This summary provides a concise overview of S. 2877, the Carbon Limits and Energy for America’s Renewal Act (herein referred to as CLEARA), as introduced by Senators Cantwell and Collins on December 11, 2009.
Note: Small revisions were made to clarify certain aspects of the fossil fuel carbon cap targets and the price ceiling contained in the CLEAR act.
CLEARA would establish a program to limit the sale of carbon contained in all fossil fuels sold in the United States. Revenue generated from the program is primarily distributed to eligible U.S. citizens through dividend payments with some revenue set aside for other purposes.
This summary follows the structure of the bill except where we believe it facilitates understanding by grouping related components together. For more information on specific components of CLEARA, please refer to the actual legislative language as referenced by section and page number in this document.1
Goals and Caps. CLEARA sets non-binding economy-wide greenhouse gas (GHG) emissions reduction goals (Sec. 3, pg. 7) and a mandatory annual cap on the quantity of fossil fuel carbon that may be sold into commerce in the United States (Sec. 4, pg. 8);
Goals: CLEARA requires the president to set non-binding economy-wide GHG emissions reduction goals and instructs the president to meet these goals through a combination of the fossil fuel carbon cap and expenditures from a fund created by CLEARA, the “Clean Energy Reinvestment Trust Fund” (or CERT, defined and explained below) which is subject to annual appropriations by Congress. The goals are:
Caps: CLEARA requires the secretary of the Treasury to set a mandatory limit on the sale of fossil fuel carbon on the following schedule indexed to 2012 emissions levels (as projected in 2011; reductions relative to 2005 and 1990 levels are contingent on the actual level of the fossil fuel carbon cap in 2012):
Adjustments to the fossil fuel carbon cap. The president may increase or decrease the number of carbon shares3 available for auction if he/she submits to Congress a notification of the modification and Congress passes a joint resolution approving the modification within 30 days (Sec. 4(a)(2)(C), pg. 10). The president may submit a notification modification to the cap for the following reasons:
Covered gases: Carbon contained in fossil fuels that ultimately will be combusted and emitted into the atmosphere as CO2 (Sec. 2(8), pg. 3).
Mandatory reporting: Emissions reporting is not referred to in this legislation.
Point of regulation: A completely upstream approach is used with all entities covered at the start of the program in 2012. All first-sellers of fossil fuel carbon into the U.S. economy are required to hold allowances for all fossil fuel carbon sold (Sec. 4(a)(1)(B), pg. 9). The limitation covers approximately 81 percent of total U.S. GHG emissions in 2005.
Distribution of Value: 100 percent of all allowances are auctioned to regulated entities. Auction proceeds are divided as follows:
Auction procedure: Only regulated entities may participate in auctions. Auctions are initially held monthly though the secretary of the Treasury may change the frequency under certain circumstances (Sec. 4(b), pg. 20).
Expenditures from the Funds:
Amounts in the CERT Fund could be available, subject to budget authority and annual congressional appropriations, for a range of purposes (Sec. 6(c)(1), pg. 33-37). There is no guaranteed amount of spending for any particular purpose. Purposes eligible for funding include (See Assistance During the Transition to a Low Carbon Economy and Clean Energy, Efficiency and Supplemental Greenhouse Gas Reductions sections below):
CERT Fund: CLEARA establishes a trust fund in the U.S. Treasury called the “Clean Energy Reinvestment Trust Fund,” Subject to annual appropriations from Congress, the president is given general discretion to request from Congress the use of CERT Funds to support programs and initiatives that provide incentives, loans and grants to (Sec. 6, pgs. 33 – 37):
Efficiency Consumer Loan Program: The secretary of the Treasury would establish a program for any qualifying individual to borrow against any future dividend (see Assistance During the Transition to a Low Carbon Economy section below) to invest in energy efficiency or other clean energy technologies that would reduce the individual’s energy bills and reduce GHG emissions (Sec. 5, pg. 31).
Reimbursement for Sequestered Carbon: In addition to the aggregate annual carbon shares limit, the secretary of Treasury is required to issue carbon shares for fossil fuel carbon that is:
Voluntary Carbon Reductions: The secretary of the Treasury is required to reduce the aggregate annual carbon shares limit by an amount equal to the total quantity of all verifiable carbon reductions attributable solely to voluntary emissions reductions efforts (Sec. 4(d), pg. 26).
Trading: Regulated entities and certain other recipients of allowances may only conduct allowances transactions on a dedicated public exchange. No other entities may conduct such transactions (Sec. 4(b)(7()A), pg. 23).
Banking and Borrowing:
Price collar: CLEARA sets minimum and maximum prices for allowances available at each auction (Sec. 4(a)(4), pg. 13):
Price ceiling (referred to as the safety-valve price): An unlimited amount of allowances shall be sold at auction if prices rise to the price ceiling, which is initially set at $21 (in 2012 dollars) in 2012. Any allowances sold at the price ceiling are in addition to those issued under the fossil fuel carbon cap. The price ceiling increases at a rate of 5.5 percent per year plus the rate of inflation.
Offsets: Only allowances released at auction or distributed for reimbursement may be used for compliance by regulated entities; therefore, offsets may not be used for compliance.
Energy Security Dividend: Each qualified individual in the United States shall receive a per-capita Energy Security Dividend on a monthly basis issued under a program administered by the secretary of the Treasury (Sec. 5, pg. 29).
Targeted Relief Funds for Exporters (Sec. 4(a)(6), pg 16):
Border Carbon Adjustment (Sec. 4(a)(7), pg 18):
Worker, community and business transition assistance: Subject to annual appropriations from Congress, the president may use CERT Funds to carry out programs and initiatives that provide incentives, loans and grants to provide targeted, region-specific assistance (Sec. 6, pgs. 33 – 37):
Market access and limits: Only regulated entities may participate in auctions and in transactions conducted over dedicated allowance exchanges (Sec. 4(b)(2), pg. 21).
Derivative Markets: Regulated entities are prohibited from buying, selling or creating allowance derivatives. Only non-regulated entities may engage in derivative transactions. Any derivative markets that arise will be subject to oversight and regulations set by the secretary of the Treasury in consultation with other agencies (Sec. 4(b)(8), pg. 24).
Page numbers apply to the Carbon Limits and Energy for America’s Renewal Act as introduced. ↩
We use the terms “emissions allowance,” “allowance,” and “carbon share” interchangeably in this summary document (whereas the legislation refers to “carbon shares”). ↩