American Clean Energy and Security Act

Summary of provisions

The bill proposed a cap and trade system, under which the government would set a limit (cap) on the total amount of greenhouse gases that can be emitted nationally. Companies then buy or sell permits to emit these gases, primarily carbon dioxide CO₂. The cap is reduced over time to reduce total carbon emissions. The legislation would set a cap on total emissions over the 2012–2050 period and would require regulated entities to hold rights, or allowances, to emit greenhouse gases. After allowances were initially distributed, entities would be free to buy and sell them (the trade part of the program). Those entities that emit more gases face a higher cost, which provides an economic incentive to reduce emissions. Key elements of the bill include:

Alternative compliance payments were $25/MWh in violation of the standard, adjusted for inflation beginning in 2010.

The bill's cap-and-trade program allocates 85% of allowances to industry for free, auctioning the remainder. The revenue from these allowances will be used to finance conservation of tropical forests abroad and to support low-income households. 30% of the allowances will be allocated directly to local distribution companies (LDCs) who are mandated to use them exclusively for the benefit of customers. 5% will go to merchant coal generators and others with long-term power purchase agreements.

Congressional Budget Office (CBO) analysis

A study in June 2009 by the non-partisan Congressional Budget Office (CBO) indicated that the bill would be roughly deficit-neutral for the government over the next decade:

"...enacting the legislation would increase revenues by $873 billion over the 2010-2019 period and would increase direct spending by $864 billion over that 10-year period. In total, CBO and JCT estimate that enacting the legislation would reduce future budget deficits by about $4 billion over the 2010-2014 period and by about $9 billion over the 2010-2019 period..."

The study also indicated that the tax burden on individual households would be limited:

"...the net annual economy-wide cost of the cap-and-trade program in 2020 would be $22 billion—or about $175 per household...households in the lowest income quintile would see an average net benefit of about $40 in 2020, while households in the highest income quintile would see a net cost of $245. Added costs for households in the second lowest quintile would be about $40 that year; in the middle quintile, about $235; and in the fourth quintile, about $340. Overall net costs would average 0.2 percent of households’ after-tax income."

The analysis did not attempt to quantify the environmental benefits of reduced greenhouse gas emissions. The report also stated that the "net financial impact of the program on households in different income brackets would depend in large part on how many allowances were sold (versus given away), how the free allowances were allocated, and how any proceeds from selling allowances were used. That net impact would reflect both the added costs that households experienced because of higher prices and the share of the allowance value that they received in the form of benefit payments, rebates, tax decreases or credits, wages, and returns on their investments." In other words, while a cap and trade system imposes costs on high emitters, it can generate revenues for low emitters that sell permits to them. While the government sets the bar on emission levels, the market determines who gains and who loses.

Supporters of and arguments for the bill

The bill is supported by a number of environmental organizations including, the Defenders of Wildlife, the Alliance for Climate Protection, the Environmental Defense Fund, the National Wildlife Federation, The Nature Conservancy, the Audubon Society, the Natural Resources Defense Council and the Sierra Club. The League of Conservation Voters threatened to withhold endorsements from any Representative who votes against the bill. In addition to environmental organizations the Energy and Commerce Committee received letters of support from a broad range of organizations, including the United Auto Workers, Exelon, General Electric, Dow Chemical Company, Pacific Gas and Electric Company, and DuPont The New York Times noted that "industry officials were split, with the United States Chamber of Commerce and the National Association of Manufacturers opposing the bill and some of the nation’s biggest corporations, including Dow Chemical and Ford, backing it."

The Republicans for Environmental Protection (REP), a national grassroots organization, issued a press release after the vote stating "House passage today of the American Clean Energy and Security Act is a step in the right direction in the fight against dangerous climate change and for developing cleaner, more secure energy resources." David Jenkins, REP vice president for government and political affairs, noted that "Doing nothing is not an option. The costs and risks of failing to limit greenhouse gas emissions are too high. We owe it to our country and to our country's future citizens to take action. Today, the House looked to the future and did the right thing for our economy, security, and environment."

