.  While doing nothing to require foreign nations to cap their own emissions, the bill would instead establish a border adjustment program to require foreign manufacturers and importers to purchase emission allowances to "cover" the carbon emitted in the production of U.S. bound products-an attempt to deal with U.S. manufacturers who find themselves on unequal ground with their foreign counterparts.  Many of these energy-intensive goods and sectors include iron, steel, aluminum, cement, glass, pulp, paper, chemicals, and industrial ceramics.  The purpose of this adjustment program is to "promote a strong global effort to significantly reduce greenhouse gas emissions."  Since it is widely accepted that unless foreign countries such as India and China institute carbon-capping programs of their own, the efforts of the U.S. would be likely for naught.  Members may have the following concerns: 

•  Cost to U.S. Consumers:  Members recognize that any cost to foreign producers would be passed on to U.S. consumers.  Not only would domestic products be more expensive, but foreign goods would as well.  Members also recognize that this would likely have devastating effects on free trade and foreign relationships.

•  Global Participation:  Members also recognize that without global participation, our carbon caps would do little to affect any global climate change.  In fact, according to MIT researchers, "With rapid growth in developing countries, failure to control their emissions could lead to a substantial increase in global temperature even if the U.S. and other developed countries pursue stringent policies."  In other words, U.S. efforts could easily be all for naught. 

•  Harmful Restrictions:  Members may be concerned that implementing trade restrictions between the U.S. and other countries may create a retaliatory environment, where the U.S. exports could be targeted for retaliation.

"Green Jobs" Subsidies

 The bill authorizes the Education Department to make grants to develop programs of study that are focused on careers and jobs in clean energy, renewable energy, energy efficiency, and climate change mitigation.  The bill authorizes and applies Davis-Bacon work requirements to all individuals employed (including those employed by contractors) by programs established under the bill. 

 

Climate Change Worker Adjustment Allowance

 The bill establishes a program entitling displaced workers to 156 weeks of income supplement (70 percent of the average weekly wage), 80 percent of their monthly health care premium, up to $1,500 for job search assistance, up to $1,500 for moving expenses, as well as job counseling, training, and other assistance.  The Secretary of the Treasury would transfer funds to the States for these purposes.

•  Job Loss:  Members may be concerned that this provision is an admission that reckless climate regulation would negatively impact American businesses and jobs.

 Energy Refund Program and Entitlements-the Largest Welfare Program in History

 The bill provides for the Secretary of HHS, in cooperation with the Department of Agriculture to provide monthly cash payments ("energy stamps") to reimburse certain low-income households for the estimated loss in their purchasing power resulting from H.R. 2454.  The bill establishes uniform national standards of eligibility to ensure that States may "seamlessly" administer the "energy-stamps" program with the Food Stamp program.  The bill establishes eligibility for individuals at 150 percent of poverty, and phased out thereafter.  The energy stamps program would reach approximately 65 million individuals making it a larger program than TANF, food stamps, or even Medicaid.  Despite its massive scope, over 200 million Americans would receive no benefits under this program.  The bill would also require the EIA to estimate the annual total loss in purchasing power that would result from this bill for households of each size with gross income equal to 150 percent of poverty based on the projected total market value of all compliance costs (including cost of emission allowances) for determination of monthly energy refund amount.  The bill provides that cash should be delivered by direct deposit into individual accounts, the State's electronic benefit transfer system, or another Federal or State mechanism approved by the HHS Secretary.  The bill provides that the value of the refund shall not be considered income or resources for purposes of Federal, State or local laws.

 •  Increased Energy Costs:  Members may be concerned that this provision is a blatant admission that H.R. 2454 would increase energy costs for households and businesses.  This program cannot completely compensate for the cumulative cost of this legislation.  For example, a family of four with an income over $33,000 per year is ineligible for any energy stamps.

