I 

111TH CONGRESS 

1ST SESSION H. R. 1759 

To distribute emission allowances under a domestic cap-and-trade program 

to facilities in certain domestic energy-intensive industrial sectors and 

subsectors to prevent an increase in greenhouse gas emissions by manufacturing facilities located in countries without commensurate greenhouse 

gas regulation, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 26, 2009 

Mr. INSLEE (for himself and Mr. DOYLE) introduced the following bill; which 

was referred to the Committee on Energy and Commerce 

A BILL 

To distribute emission allowances under a domestic cap-andtrade program to facilities in certain domestic energyintensive industrial sectors and subsectors to prevent an 

increase in greenhouse gas emissions by manufacturing 

facilities located in countries without commensurate 

greenhouse gas regulation, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘EMPLOY Act’’ or the 

5 ‘‘Emission Migration Prevention with Long-term Output 

6 Yields Act’’. 


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1 SEC. 2. FINDINGS. 

2 The Congress finds the following: 

3 (1) All domestic and foreign industries should 

4 contribute to climate stabilization. 

5 (2) Domestic producers of certain energy-inten6 sive products subject to international competition 

7 present a unique challenge for United States climate 

8 policy because the increased costs associated with 

9 compliance may unintentionally cause domestic in10 dustry to divert new investments and production to 

11 facilities located in countries without commensurate 

12 greenhouse gas regulation. 

13 (3) Without exempting any industries, the 

14 United States must move forward with economy15 wide action on climate change while reducing incen16 tives for producers to relocate to unregulated coun17 tries, which could displace both jobs and emissions. 

18 (4) International agreements are the most ap19 propriate means to reduce emissions from energy-in20 tensive industries because unilateral domestic efforts 

21 to reduce greenhouse gas emissions could accelerate 

22 the relocation of energy-intensive manufacturing 

23 abroad. 

24 (5) Carbon leakage can be mitigated substan25 tially through the output-based distribution of emis26 sion allowances. 


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1 (6) Output-based emission allowance distribu2 tion is an appropriate temporary measure that 

3 should complement other targeted domestic and 

4 international policies and agreements meant to en5 courage United States trading partners to substan6 tially reduce global greenhouse gas emissions. 

7 SEC. 3. PURPOSES. 

8 The purposes of this Act are as follows: 

9 (1) To compensate the owners and operators of 

10 facilities in eligible domestic industrial sectors and 

11 subsectors for carbon emission costs incurred under 

12 any domestic cap-and-trade program. 

13 (2) To limit compensation to the owners and 

14 operators of facilities in eligible industrial sectors 

15 and subsectors to an amount of emission allowances 

16 that will prevent carbon leakage while also reward17 ing innovation and facility-level investments in en18 ergy efficiency performance improvements. 

19 (3) To provide compensation to the owners and 

20 operators of facilities in eligible industrial sectors 

21 and subsectors for both the direct and indirect costs 

22 of purchasing emission allowances needed for com23 pliance with a domestic cap-and-trade program, but 

24 not for costs associated with other related or unre25 lated market dynamics. 


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1 (4) To prevent carbon leakage resulting from 

2 direct and indirect compliance costs incurred under 

3 a domestic cap-and-trade program. 

4 (5) To eliminate or reduce emission allowance 

5 distribution under this Act when such distribution is 

6 no longer necessary to prevent carbon leakage from 

7 eligible sectors or subsectors. 

8 SEC. 4. DEFINITIONS. 

9 In this Act: 

10 (1) The term ‘‘Administrator’’ means the Ad11 ministrator of the Environmental Protection Agency. 

12 (2) The term ‘‘cap-and-trade program’’ means 

13 an economy-wide program enacted by Congress that 

14 distributes or auctions emission allowances for the 

15 control of greenhouse gas emissions under the Clean 

16 Air Act. 

17 (3) The term ‘‘carbon dioxide equivalent’’ 

18 means, for each greenhouse gas, the quantity of 

19 greenhouse gas that the Administrator determines 

20 makes the same contribution to global warming as 

21 1 metric ton of carbon dioxide. 

22 (4) The term ‘‘carbon leakage’’ means any sub23 stantial increase (as determined by the Adminis24 trator) in greenhouse gas emissions by manufac25 turing facilities located in countries without comVerDate Nov 24 2008 03:49 Mar 28, 2009 Jkt 079200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1759.IH H1759

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1 mensurate greenhouse gas regulation which increase 

2 is caused by an incremental cost of production in3 crease in the United States as a result of a domestic 

4 cap-and-trade program. 

5 (5) The term ‘‘covered facility’’ means, for each 

6 calendar year, a facility that emits greenhouse gases 

7 in that year and that has an obligation to submit 

8 emission allowances for such greenhouse gas emis9 sions under any cap-and-trade program. 