The Environmental Protection Agency (EPA) estimated the discussion draft version of the bill to cost average households $98–$140 per year. A preliminary update of this study says that the changes "would likely result in lower allowance prices, a smaller impact on energy bills, and a smaller impact on household consumption."

Economist Paul Krugman argued for the bill in September 2009, while attacking the bill's opponents: "It’s important, then, to understand that claims of immense economic damage from climate legislation are as bogus, in their own way, as climate change denial. Saving the planet won’t come free (although the early stages of conservation actually might). But it won’t cost all that much either." During May 2009, he argued that a cap and trade system is better than a carbon tax. He explained how the incentives work:"Even when polluters get free permits, they still have an incentive to reduce their emissions, so that they can sell their excess permits to someone else. That’s not just theory: allowances for sulfur dioxide emissions are allocated to electric utilities free of charge, yet the cap-and-trade system for SO2 has been highly successful at controlling acid rain."

Arguments against the bill

Criticism has focused on ultimate costs and benefits of the plan. A report written for the conservative think tank The Heritage Foundation on the discussion draft of the bill claims that the economy would react to this cap-and-trade system like it would lead to an energy crisis. This same report also claimed that the impact on global temperature by the end of the 21st century would amount to a reduction of no more than 0.2° Celsius.

Equity issues

Economist Arnold Kling said the bill "maximizes rent-seeking (favoritism toward particular businesses) and minimizes carbon reduction". Other economists have argued that the bill will create significant financial costs. The Wall Street Journal accused the Congressional Budget Office (CBO) of significantly underestimating the bill's ultimate costs, pointing out supposed flaws in its calculations. The Wall Street Journal also suggested that the bill's costs would disproportionately affect lower-income households, for which the CBO estimates did not account. The New York Times reported that the bill's provisions to levy tariffs on Chinese imports due to carbon emissions could provoke a trade war. The Competitive Enterprise Institute argued that the bill was essentially the "largest tax hike in world history". The American Petroleum Institute, which represents the petroleum and natural gas industry, said the bill would place "disproportionate burden on all consumers of gasoline, diesel fuel, heating oil, jet fuel, propane and other petroleum products", and by 2035, it would cause gasoline prices in excess of $4.00 per gallon by today's standards.

Nuclear power

Nuclear power plants generate minimal greenhouse gases, yet one critic wrote that the bill does not sufficiently advocate this clean power source. In response to this criticism, House of Representatives staff members wrote that the electricity generated by nuclear power requires the purchase of far fewer allowances than other forms of electricity generation; that the bill provides various types of financial support to build clean energy generating sources, including nuclear; and that an EPA study indicated that twice as many nuclear plants would be built if the law is passed versus the status quo.

Other high emitting nations

There is criticism that unless China and India adopt similar emissions standards, the impact on global climate will be insubstantial. This is largely an argument based on the leading role these two countries have obtained in carbon dioxide emissions which could reach 34% of the global total by 2030.

Doubts about a carbon market

Critics also note that the bill would create the largest market in carbon in the world. It would also "open up the so-called 'sub-prime carbon' market in carbon offsets, whereby industries can claim emissions reductions by investing in various projects around the world that theoretically reduce greenhouse gas emissions. The Government Accountability Office (GAO) claims it's virtually impossible to verify whether carbon offsets represent real emissions reductions. "

Non federal jurisdictions

On June 26, 2009, Reuters reported that "[s]tates that have set the U.S. agenda on addressing greenhouse gas emissions are lining up behind a federal climate bill, fearing signs of dissent would weaken a plan that still faces hurdles" The article noted that representatives from members of the Eastern U.S. 10-state Regional Greenhouse Gas Initiative, the Midwestern Greenhouse Gas Reduction Accord, which joins six U.S. states with Canada's Manitoba, and the 11-state-and-four Canadian province Western Climate Initiative were supporting the legislation, even though the Eastern market member states, which have already been operating under a cap-and-trade system, "would lose a direct revenue stream of hundreds of millions of dollars if the federal plan were passed." The three existing regional carbon cap and trade programs, which are in varying states of development, would likely be merged into the national plan, since "the federal 'cap-and-trade' plan pre-empts any similar state scheme from 2012 to 2017." However, ACES leaves states the option of resuming trade of pollution credits after 2017 and "would allow holders of RGGI allowances to convert them into federal allowances, which means the states will likely hold auctions until the federal plan begins.

