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Jun 2009
June 29, 2009

Federal Climate Change, Energy, and Energy Efficiency Legislation

On Friday June 26, the U.S. House of Representatives passed the American Clean Energy and Security Act (ACES).1 To characterize ACES as a piece of environmental legislation or a "cap and trade" bill is to oversimplify the bill. It is economic, social, and tax legislation that will have disparate impacts geographically and demographically across the country.

Here are a few of the key points of ACES:

  • Most facilities (covered entities) that emit more that 25,000 tons of greenhouse gas (GHG) per year will have to hold federally granted allowances for each ton of GHG emissions beginning in 2012. The number of allowances is set under ACES and will ratchet down over time in order to reduce total U.S. GHG emissions by 83% from 2005 levels by 2050 (20% by 2020, 42% by 2030).
  • Approximately 85% of the allowances in the initial years will be federally distributed to sources of emissions based upon criteria in ACES and rules that will be developed under ACES in the future. The remaining allowances will be federally auctioned. Over time, the total pool of allowances available shrinks toward the economy-wide GHG emission goals and the relative proportion of allowances auctioned increases.
  • In lieu of allowances, covered entities can purchase GHG offsets.
  • Additionally, producers and importers of oil and natural gas will have to hold the number of allowances equal to the number of tons of GHG emissions attributable to combusting the amount of fuel they produce or import.
  • The U.S. EPA is authorized to develop emissions standards for GHG emissions from various industry sectors. Emissions standards are specifically established for new coal-fired generating plants permitted after January 1, 2009.
  • A federal subsidy program is created for low-income households to offset the increased cost of energy.
  • Federal programs are created to assist workers displaced by the effects of the bill.
  • A federal program is created to assist in the development of energy efficient consumer products and building codes. An energy efficiency standard is designed to, among other things, provide consumers with efficiency-related tax credits and set new manufacturing design specifications for lighting products, commercial furnaces, and other appliances.
  • A renewable electricity standard (RES), often referred to as a renewable portfolio standard (RPS), will be established. The RES will require load serving entities to secure renewable energy certificates (RECs) to meet an increasing standard (6% by 2012 and 20% by 2020) of renewable power production. This standard may also be met with certain energy efficiency measures implemented by the load serving entities.
  • Smart grid provisions are designed to streamline transmission upgrades. These provisions will also encourage utilities to implement various peak-shaving mechanisms to serve load without building new peak generation.

Here are some of the anticipated consequences of ACES:

  • New conventional coal-fired electric generation capacity is unlikely.
  • The price of coal-fired electric generation will match or exceed the price of renewable and nuclear generation.
  • A new regulatory program will be created to quantify and verify the GHG offsets that may be purchased to comply with the GHG emissions cap, and a new investment market for those offsets will be created.
  • A new investment market in emission allowances will be created.
  • A new investment market in RECs and energy-efficiency credits will be created.
  • Investment in renewable generation will increase.
  • Investment in transmission extensions and grid improvements will increase, particularly demand side management improvements and improvements designed to connect and facilitate transmission from areas of high-density renewable resource to areas of high-cost peak load.
  • Distributed generation will increase.
  • Regulated entities in states and regions with state RPS requirements, regional climate change accords, or both will be confronted with difficult and potentially costly preemption issues.
  • The Congressional Budget Office (CBO) estimates that the gross compliance cost of ACES, per household by 2020, could range up to $1300 depending upon income.
  • The CBO recognizes that impacts will disparately impact U.S. manufacturing and result in offshore migration of production and jobs in fuel-intensive industries.
  • Electricity rates will generally rise. The impact will be the greatest on areas of the country (Midwest and Southeast) with the heaviest reliance upon coal-based electrical generation.

To implement ACES, the U.S. EPA will need data on GHG emissions from covered entities. In early April, U.S. EPA proposed a rule to mandate reporting of annual GHG emissions beginning with emissions during calendar year 2010. The comment period on this rule closed in early June. If finalized, this proposed rule will provide the U.S. EPA with the necessary data to implement and enforce the GHG provisions in ACES.

ACES passed the House by a relatively small margin (219-212). The Senate may turn out to be an insurmountable obstacle for ACES, but many expect it to be on the President's desk in some form before the end of the year. The Obama Administration has expressed its intent to have domestic climate-change legislation in place before the December, 2009, UN conference on climate change. And on Saturday, President Obama pressured the Senate to pass ACES.

If you have questions, contact any member of Warner's Climate and Energy Practice.

1 American Clean Energy and Security Act of 2009, H.R. 2454, 111th Cong. (1st Sess. as reported by H. Comm. on Energy and Commerce, June 5, 2009), H.R. REP. NO. 111-137 (2009), available at


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