To some extent, a carbon tax and a cap-and-trade program would produce similar effects: both are estimated to increase the price of fossil fuels, which would ultimately be borne by consumers, particularly households. In addition to the policy shift in the executive branch, a number of states have taken actions in recent years that directly address GHG emissions. In the context of these events and efforts, Members in the 111 th Congress have introduced several proposals that would use market-based approaches to reduce GHG emissions. This report focuses on these legislative proposals. H.R. H.R. H.R. 2454 would distribute allowances to both covered and non-covered entities at no cost to support various policy objectives. In addition, an increasing percentage (approximately 17% in 2016) of the allowances would be sold through auction. As with the distribution of no-cost allowances, auction revenues would be used to further various policy objectives. 2454 , S. 1733 would establish an economy-wide GHG cap-and-trade program, while addressing other energy-related matters through numerous energy policy provisions. Although the similarities outweigh the differences, six key distinctions include the following: (1) the Senate bill has a more stringent emissions cap between 2017 and 2029; (2) the two bills allocate emissions allowances and auction revenue to different recipients at different levels; (3) the bills would treat offsets differently; (4) the House bill would establish extensive carbon market regulation (the Senate bill currently has a placeholder for this topic); (5) the House bill would establish a requirement that importers purchase special emission allowances for certain imports from countries without greenhouse gas controls (the Senate bill currently has a placeholder for this topic); and (6) both bills would limit EPA's authority to regulate greenhouse gases under the Clean Air Act, although in different ways. 2454 and S. 1733 , see CRS Report R40896, Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. H.R. H.R. The tax revenues would be used to support (1) a payroll tax rebate; (2) affected industry transition assistance; and (3) clean energy technology. H.R. The approach may be described as a dynamic carbon-content tax. Producers and importers of GHG emission substances—fossil fuels and other GHG emission inputs—would be required to purchase emission permits for each ton of emissions that would occur from the combustion or use of the GHG emission substance. H.R. H.R. S. 2877 , introduced December 11, 2009, by Senator Cantwell, would create a program that seeks to combine both emission and price control. The President would limit (or cap) the quantity of carbon shares available for submission each year, and the Department of Treasury would distribute all of the carbon shares through monthly auctions. The auctions would have a price floor and a price ceiling (i.e., safety valve). H.R. On May 12, 2010, Senators Kerry and Lieberman released a draft of new climate change legislation. A comprehensive energy and climate change policy proposal, the draft would set GHG reduction goals similar to those of H.R. 2454 . Employing a market-based cap-and-trade scheme for electric generators and industry with a separate set-price mechanism to allocate allowances to cover transportation fuels, the proposal allocates a substantial percentage of the allowances created for the benefit of energy consumers and low-income households. 2454 on June 26, 2009. On November 5, the committee approved Senator Boxer's "Manager's Amendment" as a substitute, and ordered S. 1733 reported.
As of the date of this report, Members in the 111th Congress have introduced nine stand-alone proposals that would control greenhouse gas (GHG) emissions. The proposals offered to date would employ market-based approaches—either a cap-and-trade or carbon tax system, or some combination thereof—to reduce GHG emissions. The legislative proposals are varied in their overall approaches in controlling GHG emissions. Some control emissions by setting a quantity (or cap); others control emissions by setting a price (or tax/fee). In addition, the proposals differ in their inclusion of particular design elements, such as whether or not to allow offsets (emission reduction opportunities from economic sectors not directly addressed by the primary approach).
H.R. 2454, the American Clean Energy and Security Act of 2009 (Waxman/Markey), and S. 1733, the Clean Energy Jobs and American Power Act (Kerry/Boxer), have been the primary energy and climate change legislative vehicles in the 111th Congress. On June 26, 2009, the House passed H.R. 2454. On November 5, the committee approved Senator Boxer's "Manager's Amendment" as a substitute, and ordered S. 1733 reported. In addition to establishing a cap-and-trade system to regulate GHG emissions, both H.R. 2454 and S. 1733 would address energy efficiency, renewable energy, and other energy topics. Other proposals—H.R. 1862 (Van Hollen) and H.R. 1666 (Doggett)—would control emissions by limiting quantity, but would differ in their structure and implementation.
Three of the proposals—H.R. 594 (Stark), H.R. 1337 (Larson), and H.R. 2380 (Inglis)—would use a carbon tax approach to address carbon dioxide (CO2) emissions from fossil fuel combustion.
Other proposals do not fit precisely into either a price or quantity control category. H.R. 1683 (McDermott) would establish a program that may be described as a dynamic carbon tax: its tax rate would be linked with annual emission allocations (or caps). S. 2877 (Cantwell) would establish a CO2 emission control program on fossil fuel producers and importers. Although the bill would limit the number of carbon shares auctioned each year, the auctions would include a price safety valve, allowing for the purchase of additional shares. To counter the emissions from these additional shares (above the cap), the price safety-valve revenues would be used to support mitigation efforts outside of the emission control program.
On May 12, 2010, Senators Kerry and Lieberman released a draft of new climate change legislation. A comprehensive energy and climate change policy proposal, the draft would set GHG reduction goals similar to those of H.R. 2454. The proposal would employ a market-based cap-and-trade scheme for electric generators and industry with a separate set-price mechanism to allocate allowances to cover transportation fuels.
A key element in GHG emission reduction bills is how, to whom, and for what purpose the value of emission allowances or carbon tax revenue would be distributed. The distribution strategy is a critical policy decision, because it would affect (1) the overall cost of the program and (2) how program costs are distributed throughout the economy. In the early years of the program, H.R. 2454 and S. 1733 would distribute allowances at no cost to both covered and non-covered entities to support various policy objectives. In addition, an increasing percentage of the allowances would be sold through auction. As with the distribution of no-cost allowances, auction revenues would be used to further various policy objectives.