Citizens Against Government Waste named both Reps. Waxman and Markey the May 2009 Porkers of the month for "adding and altering provisions to placate special interests and buy the votes of appropriately skeptical members of Congress".

Debate among environmental organizations and scientists

While the Environmental Defense Fund and many other environmental organizations strongly support the bill, other environmentalists have sharply criticized the legislation in its present form as too weak and have called urgently for it to be amended so as to include additional and more vigorous measures to protect climate and natural resources.

Some environmentalists have criticized the fuel efficiency standards in the "cash for clunkers" provision of the bill, because new cars would only need to get 22 MPG to be considered fuel efficient. New SUVs and pickup trucks would only need to get 18 MPG to be considered fuel efficient. Vehicles older than 25 years are not eligible for the program. CNN reported that "One of the biggest criticisms is that it's not very environmentally friendly."

The New York Times has noted that "while some environmentalists enthusiastically supported the legislation, others, including Greenpeace and Friends of the Earth, opposed it." Friends of the Earth, an international environmental organization, announced its opposition to ACES as they believed the bill was too weak. They cited support from Shell Oil Company and Duke Energy as evidence of the bill's shortcomings. They also objected to the removal of the EPA’s existing authority to use the Clean Air Act to counter emissions of greenhouse gases. Environmental organizations critical of the bill said the bill fell short by allowing for 85 percent or more of pollution permits to be given away free of cost to the electricity sector. A coalition of environmental groups released a statement saying that "to craft a bill that allows for 2 billion tons of offsets per year — roughly equivalent to 27 percent of 2007 U.S. greenhouse gas emissions — is to allow for continued and dangerous delay in real action by our country at a time when the world is looking to the U.S. for leadership on climate change." Critics of the bill were concerned about it not going far enough, and claimed that there were too many concessions made to special interests in rewriting the bill. Thus, making the bill weak and potentially harmful to the economy and environment.

Dr. James E. Hansen, one of the first to warn about the risks of climate change and an advocate of taking related action, also argued strongly against the bill: 1) It restricted the EPA's ability to regulate CO₂ emissions from power plants; 2) it set "meager" targets for emission reductions, with only a 13% reduction by 2020; 3) it lacked certain controls important to the trading of allowances to emit carbon; and 4) it failed to set predictable prices for carbon, making it harder for businesses and households to make investment decisions. Dr. Hansen advocated a carbon tax rather than a cap and trade system. Alternatively, Senators Maria Cantwell and Susan Collins introduced the Carbon Limits and Energy for America's Renewal (CLEAR) Act. This bill proposed a Cap and Dividend approach in which 75% of the revenue is returned to taxpayers in the form of a dividend, and the rest is used to fund to development of renewable energy.

Media response

News agencies Reuters and Agence France-Presse and United Kingdom newspaper The Guardian reported the narrow passage of the "historic" legislation in the House, regarding the vote to be a "major" and "hard-fought" victory for President Obama, while an Associated Press article, carried by the Canadian Broadcasting Corporation, reported the vote to be "a triumph for [the] U.S. President."

The New York Times commented that "the House legislation reflects a series of concessions necessary to attract the support of Democrats from different regions and with different ideologies. In the months of horse-trading before the vote Friday, the bill’s targets for emissions of heat-trapping gases were weakened, its mandate for renewable electricity was scaled back, and incentives for industries were sweetened." Business Week emphasized its perceived significance of the legislation and its passage in the House, declaring "June 26, 2009, will go down as an historic moment in world’s efforts to tackle climate change. For the first time, a Congressional body passed legislation that would place mandatory limits on the emissions of the greenhouse gases that cause global warming."

