Senators Kerry and Boxer unveil climate bill

By Kari S. Larsen, Gregory K. Lawrence & Stephen J. Snyder, McDermott Will & Emery, LLP

On September 30, 2009, Senators John Kerry (D-MA) and Barbara Boxer (D-CA) announced the introduction of the Clean Energy, Jobs and American Power Act. The bill would create limits on the emission of greenhouse gases (GHGs), implemented by a national cap-and-trade program.

This bill comes at the same time as the Environmental Protection Agency’s (EPA’s) announcement of final rules for mandatory GHG emissions reporting for large emitters beginning January 1, 2010, and, further, a proposed rule to regulate through construction and operating permits GHG emissions from power plants and large industrial facilities emitting at least 25,000 tons of C02 and other GHGs per year.

The permits must show that the operators are using the best available technology to minimize GHG emissions. Challenges to EPA’s authority to regulate GHGs are expected.

In many respects, the Kerry-Boxer bill mirrors the American Clean Energy and Security Act of 2009, the House version of the climate bill, which was passed on June 26, 2009.

Both bills would establish a cap-and-trade program, under which the rights of covered entities to emit greenhouse gases would be tied to possession of a sufficient number of tradable allowances. Both bills also allow for the use of tradable offsets to meet a portion of a covered entity’s allowance requirements.

The Kerry-Boxer bill reconciles the existing voluntary and state carbon offset trading programs by directing the distribution of emissions allowances to those entitled to “early action recognition.” The allocation would attempt to ensure that the holder of voluntary or state emissions reduction credits received emissions allowances of the equivalent value to that of its credits.

Both bills establish decreasing availability of total allowances, over time lowering the total amount of permitted emissions.

While both bills aim to reach the same target in overall reductions by 2050, the Kerry-Boxer bill moves more quickly, with larger goals for near-term reductions.

This may be related to the recent economic crisis, which has lowered projections of greenhouse gas emissions, making more aggressive targets more feasible. It also allows, however, for the billing of the near-term reductions as a 20 percent reduction from 2005 levels by the year 2020.

The goal of “20 percent by 2020″ has been used in the United States and Europe as a rallying cry, both for emissions reductions and for the deployment of renewable energy. The Kerry-Boxer bill also includes additional incentives for natural gas, and moderate increases in incentives for nuclear power, when compared to the House bill.

One important issue not yet tackled by the Kerry-Boxer bill is the form regulatory oversight of newly created carbon allowance and offset markets would take.

The House bill includes provisions giving broad authority to the Federal Energy Regulatory Commission (FERC) and the U.S. Commodity Futures Trading Commission (CFTC) to regulate carbon markets and carbon futures markets.

In contrast to the specific provisions of the House bill, the Kerry-Boxer bill includes in a section covering carbon market oversight only the “sense of the Senate” that there shall be a “single, integrated carbon market oversight program” designed, among other things, to “ensure a well-functioning, well-regulated market, including a futures market, designed to manage risk and facilitate investment in emissions reductions. . . .”

It is unclear whether the Senate version will ultimately borrow broadly from the House version with respect to shared oversight between FERC and the CFTC, adopt the oversight proposed in a bill in July 2009 by Senators Dianne Feinstein and Olympia Snowe and give primary oversight responsibilities to the CFTC, or craft new oversight provisions.

Almost immediately after the September 30, 2009, draft was released, many Democratic legislators and environmental groups lined up in support of the bill.

While the timeline for the Kerry-Boxer bill remains somewhat unclear because of the current health care debate, many hope that climate change legislation will be passed this year.

Majority Leader Harry Reid (D-NV) recently expressed confidence that the Senate will pass some form of climate legislation before the United Nations Climate Change Conference in December 2009. A hearing on the Clean Energy, Jobs and American Power Act is scheduled for October 1, 2009, before the Senate Energy and Natural Resources Committee.


Kari S. Larsen is a partner in the law firm of McDermott Will & Emery LLP. She is a member of the Firm’s Energy and Derivatives Markets Practice Group, and co-founder of the firm’s Global Renewable Energy, Emissions and New (GREEN) Products Group, where she focuses her practice on transactional, regulatory and risk management matters relating to U.S. and EU commodity and energy markets, with a particular concentration on emissions allowance/offset and renewable energy sales, projects and trading. Ms. Larsen can be reached at 202-756-8374 or

Gregory K. Lawrence is a partner in the Energy and Derivatives Markets Group, resident in McDermott Will & Emery’s Boston office. Mr. Lawrence focuses his practice on regulatory proceedings, negotiations, governmental affairs and agency litigation. He also advises regarding energy and energy-related transactions. Mr. Lawrence can be reached at 617-535-4030 or

Stephen J. Snyder is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C. office. Stephen is a member of the Firm’s Energy and Derivatives Markets and Global Renewable Energy, Emissions and New Products Groups. Stephen’s practice focuses on representing energy and commodity companies, financial institutions and trade associations in a variety of transactional, regulatory and risk management matters. Mr. Snyder can be reached at 202 756 8094 or

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