10 (6) The term ‘‘emission allowance’’ means an 

11 authorization, under any cap-and-trade program, to 

12 emit 1 carbon dioxide equivalent of greenhouse gas. 

13 (7) The term ‘‘facility’’ means 1 or more build14 ings, structures, or installations of an entity on 1 or 

15 more contiguous or adjacent properties located in 

16 the United States. 

17 (8) The term ‘‘greenhouse gas’’ means any gas 

18 designated as a greenhouse gas under a cap-and19 trade program. 

20 (9) The term ‘‘output’’ means the total tonnage 

21 or other standard unit of production (as determined 

22 by the Administrator) produced by a manufacturing 

23 facility. 


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1 (10) The term ‘‘vintage year’’ means the cal2 endar year for which an emission allowance is estab3 lished under a domestic cap-and-trade program. 

4 (11) The term ‘‘NAICS’’ means the 2007 

5 North American Industrial Classification System. 

6 SEC. 5. DISTRIBUTION OF EMISSION ALLOWANCES TO CER7 TAIN ENERGY-INTENSIVE MANUFACTURING 

8 FACILITIES. 

9 (a) DISTRIBUTION OF EMISSION ALLOWANCES.— 

10 (1) IN GENERAL.—The Administrator shall an11 nually distribute emission allowances, in amounts 

12 calculated under subsection (c), to the owners and 

13 operators of facilities in eligible industrial sectors 

14 and subsectors designated under subsection (b), sub15 ject to the maximum quantity limitation established 

16 under paragraph (2) of this subsection. 

17 (2) MAXIMUM.—The maximum quantity of 

18 emission allowances distributed under paragraph (1) 

19 each year shall equal 15 percent of the total quan20 tity of allowances distributed or auctioned during 

21 the first year under a cap-and-trade program for 

22 which allowances are required to be submitted under 

23 such program. If the total allowances calculated 

24 under subsection (c) exceed such maximum, the Ad25 ministrator shall reduce the amount distributed to 


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1 owners and operators under paragraph (1) on a pro 

2 rata basis. 

3 (b) ELIGIBLE INDUSTRIAL SECTORS AND SUBSEC4 TORS.— 

5 (1) IN GENERAL.—Not later than January 1, 

6 2011, the Administrator shall promulgate a rule des7 ignating, based on the criteria under paragraph (2), 

8 the industrial sectors and subsectors in which an 

9 owner or operator of a facility in such a sector or 

10 subsector may receive emission allowances under this 

11 Act. 

12 (2) PRESUMPTIVELY ELIGIBLE SECTORS AND

13 SUBSECTORS.—An owner or operator of a facility 

14 shall receive emission allowances under subsection 

15 (a) if such facility is in a sector or subsector that 

16 is included in a six-digit classification of the NAICS 

17 and that meets either the energy intensity criteria or 

18 greenhouse gas intensity criteria under subpara19 graph (A) (or both the energy intensity criteria and 

20 greenhouse gas criteria under subparagraph (A)) 

21 and the trade intensity criteria under subparagraph 

22 (B). The Administrator, in consultation with other 

23 Federal agencies, as appropriate, may rescind the 

24 eligibility of a sector or subsector only if the Admin25 istrator determines, after notice and opportunity for 


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1 public comment, that such sector or subsector does 

2 not meet the energy intensity criteria or the green3 house gas intensity criteria under subparagraph (A) 

4 and the trade intensity criteria under subparagraph 

5 (B), and such sector or subsector would not be sub6 ject to carbon leakage in the absence of the allow7 ance distribution under this section. 

8 (A) ENERGY INTENSITY OR GREENHOUSE

9 GAS INTENSITY.— 

10 (i) ENERGY INTENSITY.—The sector 

11 or subsector has an energy intensity of at 

12 least 5 percent, calculated by dividing the 

13 cost of the purchased electricity and fuel 

14 costs of the sector or subsector by the 

15 value of the shipments of the sector or 

16 subsector, based on data described in sub17 paragraph (C). 

18 (ii) GREENHOUSE GAS INTENSITY.— 

19 The sector or subsector has a greenhouse 

20 gas intensity of at least 5 percent, cal21 culated by dividing 40 times the tons of 

22 carbon dioxide equivalent greenhouse gas 

23 emissions (including direct emissions from 

24 fuel combustion, process emissions, and in25 direct emissions from the generation of 


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1 electricity used to produce output) of the 

2 sector or subsector by the value of the 

3 shipments of the sector or subsector, based 

4 on data described in subparagraph (C) 

5 from the most recent calendar year for 

6 which reliable data is available. When cal7 culating the greenhouse gas intensity, the 

8 Administrator may, to the extent nec9 essary, use economic and engineering mod10 els and the best available information on 

11 technology performance levels for such sec12 tor or subsector. 

