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S.1733, the Clean Energy Jobs and American Power Act (also referred to as the "Kerry-Boxer Climate Bill" after its co-sponsors) is the Senate’s version of H.R. 2454 (the American Clean Energy and Security Act of 2009), the climate bill that was passed in the House of Representatives in June.  

While the first draft of the Kerry-Boxer Climate Bill is 821 pages long and covers a wide array of issues, some of the following provisions included in the bill are likely to be among the most heavily debated in the Senate along with the question of the bill’s cost.

• EMISSIONS REDUCTIONS, Section 3 of S.1733

The Kerry-Boxer Climate Bill calls for a reduction of GHG emissions of 20% below 2005 levels by 2020, which is a slightly more ambitious target than H.R. 2454, the climate bill passed in the U.S. House of Representatives in June.  The House climate bill set a goal of GHG emissions reductions of 17% below 2005 levels by 2020.  Both bills set emissions reduction targets of 42% and 83% by 2030 and 2050, respectively.

A divisive issue regarding these targets may not be obvious at first glance. The United States emitted significantly more greenhouse gases in 2005 than 1990.  Therefore, Congress’ proposed reduction of GHG emissions will be much lower than recommended by leading scientists, including NASA and the Intergovernmental Panel on Climate Change (IPCC).  The IPCC reported in 2007 that catastrophic climate change would result unless developed countries, including the United States, reduced GHG emissions by 25- 40% below 1990 levels by 2020, and 80-95% below 1990 levels by 2050.  The Senate’s goal of 20% below 2005 levels by 2020 translates to a 5% reduction below 1990 levels.  Leaders in the Senate indicate that the 20% target might be lowered before the bill is sent to the floor for a vote.

• EMISSIONS ALLOWANCES, Sections 771-783 of S.1733

Devotes 70 percent of the emission allowances to make it easier for consumers to pay their energy bills because putting a price on carbon may increase the cost of carbon-intensive sources of electricity, such as coal.  Therefore, the issue of emissions allowances is expected to be a divisive issue, particularly for Senators representing states that rely most on coal (i.e. Indiana, North Dakota, Ohio, Montana and West Virginia).  Over 30 states rely, in some degree, on coal.  

The two Senators from Iowa, Tom Harkin (D-IA) and Charles Grassley (R-IA), are spear-heading an effort to oppose the allowance allocation formula for utilities in both the House and Senate climate bills, which would allocate allowances based half upon GHG emissions and half on energy sales. The Senators argue that the formula benefits low-emission utilities at the expense of coal-dependent utilities.

Section 780 of the Kerry-Boxer bill provides emissions allowances for the commercial deployment of carbon capture and sequestration (CCS) activities.  Such provisions are expected to promote support for the climate bill among senators representing coal states.  For example, Sen. Max Baucus (D-MT) praised Sen. Boxer for including section 780 because it incentivizes operators of coal-fired power plants to deploy CCS.  However, the New York Times reported on October 31st that incentives for CCS might actually provide more benefit for industries other than coal.  The article explains, "it may be easier and less costly to capture the carbon dioxide at oil refineries, chemical plants, cement factories and ethanol plants, which emit a far purer stream of it than a coal smokestack does."  

Further, the Senate plan allots more emissions allowances to small oil refiners than the House climate bill.  Major oil companies such as Chevron and Exxon will receive fewer allowances under S.1733.  (Source: Bloomberg)

• COVERED ENTITY, Section 700(13) of S.1733

Requires facilities that emit at least 25,000 tons of carbon dioxide equivalent to obtain pollution permits.  Approximately 10,000 facilities will fall under this requirement.  

• OFFSETS, Sections 731-744 of S.1733

Provides a total of 2 billion tons per annum in order to allow covered entities that cannot meet their required level of greenhouse gas (GHG) emissions reductions to buy "offset credits" by investing in "clean" energy or GHG reduction projects.  Examples of projects include: carbon storage conservation projects; mass planting of trees; and methane collection and combustion projects at farms, landfills and active underground coal mines.

S.1733 contains a less stringent list of projects that qualify for offset credits than H.R. 2454, the climate bill passed by the House in June, which provides that permissible offset projects "shall" include practices that reduce greenhouse gas emissions or sequester greenhouse gases (see H.R. 2454, §732).  Further, after a delegation of Congressmen representing farmers, led by Rep. Collin Peterson (D-Minn.), sought oversight of farming offsets by the U.S. Department of Agriculture instead of the U.S. Environmental Protection Agency, the House-passed version of the bill provided defined roles for both agencies in the offset program.  Conversely, the Senate bill gives the president jurisdiction over the offset program.  Stay tuned for the mark-up of the Kerry-Boxer bill, which will involve six committees, including the Senate Agriculture Committee.

Finally, the Senate proposal provides more offsets for domestic projects than H.R. 2454 — it would allow international offsets to account for a quarter of projects annually, as opposed to the House bill, which called for half.   

• BORDER MEASURES, Section 765 of S.1733 

Proposes a "border tax" (commonly referred to as a "carbon tariff") that will be designed to protect U.S. industries and jobs from the threat of competition from foreign rivals that do not face GHG emissions limits. While a similar provision was included in the House bill (a clause that would impose a tariff in 2020 on imports from countries without systems for pricing or limiting carbon dioxide emissions), President Obama spoke publicly against such a provision, warning that, "we have to be very careful about sending any protectionist signals out [to our international trade partners]." (Source: Washington Post)

A major concern in crafting climate change legislation and agreements is "Leakage" - the increase in GHG emissions in one location that lacks emissions caps as a direct result of limiting emissions in another location.  For example, because compliance with emissions limits is a costly endeavor, if Country A caps GHG emissions but Country B does not, then carbon-intensive operations may move to Country B.  Thus, Country A loses jobs to Country B, but the same level of greenhouse gases are emitted into the atmosphere.  (Since GHGs remain in the atmosphere for an extended period of time, GHG emissions in one place will have the same impact on the Earth’s climate as in another.) 

Although this provision was removed from the draft of S.1733 shortly after the bill was introduced in late September, it remains a controversial issue and may re-surface in a later version of the bill.

This border tax could potentially be the issue on which swing votes in the Senate decide whether to support S.1733.   In fact, 10 Democratic senators have already stated that they would not support a climate bill that fails to include a border tax. (Source: Wall Street Journal)  Further, a bi-partisan pair of senators made clear that the border tax is among a list of provisions that must be included in the bill in order for it to pass the Senate.  In an article published in the New York Times,  Senators John Kerry (D-MA) and Lindsey Graham (R-SC) said that, in addition to a border tax that is consistent with World Trade Organization rules, the bill must:

1. Be market-based;
2. Invest in nuclear power – Sen. Graham advocates including nuclear energy under a renewable electricity standard ("RES") and dedicating up to $100 billion in additional loan guarantees for the nuclear industry.
3. Provide incentives for carbon capture and sequestration, and achieve an environmentally-sensitive compromise on new onshore and offshore oil and gas exploration (which could be used to offset compliance costs associated with the cap-and-trade program); and
4. Protect businesses (and ultimately consumers) from energy price increases, primarily through a floor and ceiling for allowance prices