FEDERAL CLIMATE CHANGE LEGISLATION Overview of Key Provisions of House and Senate Bills for Industrial Energy Users John Clancy Godfrey & Kahn, S.C. 780 North Water Street, Milwaukee

Overview Status of House and Senate Bills. Cap-and-trade and offset provisions. Renewable energy and energy efficiency standards. Costs and opportunities associated with Bills.

House Bill Markey-Waxman Bill. “American Clean Energy and Security Act.” Comprehensive bill that includes: –Federal RPS. –Cap-and-trade/offsets. –State energy and energy efficiency programs. –Smart grid provisions, building efficiency, transportation provisions, etc. Passed House on June 26, 2009 ( ).

Senate Bill “American Clean Energy Leadership Act.” Does not include carbon cap-and- trade/offset provisions. Senators Boxer and Kerry plan to release comprehensive bill at end of September.

Cap-and-Trade House bill caps emissions from covered entities. Reduces cap to: –97% of 2005 levels by –83% of 2005 levels by –58% of 2005 levels by –17% of 2005 levels by EPA projects allowances to cost $13/ton in 2015 and $16/ton in 2020.

Covered Entities Electricity generators (2012). Refiners and importers of petroleum- based and other specified liquid fuels (2012). Fluorinated gas manufacturers and nitrogen trifluoride emitters (2012). Specified industrial sources (2014). Natural gas LDCs (2016).

Covered Industrial Sources Any stationary source in listed categories. Any stationary source in listed categories of chemical and petrochemical sector that in 2008 or subsequent year emits 25,000 or more tons of CO 2 equivalent. Any stationary source that produces ethanol, ferroalloys, glass, hydrogen, iron or steel, lead, zinc, or processes food or manufactures pulp and paper, and emits 25,000 tons of CO 2 equivalent or more in 2008 or subsequent year.

Covered Boilers Any fossil fuel-fired combustion device (such as a boiler) or grouping of such devices that: –Is all or part of an industrial source not specified in the prior slide. –Has emitted 25,000 or more tons of CO 2 equivalent in 2008 or any subsequent year.

Performance Standards EPA is to publish an inventory of categories of stationary sources that individually had uncapped emissions greater than 10,000 tons, and that in aggregate emitted at least 20% of the uncapped GHG emissions. EPA is to promulgate standards for these sources. The marginal cost of implementing these standards is supposed to be below the projected allowance prices.

Distribution of Allowances Approximately 30% for the benefit of consumers of local electricity distribution companies, whose rates are regulated by states or other entities ( – 43.75%; – 38.9%; – 35%; goes to zero by 2030). Requires half of the allowances to be distributed based on historic emissions and half based on retail sales. Prohibits an LDC from receiving allowances whose value exceeds its direct and indirect costs of compliance.

Distribution of Allowances continued Approximately 9% ( ) of allowances allocated for the benefit of consumers to local natural gas distribution companies, whose rates are regulated by states or other entities, based on average deliveries. Up to 15% of allowances distributed to “trade- vulnerable” industries (5% energy/carbon intensity and 15% trade-intensity). Additional allowances allocated to states (for state energy/energy efficiency programs), to merchant coal generators, carbon capture, refineries, adaptation, etc.

Offsets Offsets integrity advisory board to be established to provide EPA recommendations regarding offset categories and requirements. Because of time needed to set up EPA offset program, bill allows for early offset supply. Early offset credits available for projects that began after January 1, 2001 and resulted in reductions or avoidance of emissions during the time period from January 1, 2009 until three years after enactment of bill or date offset regulations are promulgated under bill, whichever comes first.

Key Issue with Early Offsets Projects have to be credited under a voluntary GHG emission reduction program that EPA determines. –Was established by state/tribal law prior to January 1, –Results in permanent, additional, verifiable, and enforceable reductions. –Requires that reductions be verified by a state regulatory agency or accredited third party. –Requires credits be registered in a publicly-accessible registry with individual serial numbers for each credit. Concern that Wisconsin’s Voluntary Emission Reduction Registry may not qualify. Can petition to add new programs, but need to be as stringent as other state/tribal programs.

Renewable Energy Standards House Bill calls for 6% RPS in 2012, increasing to 20% by 2020 through Senate Bill calls for 3% RPS in 2011, increasing to 15% by 2021 through Both Bills allow energy efficiency improvements to count. –House Bill: Up to 25% of RPS, with ability for state Governor to petition for up to 40%. –Senate Bill: Up to 26.67% of RPS requirement.

Ability of Users to Help Meet Energy Efficiency Portion Energy users can “sell” their efficiency gains to utilities. Efficiency gains measured against “business-as-usual” projections. These projections call for adjustment to account for changes in weather, level of production, and building area.

Concerns with Energy Efficiency Provisions Limitation of sales to in-state electric suppliers. Language that appears to potentially give all credit for efficiency measures to utilities for measures that achieve through ratepayer-funded efficiency programs, such as Focus on Energy.

Questions? Thank you