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S2191 (Lieberman/Warner) was voted out of the Senate Energy and Public Works Committee on December 5, 2007. Support for it reflected a significantly regional quartet: Boxer (CA), Baucus (MT (Western Coal)), Warner (VA (Eastern Coal)) and Lieberman (CT). Except for Warner, the Republicans voted against it, forecasting tough sledding if it reaches the White House. Selected issues are as follows:

Allocation of emission credits: A major issue is how to determine who gets what emission credits. One option would be giving them to current green house gas (GHG) emitters. A second choice would be auctioning them off. In 2012, the first effective year, S2191 allocates 34% free to industrial facilities, 22.5% to be auctioned off, with the balance going to states to encourage offsets and sequestration. In 2031, 73% of the allowances to be auctioned and free distribution would end.

Point of Regulation: If GHGs are to be mitigated with offsets or credits, the question is where in the stream of production and use this should occur. One choice is where they are originally produced (upstream). Another choice is the point where the product is used (downstream). For example, if coal is used to produce electricity, one could regulate the GHG at the coal mine, at the electricity generator level or at the consumer level. The choice in S2121 for coal-generated electricity is deemed to be best at the utility or generator level.

Impacts: Models have been used to determine which regulatory schemes impact what groups. Industries, low income people, states and other groups can be impacted differently.

Cost containment: If the proposed system gets out of hand, there is discussion of a cost containment mechanism with a "safety valve." S2121 proposes a "Carbon Market Efficiency Board" to keep track of impacts and intervene in the system if necessary.

Preemption: Because of the huge impact the GHG regulating system may have on the economy, there is extensive discussion about the need for federal preemption. Two existing models are the environmental regulation system where there is no preemption and the energy regulation system where there is increasing FERC preemption (e.g., LNG siting and transmission corridors). S2121 does not try to preempt the state systems, such as the Western Climate Initiative, but rather tries to work with them.

International competitiveness: Under S2121, the US would help with technology and allowances and punish with tariffs to encourage international economic compliance with GHG- reduction objectives.

For questions or more information contact Steve at srs@bhlaw.com.