 H.R. 2454 requires the Secretary of the Treasury to transfer to the "Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability insurance Trust Fund" and the "Trust Fund" such sums not otherwise appropriated, that the Social Security Administration Chief Actuary and the Centers for Medicare and Medicaid Services Chief Actuary calculates as necessary to account for changes in benefit costs and changes in tax revenue attributable to the provisions of H.R. 2454, in an attempt to make each of the trust funds whole as if H.R. 2454 had not been enacted. 

 Exporting Clean Technology

 In an effort to encourage other countries to follow suit with the U.S. cap-and-tax regime, the bill establishes an International Clean Technology Account to distribute allowances (i.e. foreign aid) to developing countries that seek to reduce emissions.  These funds would help other countries deploy renewable energy and clean technologies.

Adapting to Climate Change

 The bill would provide subsidies to State, local, and tribal governments for the implementation of projects to study and account for the vulnerability to climate change impacts across the country. 

The bill establishes a Natural Resources Climate Change Adaptation Fund.  Money from this fund would be sent to States and federal agencies to carry out natural resources adaptation activities.

The bill also requires the Secretary of Health and Human Services to initiate a national strategy for adapting to the public health effects of climate change.  Finally, the bill establishes an International Climate Change Adaptation Program within the USAID to provide foreign aid to developing countries for their efforts to adapt to climate change.

H.R. 2454 create a new interagency National Climate Service to "advance understanding of climate variability," provide forecasts and warnings, as well as to support development of federal, State, local and private adaptation and response plans. 

•  New Bureaucracy:  This recent addition to H.R. 2454 raises numerous concerns, including granting broad, sweeping authority to the Administration with little Congressional input.  Further, the proposed National Climate Service could be expanded exponentially to evolve into a sprawling agency with tentacles reaching into multiple departments and agencies.  This far-reaching provision has yet to be scored.

Background

Creates the Largest Welfare Program in History:  The "energy-stamps" program created by H.R. 2454 would reach 36 million people-that's 17 million more than Medicaid and 22 million more than food stamps. "Energy-stamps" represent a new entitlement only for those with low incomes, or who already get welfare and related benefits.  Members may be concerned that everyone else would only get tax hikes.  It is likely that low-income families whose "energy-stamps" are worth more than the energy tax hikes they pay.

"Free" Allowances:  Members may be concerned that even if 100 percent of the industry's emissions were initially covered by free allocations, the bill's declining carbon cap would force higher and higher costs onto the American public.  Eventually, when the allocations run out, emitters would be forced to either pass on the full higher cost to consumers, or move out of the U.S. to a country with less stringent emission policies. 

Increased Bureaucracy:  H.R. 2454 would increase federal bureaucracy by expanding nine federal departments and 17 federal agencies, creating a new Climate Change Service, requiring more than 65 agency actions for implementation and imposing unfunded mandates on states, municipalities and private entities.  Mandates in the bill cover everything from outdoor light bulbs and table lamps to water dispensers, commercial hot food cabinets, and Jacuzzis.

 Global Bailout:  Between 2012 and 2019, H.R. 2454 would send $302 billion in taxpayer wealth overseas for climate change adaption, clean technology, and forest protection in countries such as Brazil. 

The End of Coal?:  Due to the mandated emission caps in the bill, if insufficient allowances (which decline each year) are distributed to cover all their emissions, existing coal plants would either have to reduce carbon to be below the cap or purchase emission allowances to do so.  It is likely that many coal-fired plants would not be able to reduce their carbon emissions enough (as retrofitting older plants would be costly and potentially unfeasible) in the time frame outlined, meaning they would have to raise electricity rates to purchase the amount of allowances necessary.  The only other economic choice for such coal-fired plants would be to shut down.  If these plants close, the U.S. would see a severe reduction in coal-powered electricity generation.

Reduces Emissions by Only Hundredths of a Single Degree:  H.R. 2454, touted as necessary to stop global warming, would set aggressive emission reduction targets, mandating that by 2050, CO2 levels in the U.S. be reduced by 83 percent below 2005 levels-making U.S. emission levels similar to those in 1907-when the primary mode of transportation was horseback.  Despite H.R. 2454's aggressive targets these reductions are anticipated to slow temperature increases by merely hundredths of a single degree Fahrenheit by 2050, and no more than two tenths of a degree by the end of the century. 

