Summary of Key Provisions in the Clean Energy Jobs and American Power Act

On September 30, 2009, Senators John Kerry (D-MA) and Barbara Boxer (D-CA) introduced the Clean Energy Jobs and American Power Act.  In many ways, this bill mirrors the strong comprehensive climate and energy framework of the American Clean Energy and Security Act (ACES) that passed in the House in June.  It should be noted that many key provisions, such as the allocation of allowances, are not yet detailed in the Senate bill and will be decided later through the committee process.  In addition, energy provisions like the renewable electricity standard and energy efficiency standards are in a separate energy bill that passed out of the Senate Energy and Natural Resources Committee in May. Below is a summary of key ways in which the Clean Energy Jobs and American Power Act differs from the House-passed legislation.  

Sets a Stronger Short-Term Target: The Act aims to reduce global warming pollution by 20 percent from 2005 levels by the year 2020 and 83 percent by 2050, compared with the House’s 17 percent goal by the same date.  As the bill proceeds to the Environment and Public Works Committee, the Committee should maintain the 2020 target and ensure that five percent of allowance funds go to tropical forest protection, which could provide an additional 10 percent in reductions.

Responds Rapidly to New Science: The Act contains a provision that requires the Environmental Protection Agency (EPA) and the National Academy of Sciences (NAS) to review technological advancements and make recommendations to the Administration. NAS would also be charged with conducting a science review if the EPA hasn't done it. In response to the NAS recommendations, the EPA and other agencies would be required to adjust certain aspects of the policy. If the latest science indicates that we must accelerate or deepen reductions, the President is required to propose legislative changes for Congress to consider. The Environment and Public works Committee should retain this language and strengthen it by requiring Congress to quickly take up legislation to deepen emissions reduction proposed by the President, or by allowing EPA to alter the emissions reduction requirement directly.

Protects CAA Authority over Large Industrial Emitters: The Act restores EPA’s ability to crack down on global warming pollution from the nation’s oldest, dirtiest power plants and other existing industrial sources covered by the emissions cap.  However, the Act also delays the application of Clean Air Act performance standards to uncapped sources of methane if they can qualify as offset credits to power plants and industrial sources. The Environment and Public Works Committee should retain crucial EPA authority over capped sources and setting performance standards for uncapped sources.

Increases the Domestic Portion of Offset Programs: The Act increases the domestic portion of the offset program by 50 percent compared with ACES and sets a framework for ensuring high quality offsets.  The Act does not specifically indicate what agency will oversee the offsets program, but rather defers authority to the President.  In addition, the Act adjusts the initial list of potentially eligible practices to include: 1) industrial methane collection and combustion (coal, landfills and fugitive natural gas emissions), 2) altered tillage practices, including "avoided abandonment of such practices" (i.e. payments to keep up business as usual); and 3) upgrading of equipment.  The Act also expands the role of the Offsets Integrity Board.  The Environment and Public Works Committee should maintain the strict criteria for offsets. 

Expands the Scope of the Supplemental Agriculture Greenhouse Gas Reduction and Rnewable Energy Program: The Act provides financial incentives for farmers who have already adopted good practices; good forest management; and for projects precluded from offsets eligibility due to compliance with another law or inability to meet offsets criteria; research, and other practices not included in ACES. The Act identifies multiple types of assistance for eligible projects and indicates that the level of compensation is to be commensurate with GHG reductions.  Potential participants in this program are not precluded by participation in other conservation or USDA programs.  The Environment and Public Works Committee should include high-quality projects that achieve verifiable reductions in greenhouse gas emissions but do not meet offsets criteria, including early adopters.

Establishes a Carbon Market Stabilization Mechanism: The Clean Energy Jobs and American Power Act sets a minimum reserve price (a “price floor”), equal to $10/ton of CO2 in 2012 and rising annually, for allowances that are sold at an auction.  The Act also creates a "market stability reserve" of additional emissions allowances that will be released for auction if carbon market prices reach a trigger price (set at $28/ton in 2012, and increasing annually). This trigger price essentially functions as a “price ceiling” for allowances. An auction market reserve price is a critical tool to help prevent market collusion from artificially driving down prices, and to maintain the value of the auctioned commodity (in this case, a carbon allowance) when there may be short-term spikes in demand or supply conditions.  A reserve price will also ensure that low carbon technology innovators and investors will always have an incentive for making investments in these areas.  The benefit of the “price ceiling” is that it ensures that allowances prices will not rise too high.  The Environment and Public Works Committee should retain this provision, and, as it adds other carbon market provisions to the Act, ensure that the market has sufficient oversight and integrity in order to be robust, well-functioning and transparent.
 
Provides Funds for Increasing Renewable Energy and Efficiency: The Act appears to allow for increasing the deployment of renewable electricity and energy efficiency.  Studies have shown that a robust renewable energy and efficiency program can dramatically reduce the cost of the climate program and save consumers money.  While the exact levels of funding will not likely be determined until the Environment and Public Works Committee considers the bill, clearly the Committee should consider providing the greatest possible level of support for renewable energy and efficiency.

Frontloads Funds for Carbon Capture and Storage: The Act allows more projects deploying carbon capture and storage (CCS) to receive generous, pre-set subsidies regardless of their actual CCS costs than the House bill, greatly increasing the risk of windfall profits for certain project developers.  Both the House and Senate bills divide the subsidy program into two phases, with more generous subsidies specified for the first (Phase I) projects regardless of actual CCS costs, and with the subsequent projects (Phase II) receiving subsidies designed to approximate actual costs. While the House bill allows only the first 6 gigawatts of CCS projects to receive the generous Phase I subsidies, the Senate bill more than triples the size of Phase I to the first 20 gigawatts of projects (which could be up to 100 projects).  This deployment subsidy is in addition to the $10 billion CCS early demonstration program found elsewhere in the bill.  The Environment and Public Works Committee should only provide limited CCS subsidies that are needed to demonstrate the commercial viability of the technology and not tilt the playing field away from other low carbon energy sources. 

Creates Large Programs to Promote Natural Gas Use: The Act includes two new subsidy programs (with unspecified costs) related to natural gas and other technologies, though the coverage of these programs is ill-defined.  One program would promote the use of natural gas and other technologies that “reduce emissions” below specified levels keyed to the power sector’s average emissions.  The goal of this program is to provide incentives for “easily sold” power generation projects producing 300,000 gigawatt-hours per year—equivalent to about 7 percent of total U.S. generation in 2008.  The second program provides grants related to natural gas technology (though the term is broadly defined to include biomass and potentially other fuels like coal that can be gasified) in power plants and residential and commercial applications.  Natural gas power plants will already have an economic advantage over higher-carbon fuels because of the price being put on carbon and because of their operational flexibility and modularity.  Providing additional subsidies for natural gas use runs the risk of distorting the markets and undermining investments in energy efficiency and renewable energy.  The Environment and Public Works Committee should more clearly define the scope and intent of both of these programs and ensure that they are designed to cost-effectively advance the bill’s climate-protection goals.

Last Revised: 10/08/09