	Introduction

Climate change is generally viewed as a global issue, but proposed responses generallyrequire action at the national level. In 1992, the United States ratified the United Nations'Framework Convention on Climate Change (UNFCCC) which called on industrialized countries totake the lead in reducing the six primary greenhouse gases to 1990 levels by the year 2000. (1) Over the past decade, a varietyof voluntary and regulatory actions have been proposed or undertaken in the United States, includingmonitoring of power plant carbon dioxide emissions, improved appliance efficiency, and incentivesfor developing renewable energy sources. But carbon dioxide emissions have continued to increase. A number of congressional proposals to advance programs designed to reduce greenhousegases have been introduced in the 109th Congress. Proposed Senate Legislation: A Comparison of Two Proposals

In February 2005, Senators McCain and Lieberman introduced S. 342 , theClimate Stewardship Act of 2005. 826 and defeated on a 38-60 vote. In 2004, The Energy Information Administration (EIA) analyzed an earlier version of S. 1151 . (13) Under EIA's analysis, S. 1151 would achieve a 6.7% reduction in overall greenhouse gasemissions in 2010 compared with its projected business-as-usual scenario, but would not returngreenhouse gas emissions to their 2000 or 1990 levels. This result contrasts with CRS's estimate thatthe draft amendment would result in a 2.5% reduction in overall greenhouse gas emissions in 2010compared with EIA's business-as-usual scenario. S.Amdt. Analysis: Addressing the Price versus Quantity Issue

		Uncertainty in Emission Reductions

The projected emission reductions under the draft amendment are more uncertain than under S. 1151 . (20) In general, market-based mechanisms to reduce CO 2 emissionsfocus on specifying either the acceptable emissions level (quantity), or compliance costs (price), andallowing the marketplace to determine the economically efficient solution for the other variable. Hence, a major policy question is whether one is more concerned about the possibleeconomic cost of the program and therefore willing to accept some uncertainty about the amount ofreduction received (i.e., a safety valve); or one is more concerned about achieving a specific emissionreduction level with costs handled efficiently, but not capped (i.e., pure tradeable permits). S. 1151 leans toward the quantity (total emissions) side of the equation; the draftamendment leans more toward the price side. Conclusion

The two proposals -- S. 1151 and the draft amendment -- would establishmarket-based systems to limit emissions of greenhouse gases. However, the proposals differ in howthose systems would work. S. 1151 would establish an absolute cap on emissions fromcovered entities, and would allow entities to trade emissions under that cap. The draft amendmentwould limit greenhouse gas emissions intensity and establish a cost-limiting safety valve to protectagainst high compliance costs.
Climate change is generally viewed as a global issue, but proposed responses generallyrequire action at the national level. In 1992, the United States ratified the United Nations'Framework Convention on Climate Change (UNFCCC) which called on industrialized countries totake the lead in reducing greenhouse gases to 1990 levels by the year 2000. Over the past decade,a variety of voluntary and regulatory actions have been proposed or undertaken in the United States,but carbon dioxide emissions have continued to increase.
Several proposals designed to address greenhouse gases have been introduced in the 109thCongress. Two proposals, S. 1151 , introduced by Senators McCain and Lieberman, anda draft alternative, announced by Senator Bingaman, received increased scrutiny in preparation forthe Senate's debate on comprehensive energy legislation. During that debate, S. 1151,introduced as S.Amdt. 826 , was defeated on a 38-60 vote. In contrast, the draftalternative remains a work-in-progress and has yet to be introduced. This report compares these twoproposals.
Both proposals would establish market-based systems to limit emissions of greenhouse gases. However, the proposals differ in how those systems would work. S. 1151 wouldestablish an absolute cap on emissions from covered entities, and would allow entities to tradeemissions under that cap. The draft amendment would limit emissions intensity (greenhouse gasemissions per unit of GDP), and establish a cost-limiting safety valve to protect against highcompliance costs. Each would set up a tradeable permit program to begin addressing emissions bythe year 2010.
In 2004, the Energy Information Administration analyzed an earlier version of S. 1151 . Under EIA's analysis, S. 1151 would achieve a 6.7% reduction in overallgreenhouse gas emissions in 2010 compared with its projected business-as-usual scenario, but wouldnot return emissions to their 2000 or 1990 levels. This contrasts with the CRS estimate that thedraft amendment would reduce overall greenhouse gas emissions 2.5% in 2010 compared with EIA'sbusiness-as-usual scenario.
The two proposals represent different answers to the price-versus-quantity issue in reducinggreenhouse gases. In general, market-based mechanisms to reduce CO 2 emissions focus onspecifying either the acceptable emissions level (quantity) or compliance costs (price) and allowingthe marketplace to determine the economically efficient solution for the other variable. If one is moreconcerned about the possible economic cost (price) of the program, then use of a safety valve to limitcosts could appear to some more appropriate, even through it introduces some uncertainty about theamount of reduction achieved (quantity). In contrast, if one is more concerned about achieving aspecific emission reduction level (quantity), with costs handled efficiently, but not capped, atradeable permit program without a safety valve may be viewed as more appropriate. In the case ofthese alternatives, S. 1151 leans toward the quantity (total emissions) side of theequation; the draft amendment leans more toward the price side. This report will be updated asevents warrant.