Canada: US Legislation On Clean Energy Passes A First Hurdle And Continues To Move Forward

On May 15th, the American Clean Energy and Security Act (the "Bill") was introduced in the House and following its first reading it was referred to the Energy and Commerce Committee (the "ECC") of the US House of Representatives (the "House") for markup. On May 21, 2009 the Bill was approved by the ECC. It is now under consideration by other committees of the House including the Transportation and Infrastructure Committee, which have until June 19, 2009 to make amendments to provisions that fall within their jurisdiction. Afterwards, the Bill is debated on the House floor and it is read on a section by section basis at which point members can propose other amendments. Once accepted amendments are incorporated the Bill, the Bill is read a third time and the House will then vote. Before becoming law the Bill must pass the Senate and be signed by the President.

In our view, the amendments voted to date by the ECC have not significantly altered the substance of the Bill.

The following is high level summary of some of the amendments to key provisions presented in the draft Bill as well as additions to the Bill. to get a full picture of the various amendments and additions we invite our readers to consult the report of the amended Bill itself here. In addition to the foregoing, we have included for each sub-heading in the Bill, a note on programs and incentives that are announced:

1. Clean Energy Provisions

Renewable Electricity Standard. A change to the draft Bill before its first reading capped requirements for electricity savings and production from renewable resources at 20% for the calendar years 2021 through 2039. The Bill also defines biomass in this context as a renewable resource.

Programs and Incentives. New programs include a trade-in program to increase vehicle fuel economy, funding for Building Assessment Centers, the Clean Energy Investment Fund, the Clean Technology Business Competition Grant Program, and the National Bioenergy partnership. Other measures are the creation of the Office of Consumer Advocacy and loan guarantees for the construction of electric power plants, electric transmission facilities and renewable fuel pipelines.

2. Energy Efficiency Provisions

Energy Efficiency Goal. A provision was added to the Bill, which sets a national energy efficiency goal of improving overall energy productivity of the US by 2.5 percent per annum starting in 2012. Further, the US Secretary of Energy, the Administrator of the EPA and other agencies must develop a strategic plan to achieve the goal.

Transportation Efficiency. The amended Bill reflects current efforts to harmonize vehicle emissions standards on a national basis. The US Secretary of Transportation is also given authority to establish a new "open" fuel standard.

Programs and Incentives. The Committee accepted amendments creating programs regarding tree planting, water conservation, carbon product labeling, and the energy independence of US affiliated islands, the dissemination of efficiency information and the replacement of wood / pellet stoves.

3. Reducing Global Warming Provisions

Pollution Reduction - Capping Emissions from Large Sources. The revised caps for carbon emissions require reductions by 2020 of 17% below 2005 levels rather than the 20% proposed in the first draft of the Bill.

Greenhouse Gas Standards. Any decision to add substances to the list of greenhouse gases must be made in consultation with the EPA's Science Advisory Board. There is also a provision to consider non-HFC fluoridated gases by 2014.

Exemption for review under the Bill does not apply to stationary sources, in particular, new or modified power plants built after January 1, 2009.

With respect to mobile sources of greenhouse gases (i.e. vehicles), a provision was added giving regulations under the Bill supremacy over other similar pre-existing US law.

Emissions Offsets. The turn-in ratio for domestic offsets was changed to one-to-one. This means that capped sources can increase their emissions one ton by obtaining one ton of offsetting emissions reductions from uncapped sources. The first draft of the Bill required obtaining 1.25 tons of offsets for every ton of emissions. According to the EPA, the result will be lower allowance prices, somewhere along the lines of 7% in each year effectively lowering the cost of the program.1

It is noteworthy that the limit on the use offsets is unchanged at 2 billion tons of emissions in any one year. There also remains a requirement to split offsets evenly between domestic and international sources, however, the Bill as amended will permit up to 75% of offset credits to be obtained from international projects when there are not enough domestic offsets available.

The one-to-one ratio applies also to international offset projects, however; the ratio climbs to 1.25 starting in 2017.

An additional amendment clarifies the requirement that emissions reductions achieved by an offset project be considered additional. In its initial form, the cut-off date in the draft Bill for eligibility for offset projects was January 1, 2009. However, early offset credits could be granted for projects that were established by State or Tribal law or regulation prior to January 1, 2001, for reductions or avoidance that occurred after January1, 2009. The amendment creates a second exception which authorizes the Administrator to chose a different cut-off date between January 1, 2001 and January 1, 2009 for certain "reversible" activities, so as to allow unregistered projects which commenced prior to January 1, 2009, to be eligible to create offset credits. The intent behind this amendment is to remove the incentive to stop an existing unregistered project (thereby reversing its effects) so as to reopen it as a registered project eligible to produce offset credits.

Carbon Capture and Sequestration (CCS). Subsidies are extended to 6 GW2 CCS as opposed to the first 3 GW under the draft Bill. Further, the distribution of these allowances to CCS will be accomplished through reverse auctions held onceannually.3

The EPA believes that this will lead to a greater participation in CCS projects and the subsidy process. However, it is likely that there will be a slightly greater use of coal.4

Allocation of Allowances. The amendments provide detail as to how the emission allowances are to be allocated in order to help protect consumers of electricity, natural gas and home heating oil from increases in prices. The Act provides for an update to the allocation formula based on 2013 emissions.

According to the EPA, it is expected that these measures as well as the assistance provided to low income consumers will lead to some consumers increasing their use of energy. However, it is estimated that this will be more than compensated for by the caps in place on emissions and the use ofoffsets.5

Programs and Incentives. The Committee approved a program providing rebates to improve the efficiency of electrical motors.

4. Transitioning to a Clean Energy Economy Provisions

Consumer Assistance. These provisions introduce an energy tax credit as well as a refund program for low-income families and individual consumers who may see their purchasing power reduced due to price increases.

5. Other Provisions

International Participation. The EPA must report annually to Congress whether China and India have adopted standards as stringent as those contained in the Bill. This information must likewise be disclosed to the media.

Cease and Desist Orders. Amendments give the power to issue cease and desist orders for violations under the Natural Gas Act as well as the Natural Gas Policy Act.


1. Committee on Energy and Commerce, Memorandum Re : Preliminary EPA Cost Estimate,

2. Gigawatts of electric generating units.

3. At a reverse auction bids are submitted by parties indicating the desired level of carbon dioxide sequestration incentive and the estimated quantity of carbon dioxide that their projects will permanently sequester over 10 years. An administrator then starts by selecting bids for the lowest level of sequestration incentive on a per ton basis.

4. Committee on Energy and Commerce, Memorandum Re : Preliminary EPA Cost Estimate (see note 1)

5. Ibid.

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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