On March 31, House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and House Energy and Environment Subcommittee Chairman Edward Markey (D-MA) released a draft energy and climate change bill. The 648-page bill includes four titles covering clean energy, energy efficiency, global warming and a transition. However, it does not address how to allocate the tradable emission allowances under the proposed cap and trade program.

Clean Energy Title

This title would promote renewable sources of energy, carbon capture and sequestration (“CCS”) technologies, low-carbon fuels, clean electric vehicles, and smart grid and electricity transmission.

The bill would create a national renewable electricity standard, requiring retail electric providers, including municipally owned utilities and cooperatives, to obtain 25 percent of their electricity from renewable resources by 2025. The governor of any state may choose to meet 20 percent of this requirement with energy efficiency measures.

The bill also includes a CCS early demonstration program, incentives for wide-scale CCS and performance standards for new coal-fired power plants. Beginning in 2015, final permits must require new coal-fired power plants to limit emissions of carbon dioxide to 1,100 pounds per megawatt-hour. Standards are tougher for plants approved after 2020.

Although the draft bill does not include an expansion of federal siting authority, it does contain provisions to encourage deployment of a smart grid, including reductions of utility peak loads through smart grid and demand response. The bill directs the Federal Energy Regulatory Commission (“FERC” or “Commission”) to create national “grid planning principles” to facilitate the deployment of renewable energy. Regional planning entities must submit transmission plans to FERC within 18 months. FERC then may recommend ways to resolve any conflicts between regional proposals.

Energy Efficiency Title

This title includes a variety of programs and incentives to increase energy efficiency of new and existing buildings, appliances, transportation and industry. Electric and gas utilities also would have to demonstrate a reduction in expected customer energy demand. By 2020, electricity demand must be reduced by 15 percent, and gas demand must be reduced by 10 percent.

Global Warming Title

This title would establish a cap-and-trade program to reduce emissions of greenhouse gasses, including carbon dioxide: 20 percent below 2005 levels by 2020, 42 percent below 2005 levels by 2030, and 83 percent below 2005 levels by 2050. To help utilities and other regulated entities lower compliance costs, the bill would allow banking of emissions allowances.

The proposed limits are more aggressive initially than limits proposed by President Obama. In February, President Obama’s budget suggested a 14-percent reduction by 2020, whereas this proposed bill would cut emissions by 20 percent by 2020. Both plans would end up with the same reductions by 2050.

The bill would allow the use of 2 billion tons of emissions offsets, which allows covered entities to apply reductions in areas not covered by the bill (such as facilities overseas) towards the mandated reduction targets. However, five tons of offsets would only equal 4 tons of credit against the emissions reduction obligation.

The bill leaves out important details on how emissions allowances will be distributed, ducking the controversial question of whether the government should require utilities to buy emissions allowances in an auction, or simply allocate them for no charge.

The draft bill would give FERC authority over both emissions allowances and offsets. However, the House Agriculture Committee passed a bill (H.R. 977) in February that would give the Commodity Futures Trading Commission control to oversee those markets.

In addition, the bill addresses the issue of Environmental Protection Agency (“EPA”) regulations under the Clean Air Act, as required under the Supreme Court decision in Massachusetts v. EPA. Under the bill, EPA could not regulate carbon dioxide or other greenhouse gasses as criteria air pollutants or hazardous air pollutants.

“Transitioning Title”

This title would protect U.S. consumers and businesses and promotes “green jobs” during the transition to a clean energy economy.

The House Energy and Commerce Committee plans to send the bill to the House for consideration by Memorial Day.