Does it really make sense to redistribute trillions of dollars from family budgets and worker payrolls for a slew of new government programs?  Or force families, farmers, and drivers to pay higher power bills, higher heating and cooling bills, higher food and goods prices and higher gasoline and diesel prices, all for the promise of slowing temperature increases by merely hundredths of a single degree Fahrenheit by 2050.  The answer clearly is NO.

Without India and China?  Without the cooperation of developing countries like China (the world's largest emitter of greenhouse gases) and India (expected to increase emissions by 104 percent between 2006 and 2030) no real reduction in global temperature can be attained.  According to an MIT study whose authors generally support cap-and-tax proposals, "With rapid growth in developing countries, failure to control their emissions could lead to a substantial increase in global temperature even if the U.S. and other developed countries pursue stringent policies."  China and India have repeatedly warned that they have no intention of restricting their emissions.  According to a Chinese government spokesman, "[I]t is natural for China to have some increase in its emissions, so it is not possible for China in that context to accept a binding or compulsory target."

 National Energy Tax:  CBO confirms that H.R. 2454 imposes a national energy tax on every household in the U.S.  CBO also assumes the benefit of a massive redistribution of wealth in the form of liberal spending programs and glosses over regional disparities.  Other independent estimates conclude that the cost of such a tax on families is well into the thousands of dollars.   Almost every provision in the bill increases the cost of energy directly.  Even the President admits that for a cap-and-tax program to work electricity rates must "necessarily skyrocket."

Shifts Jobs to China and India:  The bill would result in an enormous loss of jobs that would ensue when U.S. industries are unable to absorb the cost of the national energy tax and other provisions, likely sending jobs overseas.  There is little debate that the tax would outsource millions of manufacturing jobs to countries such as China and India.  According to the independent Charles River Associates International, H.R. 2454 would result in a "net reduction in U.S. employment of 2.3 million to 2.7 million jobs each year of the policy through 2030," even after the creation of new green jobs.

Gas Prices:  An American Petroleum Institute report shows that the "cost impacts [H.R. 2454] could be as much as 77 cents for gasoline, 83 cents per gallon of jet fuel and 88 cents for diesel fuel."  The Heritage Foundation has estimated that as a result of these increased prices the average household will cut consumption of gasoline by 15 percent while forcing a family of four to pay $596 more in 2035, and $8,000 more between 2012 and 2035.  This bill would also result in an increase in air travel and cargo costs-fuel expenses have historically ranged from 10 percent to 15 percent of operating costs for U.S. passenger airlines.  Finally, H.R. 2454 would significantly impact the U.S. trucking industry.  A one-cent increase in the average price of diesel alone costs the trucking industry an additional $390 million in fuel expenses.  If diesel prices are not kept in check this would likely have a significant effect on the movement of goods across the country and a detrimental impact on economy. 

Unfairly Targets Rural America: H.R. 2454 targets farms and rural Americans.  Rural residents spend 58 percent more on fuel and travel 25 percent farther to get to work than Americans living in urban areas.  According to a Heritage Foundation economic analysis of H.R. 2454, farm income would drop $8 billion in 2012, $25 billion in 2024, and over $50 billion in 2035-decreases of 28 percent, 60 percent, and 94 percent, respectively.  Importantly, 25 percent of U.S. farm cash receipts come from agriculture exports.  U.S. farmers would be at a severe disadvantage compared to farmers in nations which do not have a cap-and-tax system and correspondingly high input costs.  Over 100 State and national agricultural groups oppose the bill. 

Currently, the following groups are opposing the bill:  National Federation of Independent Business, U.S. Chamber of Commerce, American Farm Bureau Association, The Fertilizer Institute, American Farmers and Ranchers, Florida Chamber of Commerce, and the National Corn Growers Association.

