110 HR 7146 IH: To distribute emission allowances under a domestic
U.S. House of Representatives
2008-09-26
text/xml
EN
Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.
1.This Act may be cited as the Carbon
Leakage Prevention Act
.
2.The Congress finds the following:
(1)All domestic and foreign industries should
contribute to climate stabilization.
(2)Domestic producers of certain
energy-intensive products subject to international competition present a unique
challenge for United States climate policy because increased costs associated
with compliance may unintentionally cause domestic industry to divert new
investments and production to facilities located in countries without
commensurate greenhouse gas regulation.
(3)Without exempting any industries, the
United States must move forward with economy-wide action on climate change
while reducing incentives for producers to relocate to unregulated countries,
which could displace both jobs and emissions.
(4)International agreements are the most
appropriate means to reduce emissions from energy-intensive industries because
unilateral domestic efforts to reduce greenhouse gas emissions could accelerate
the relocation of energy-intensive manufacturing abroad.
(5)Carbon leakage can be mitigated
substantially through the output-based distribution of emission
allowances.
(6)Output-based emission allowance
distribution is an appropriate temporary measure that should complement other
targeted domestic and international policies and agreements meant to encourage
United States trading partners to substantially reduce global greenhouse gas
emissions.
3.The purposes of this Act are as
follows:
(1)To compensate certain facilities from a
subset of eligible domestic industrial sectors for carbon emission costs
incurred under any cap-and-trade program.
(2)To limit
compensation to facilities in eligible industrial sectors to an amount of
emission allowances that will prevent carbon leakage while also rewarding
innovation and facility-level investments in performance improvements.
(3)To provide
compensation to the owners and operators of facilities for both the direct and
indirect costs of purchasing emission allowances needed for compliance with a
domestic cap-and-trade program, but not for costs associated with other related
or unrelated market dynamics.
(4)To prevent carbon
leakage resulting from direct and indirect compliance costs incurred under a
domestic cap-and-trade program.
4.In this Act:
(1)The term
Administrator means the Administrator of the Environmental
Protection Agency.
(2)The term
cap-and-trade program means an economy-wide program enacted by
Congress that distributes or auctions emission allowances for the control of
greenhouse gas emissions.
(3)The term
carbon dioxide equivalent means, for each greenhouse gas, the
quantity of greenhouse gas that the Administrator determines makes the same
contribution to global warming as 1 metric ton of carbon dioxide.
(4)The term carbon leakage means
any substantial increase (as determined by the Administrator) in greenhouse gas
emissions by manufacturing facilities located in countries without commensurate
greenhouse gas regulation caused by an incremental cost of production increase
in the United States as a result of a domestic cap-and-trade program.
(5)The term
covered facility means, for each calendar year, a facility that
emits greenhouse gases in that year and that has an obligation to submit
emission allowances for such greenhouse gas emissions under any cap-and-trade
program.
(6)The term
emission allowance means an authorization, under any cap-and-trade
program, to emit 1 carbon dioxide equivalent of greenhouse gas.
(7)The term
facility means 1 or more buildings, structures, or installations
of an entity on 1 or more contiguous or adjacent properties located in the
United States.
(8)The term
greenhouse gas means any gas designated as a greenhouse gas under
a cap-and-trade program.
(9)The term output means the
total tonnage or other standard unit of production (as determined by the
Administrator) produced by a manufacturing facility.
5.Distribution of
Emission Allowances to Certain energy-intensive Manufacturing
Facilities
(a)Distribution of
Emission Allowances
(1)The Administrator shall annually distribute emission
allowances, in amounts calculated under subsection (c), to the owners and
operators of facilities in eligible industrial sectors and subsectors
identified under subsection (b), subject to the maximum quantity limitation
established under paragraph (2) of this subsection.
(2)The maximum quantity of emission allowances
distributed under paragraph (1) each year shall equal 15 percent of the total
quantity of allowances distributed or auctioned under a cap-and-trade program
for emissions occurring during the first year for which allowances are required
to be submitted under such program. If the total allowances calculated under
subsection (c) exceed such maximum, the Administrator shall reduce the amount
distributed to owners and operators under paragraph (1) on a pro rata
basis.
(b)Eligible
industrial sectors and subsectors
(1)Not later than
January 1, 2011, the Administrator shall promulgate a rule identifying, based
on the criteria under paragraph (2), the industrial sectors and subsectors
eligible to receive emission allowances under this Act. The Administrator shall
consider, among others, the iron, steel, pulp, paper, cement, rubber, basic
chemicals, glass, industrial ceramics, and aluminum and other non-ferrous
metals industrial sectors and subsectors.
(2)To
minimize the potential for carbon leakage, in identifying eligible sectors and
subsectors under paragraph (1), the Administrator shall take into account each
of the following:
(A)The greenhouse gas
intensity of the domestic production, including direct emissions from the
combustion of fuels and process emissions at the facility and the indirect
emissions by electric power providers.
(B)The potential for
greater foreign sourcing of production or services and the effect of
international competition on domestic production.
(C)The effect of
international markets on product pricing.
(D)The potential for net imports to increase
or exports to decrease (resulting in a loss of market share held by domestic
manufacturers to manufacturers located in other countries) caused by the direct
and indirect compliance costs under a domestic cap-and-trade program.
(E)The state of
international negotiations, agreements, and activities to reduce global
greenhouse gas emissions.
(c)Calculation of
Allowances
(1)Except as provided
in subsection (a)(2), the quantity of emission allowances distributed by the
Administrator under this Act for a calendar year to the owner or operator of a
covered facility shall be equal to the sum of the facility’s direct compliance
allowance factor and the facility’s indirect carbon allowance factor.
