Australia: US Senate Considers Emissions Reduction Legislation: Waxman-Markey Bill

Last Updated: 7 July 2009
Article by Elisa de Wit and Kate Doherty

The American Clean Energy and Security Act of 2009 passed the US House of Representatives on 26 June 2009 by just 219 votes to 212. The legislation aims to "create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy". Most importantly, this is the first Bill to propose that the US government cap and regulate greenhouse gases (GHGs), with the first cap to be imposed in 2012. The Bill proposes a reduction in GHG emissions from capped sources of 17% from 2005 levels by 2020, 42% by 2030 and 83% by 2050.

Critics argue that the Waxman-Markey Bill (as it is identified by reference to its two main proponents) spells economic disaster for the US. Anadarko Petroleum Corporation Chief Executive Officer Jim Hackett claims the changes will lead to higher prices and job losses. President Barack Obama counters this viewpoint stating that "the nation that leads in the creation of a clean energy economy will be the nation that leads the 21st century global economy."

What are the implications for Australia?

The US Bill is likely to influence the progress of Australia's proposed Carbon Pollution Reduction Scheme (CPRS), with Prime Minister Kevin Rudd calling on the Coalition to clarify their position in light of the US House of Representatives vote. On 25 June 2009 the Coalition and Independent Senator Nick Xenephon combined to delay the vote on the CPRS legislation until August. After the US vote, Opposition Leader Malcolm Turnbull indicated a willingness to negotiate when the Senate considers the CPRS in August. Opposition support is needed to pass the scheme given that Family First Senator Steve Fielding has rejected the proposed CPRS.

Details of the Bill

Cap and Trade Scheme

Two cap and trade schemes are proposed under the Waxman-Markey Bill – one covers emissions of GHGs other than hydrofluorocarbons (HFCs), and the other covers production and importation of HFCs and products containing HFCs. The legislation would set a limit on total annual emissions and would require regulated entities to hold rights, or allowances, to the emissions permitted under that cap. The Environmental Protection Agency (EPA) would have the power to issue allowances to emit GHGs and HFCs under each cap and trade program. Each GHG allowance would entitle an entity to emit the equivalent of one metric tonne of carbon dioxide equivalent.

The legislation provides for trading, banking and borrowing, auctioning, selling, exchanging, transferring, holding, or retiring emission allowances. Gases included under the GHG cap include carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, perfluorocarbons, and nitrogen trifluoride. A carbon dioxide equivalent value for each gas is established.

An estimated 7,400 facilities would be affected by the two cap and trade programs, including all electricity generators, and producers and importers of petroleum and coal based liquids and natural gas, industrial facilities, natural gas distributors whose activities surpass set thresholds and all producers and importers of HFCs. The timing of the implementation of these programs for different industries will be spread over four years from 2012 to 2016.

Protective Measures

Energy tax credits or energy rebates will be provided to certain low-income families to offset the impact of higher energy-related prices from the cap and trade programs. The Congressional Budget Office estimates that under the legislation the average household will pay an extra $175 per year in energy costs by 2020, though rebates would reduce the poorest households' costs by about $40. The changes are expected to pay for themselves, as increases in revenue will effectively offset the government expenditure involved with a net gain of around $24 billion over the 2010-2019 period.

The proposed scheme has a number of flexibility provisions designed to ease the transition to the cap and trade schemes including:

  • creation of a 'strategic reserve' of 2.7 billion GHG allowances, which the EPA would have the option of auctioning only if the market price rose to unexpectedly high levels
  • allowing a portion of a liable entity's compliance obligation to be met by purchasing approved domestic or international offsets instead of purchasing an allowance, and
  • allowing banking of unused allowances to be used in subsequent years.

Green Technology and Clean Energy

A Carbon Storage Research Corporation will be established under the legislation to support research and development of technologies related to carbon capture and sequestration. Clean energy projects will be encouraged through the creation of a Clean Energy Deployment Administration within the Department of Energy authorised to provide direct loans, loan guarantees, and letters of credit for projects in the energy, transportation, manufacturing, commodities, residential, commercial, and financial services sectors.

The legislation will increase the aggregate amount of loans the Department of Energy is authorised to make to automobile manufacturers and component suppliers under the existing Advanced Technology Vehicle Manufacturing Loan Program by $25 billion. Vouchers to subsidise the purchase or lease of new vehicles that achieve greater fuel efficiency than the existing qualifying vehicles owned by the individuals will also be provided by the Department of Transport under the scheme.

Electricity suppliers will be required to provide 15% of their electricity sales from renewable energy sources or renewable fuels by 2020 and demonstrate energy savings from efficiency measures of 5% by 2020. Energy efficiency technologies, including Smart Grid appliances, will also be used to reduce the transitional costs of capping carbon pollution.

Green Jobs

Under the legislation grants will be provided to encourage the development of programs of study focused on emerging careers and jobs in renewable energy, energy efficiency, and climate change mitigation. Climate change adjustment assistance will be provided to adversely affected workers in the form of cash benefits, job training, employment search assistance and a subsidy for health care costs.

President Obama has stated "this legislation will finally make clean energy the profitable kind of energy. That will lead to the creation of new businesses and entire new industries. And that will lead to American jobs that pay well and cannot be outsourced."


The Bill imposes civil penalties for operators who fail to meet their compliance obligations on time, penalising them twice the fair market value of emissions allowances multiplied by the excess emissions generated. Those operators who had exceeded their allowances would also have to account for those excess emissions by submitting allowances in the following year. For entities violating the rules associated with the regulation of the allowance market, penalties could be as high as $1 million per day depending on the circumstances.

Future Prospects

German Chancellor Angela Merkel has endorsed the US Bill, saying that it represents a "sea change" and could encourage a stronger reductions target at this year's UN climate conference in Copenhagen.

The Bill now faces a difficult path through the US Senate, given the close vote in the House of Representatives and the fact that the Senate needs 60 votes from its 100 members to pass legislation. It is likely that the Bill will undergo further amendments to ensure sufficient support.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Elisa de Wit
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