Groups Scoring as a Key Vote:

60 Plus Association

Americans for Prosperity

Americans for Tax Reform (double-rating)

Citizens Against Government Waste

Club for Growth

FreedomWorks

Independent Petroleum Association of America

National Association of Manufacturers

National Association of Wholesaler-Distributors

National Cattleman Beef Association

National Federation of Independent Businesses

National Taxpayers Union

Small Business & Entrepreneurship Council (SBE Council)

 

Groups Opposing:

60 Plus Association

Alliance for Worker Freedom

American Civil Rights Union

American Conservative Union (ACU)

American Farm Bureau Federation

American Meat Institute

American Petroleum Institute

American for Limited Government

American Shareholders Association

Americans for Prosperity (AFP)

Americans for Tax Reform (ATR)

Association of Builders and Contractors (ABC)

Citizens Against Government Waste

Citizens for Responsible Government

Club for Growth

Coalition for Affordable American Energy (CAAE) 

Concerned Women for America (CWA)

Congress of Racial Equality (CORE)

Eagle Forum

FRCAction

FreedomWorks

Focus on the Family

Hispanic Leadership Fund

Independent Electrical Contractors, Inc

Independent Petroleum Association of America (IPAA)

Institute for Liberty

Let Freedom Ring

National Association of Convenience Stores (NACS)

National Association of Manufacturers (NAM)

National Association of Wholesaler-Distributors

National Cattleman Beef Association

National Chicken Council

National Cotton Council

National Federation of Independent Businesses (NFIB)

National Grain and Feed Association

National Mining Association (NMA)

National Petrochemical & Refiners Association

National Taxpayers Union

National Turkey Federation

Republican Jewish Coalition

U.S. Chamber of Commerce

NOTE: A more comprehensive list of Agriculture Groups opposed to the bill can be found at: http://agriculture.house.gov/republicans/press/111/aggroupslatest.html

Groups Expressing Concerns:

American Enterprise Institute

Competitive Enterprise Institute

Cornwall Alliance

Heritage Foundation

 

Cost

According to CBO and the Joint Committee on Taxation (JCT), enacting H.R. 2454 over the 2010-2019 period would increase federal revenues by about $846 billion; and increase direct spending by about $821 billion.  In total, those changes would reduce budget deficits (or increase future surpluses) by about $24 billion over the 2010-2019 period.  In addition, assuming the appropriation of necessary funds, CBO estimates that implementing H.R. 2454 would increase discretionary spending by about $50 billion over the 2010-2019 period.  Most of that funding would stem from spending auction proceeds from various funds established under this legislation. 

CBO has also determined that the non-tax provisions of H.R. 2454 contain intergovernmental and private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA).  The mandates would require utilities, manufacturers, and other entities to reduce greenhouse gas emissions through cap-and-tax programs and performance standards.  CBO estimates that the cost of mandates in the bill would well exceed the annual thresholds established in UMRA for intergovernmental and private-sector mandates (in 2009, $69 million and $139 million respectively, adjusted annually for inflation).

 On June 19, 2009, the Congressional Budget Office (CBO) released its per-household cost analysis of H.R. 2454.  CBO concludes that the legislation would cost U.S. households a net average of $175 in the year 2020-far less than other independent estimates that put the cost as high as thousands of dollars per household annually.  However, this analysis is obsolete as a refundable tax credit program that was an important factor in the CBO analysis of net costs has since been removed from the bill. 

However, while admitting it fails to account for the slowing of economic growth and the loss of jobs resulting from higher energy costs, CBO confirms that every household will suffer from a national energy tax.  CBO also estimates a gross tax of up to $1,400 per household, using generous assumptions and ignoring regional disparities affecting Midwestern and Southern States.  To drive the net cost per household down so low, CBO then assumes the benefit of a massive redistribution of wealth in the form of a large welfare program (energy stamps).  For these reasons and others, CBO's household figure should be viewed with skepticism, while noting that even CBO concludes that the tax hit on households, notwithstanding the government handouts, is in the thousands.