Calculations under this paragraph shall be based on data from 2 calendar years
prior to the calendar year of distribution. For purposes of determining such
amounts:
(A)Direct
compliance allowance factorThe direct compliance allowance
factor for a facility for a calendar year is the amount obtained by multiplying
the output of the facility by 85 percent of the average tonnage of greenhouse
gas emissions per unit of output for all facilities in the sector or subsector,
as determined by the Administrator based on reports provided under subparagraph
(C).
(B)Indirect carbon
allowance factorThe indirect
carbon allowance factor for a facility for a calendar year is the product
obtained by multiplying the total output of the facility by the fraction set
forth in clause (i) (the emissions intensity factor) and the fraction set forth
in clause (ii) (the electricity efficiency factor) for the year
concerned.
(i)Emissions
intensity factor
(I)Regulated
electricity marketsIn a regulated electricity market, the
emissions intensity factor is the average tonnage of greenhouse gas emissions
per kilowatt hour of the electricity purchased by the facility, as determined
by the facility owner or operator based on reports provided under subparagraph
(D).
(II)Wholesale
competitive electricity marketsIn a wholesale competitive
electricity market, the emissions intensity factor is the average tonnage of
greenhouse gas emissions per kilowatt hour of the marginal source of supply of
electricity purchased by the facility, as determined by the facility owner or
operator based on reports provided under subparagraph (D).
(ii)Electricity
efficiency factorThe
electricity efficiency factor is 85 percent of the average amount of
electricity (in kilowatt hours) used per ton of production for all facilities
in the sector or subsector concerned, as determined by the Administrator based
on reports provided under subparagraph (C).
(C)Each owner or
operator of a facility in any sector or subsector identified under subsection
(b) and each department, agency, or instrumentality of the United States shall
provide the Administrator with such information as the Administrator finds
necessary to determine the direct compliance allowance factor and the indirect
carbon allowance factor for each facility subject to this Act.
(D)Greenhouse gases
from electricityEach person
selling electricity to the owner or operator of a facility in any sector or
subsector identified under subsection (b) shall provide the owner or operator
of the facility and the Administrator, on a quarterly basis, such information
as is required to determine the emissions intensity factor under subparagraph
(B)(i).
(E)Emissions
intensity factor reductionThe numerator of the emissions intensity
factor under subparagraph (B)(i) shall be reduced by the tonnage of allowances
the Administrator determines are distributed at no cost under any cap-and-trade
program to the person making the sale of electricity and are used by such
person to prevent electricity rate increases to the owner or operator of the
facility.
(F)Iron and steel
sector or subsectorsFor the
purposes of determining the quantity of emission allowances to be distributed
under this section to the owner or operator of any iron and steel manufacturing
facility in a sector or subsector identified under subsection (b), the
Administrator shall differentiate between facilities using integrated iron and
steelmaking technologies (including coke ovens, blast furnaces, and other
iron-making technologies) and facilities using electric arc furnace
technologies when calculating sector or subsector averages under subparagraphs
(A) and (B)(ii).
(2)The quantity of
emission allowances distributed by the Administrator for a calendar year to an
owner or operator of a facility in an eligible industrial sector or subsector
that is not a covered facility shall be equal to the indirect carbon allowance
factor for the facility, as determined under paragraph (1)(B). Calculations
under this paragraph shall be based on data from 2 calendar years prior to the
calendar year of distribution.
(3)
(A)First and second
year of operationIn the first and second year of operation of a
facility in any sector or subsector identified under subsection (b), the owner
or operator of such facility shall receive a quantity of emission allowances
under this Act equal to emission allowances distributed under this Act to the
owner or operator of a comparable facility in the same sector or subsector that
produces equivalent output using a substantially similar production process, as
determined by the Administrator.
(B)Subsequent years
of operationIn the third
year of operation of a facility in any sector or subsector identified under
subsection (b), the Administrator shall adjust the quantity of emission
allowances to be distributed to the owner or operator of such facility in such
year to reconcile the total quantity of allowances received during the first
and second years of operation to the quantity the facility would have received
during the first and second years of operation had the appropriate data been
available for such years.
6.Not later than one
year after the first year in which allowances are distributed pursuant to this
Act, and at least every two years thereafter, the Administrator, in
consultation with the Secretary of Commerce, the Secretary of Energy, the
Secretary of State, and the United States Trade Representative, shall submit to
Congress a report on the carbon leakage of domestic energy-intensive industrial
manufacturers and the effectiveness of the distribution of emission allowances
under section 5 in achieving the purposes of this Act. Such reports shall
include recommendations on how to better achieve the purposes of this
Act.
7.Modification or
elimination of distribution of allowances to energy-intensive manufacturing
facilities
(a)Presidential
determination and modificationIf the President finds that
international governmental activities to reduce global greenhouse gas emissions
have substantially mitigated—
(1)the disadvantage
to domestic manufacturers of energy-intensive products subject to competition
from facilities in countries without commensurate greenhouse gas regulation;
and
(2)the carbon leakage and related diversion of
production of such products to facilities located in countries without
commensurate greenhouse gas regulation;
then the
Administrator shall, pursuant to a rule, reduce the amount of emission
allowances distributed under this Act in an amount reasonably calculated to
achieve the purposes of this Act.(b)If
the President determines that the competitive disadvantage to domestic
manufacturers described in subsection (a) has been rendered insignificant, the
Administrator shall terminate the distribution of emission allowances under
this Act.