Impact on Copenhagen Climate Change Conference

It was reported that the passage of ACES in Congress would increase the likelihood that a successor to the Kyoto Protocol would be adopted at the United Nations Climate Change Conference 2009 in Copenhagen. The Guardian US environment correspondent noted that ACES passing the US House of Representatives "delivers an important boost to the prospects of reaching an agreement for international action on climate change at Copenhagen this year." The NYTimes noted that "the German chancellor, Angela Merkel, who was in Washington on Friday to meet with Mr. Obama, strongly endorsed the bill even though it fell short of European goals for reducing the emissions of heat-trapping gases."

Legislative history

It was offered as a "discussion draft" in the House Committee on Energy and Commerce on March 31, 2009. A final version of the legislation was introduced on May 15, 2009 by the same title, assigned bill number H.R. 2454.

On May 21, 2009, the bill passed out of the Energy and Commerce Committee by a vote of 33-25, largely falling along political party lines.

Energy and Commerce Committee markup

Republicans proposed over 400 amendments to the bill, the majority of which many think were proposed to delay passage. Some of the more prominent from both parties are listed below:

Accepted

Defeated

By the end of May 20, 2009, 2 Republican and 24 Democratic amendments had been adopted. 15 Republican amendments had been defeated. No amendment sponsored by a Democrat had yet been defeated.

Rules Committee resolution

At 3:47 AM on June 26, 2009, H.Res. 587 was reported to the house, which amended H.R. 2454, adding to the bill. This resolution was passed by the house just hours later at 11:21 AM. Republicans complained that neither the public nor the Representatives were given adequate time to study the 310-page amendment. Markey refuted Rush Limbaugh's assertion that the bill was not available at all, saying the bill was available to read on the Internet and at the reading clerk's desk since the 3:47 AM reporting.

Final debate and floor vote

Speaker Nancy Pelosi scheduled the vote for June 26, 2009. The week leading up to the vote was marked by courting moderate Republicans and on-the-fence Democrats from rural and coal districts to support the legislation in what was expected to be a close vote. On the day of the vote, Democrats were still working to ensure they had the votes needed to pass the bill. Republicans tried to pull back their proposed amendments, realizing they were giving the Democrats more time to corral votes, however, they were unable to pull their proposed amendments off the floor. Shortly before the vote, John Boehner read aloud to the House from most of the 300 page Manager's amendment that was filed at 3:09AM on the day of the vote. He voiced opposition to the practice of changing bills in the middle of the night before the vote, and concern that the Manager's amendment made substantial changes to the bill. He did not want the House to vote on the bill before the members could learn what was in the amendment, so he read much of it aloud. Manager's amendments are supposed to be for clerical changes only, not substantive ones. Patrick J. Kennedy (D-RI) returned from rehab to cast an 'Yes' vote, and Ellen Tauscher (D-CA) delayed resigning the House to vote for the legislation as well.

The bill was approved by the House by a vote of 219-212, with 8 Republicans supporting, and 44 Democrats voting against, and 3 members not voting. All Representatives present at the time of the vote had cast votes. Jeff Flake (R-AZ), Alcee Hastings (D-FL), and John Sullivan (R-OK) missed the vote due to 'a family conflict,' travel abroad in Albania, and 'alcohol addiction treatment,' respectively.

Democratic votes against largely came from freshmen in Republican-leaning seats, conservative "blue dog" democrats, as well as Democrats from areas dependent on coal for electricity or areas with large numbers manufacturing jobs. However, some Democrats from liberal districts, like Pete Stark (CA) voted against the bill because he considered the bill 'watered-down.' Dennis Kucinich (D-OH) voted against the bill because he considered the bill 'too-weak' and opposed offsets, among other similar criticisms.

Republicans supporting the bill included Army Secretary nominee John M. McHugh and moderate Republican Main Street Partnership caucus members Mary Bono Mack (R-CA), Mike Castle (R-DE), Dave Reichert (R-WA), Mark Kirk (R-IL), Leonard Lance (R-NJ), Frank LoBiondo (R-NJ). Kirk and Castle are also members of the Republicans for Environmental Protection caucus.

Required annual reductions in GHG emissions

The table below summarizes the required greenhouse gas emission reductions, with the benchmark of the 2005 emission levels.