13 (B) TRADE INTENSITY.—The sector or 

14 subsector has a trade intensity of at least 15 

15 percent, calculated by dividing the value of the 

16 total imports and exports of such sector or sub17 sector by the value of the shipments plus the 

18 value of imports of such sector or subsector, 

19 based on data described in subparagraph (C). 

20 (C) DATA SOURCES.— 

21 (i) ELECTRICITY AND FUEL COSTS, 

22 VALUE OF SHIPMENTS.—For purposes of 

23 this subsection, the Administrator shall de24 termine electricity and fuel costs and the 

25 value of shipments for data from years 


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1 2006, 2007, or 2008 from the United 

2 States Census of Mineral Industries and 

3 the United States Census Annual Survey 

4 of Manufacturers, or, if such data is un5 available, from data from the 2002 or 

6 2006 Energy Information Agency’s Manu7 facturing Energy Consumption Survey and 

8 the 2002 or 2007 Economic Census of the 

9 United States. The Administrator shall use 

10 data from the most detailed industrial clas11 sification level if such data is available. If 

12 data are unavailable for any sector or sub13 sector at the six-digit classification level in 

14 the NAICS, then the Administrator may 

15 extrapolate the information necessary to 

16 determine the eligibility of a sector or sub17 sector under this paragraph from available 

18 data pertaining to a broader industrial cat19 egory classified in the NAICS. 

20 (ii) IMPORTS AND EXPORTS.—For 

21 purposes of this subsection, the Adminis22 trator shall establish the value of imports 

23 and exports by using United States Inter24 national Trade Commission data. 


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1 (iii) PERCENTAGES.—The Adminis2 trator shall round the energy intensity and 

3 greenhouse gas intensity percentages under 

4 subparagraph (A) and the trade intensity 

5 percentage under subparagraph (B) to the 

6 nearest whole number. 

7 (iv) GREENHOUSE GAS INTENSITY

8 DATA.—To determine greenhouse gas in9 tensity under subparagraph (A), the Ad10 ministrator may use the Bureau of Eco11 nomic Analysis Benchmark Input-Output 

12 Accounts or the 2002 or 2006 Energy In13 formation Agency’s Manufacturing Energy 

14 Consumption Survey. The Administrator 

15 shall use emissions data from a United 

16 States Registry of Greenhouse Gas Emis17 sions for the purposes of determining eligi18 bility under this subsection when such data 

19 becomes available. 

20 (v) METAL PRODUCTION CLASSIFIED

21 UNDER MORE THAN ONE NAICS CODE.—In 

22 determining eligibility under this sub23 section, the Administrator shall— 

24 (I) aggregate data for the 

25 beneficiation or other processing of 


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1 metal ores with subsequent steps in 

2 the process of metal manufacturing 

3 regardless of the NAICS code under 

4 which such activity is classified; and 

5 (II) aggregate data for the man6 ufacturing of steel with the manufac7 turing of steel pipe and tube made 

8 from purchased steel in a non-inte9 grated process. 

10 (3) INDIVIDUAL SHOWING.—Regardless of the 

11 section of the NAICS code under which a sector or 

12 subsector is classified, the owners or operators of a 

13 manufacturing facility (or facilities) in such sector 

14 or subsector shall receive emission allowances under 

15 subsection (a) if sufficient evidence exists, from 

16 sources other than, and in addition to, those de17 scribed in paragraph (2), that such facility (or facili18 ties) meets either the energy intensity criteria or the 

19 greenhouse gas intensity criteria (or both the energy 

20 intensity criteria and the greenhouse gas intensity 

21 criteria) and the trade intensity criteria under para22 graph (2). For the purposes of this paragraph, the 

23 Administrator may accept data submitted by the 

24 owners or operators of a manufacturing facility (or 

25 facilities). 


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1 (4) ADMINISTRATIVE DETERMINATION OF ADDI2 TIONAL ELIGIBLE SECTORS OR SUBSECTORS.—Any 

3 person may petition the Administrator to designate 

4 as eligible under this subsection any sector or sub5 sector that does not meet the criteria under para6 graph (2) or (3) but demonstrates to the satisfaction 

7 of the Administrator that it is subject to carbon 

8 leakage, comparable to that of sectors or subsectors 

9 that meet the criteria under paragraphs (2) or (3). 

10 In determining whether a sector or subsector is sub11 ject to carbon leakage, the Administrator, in con12 sultation with other Federal agencies, as appro13 priate, shall take into account, in addition to the 

14 sector or subsector’s energy intensity, greenhouse 

15 gas intensity, and trade intensity, as calculated 

16 under paragraph (2), each of the following: 

17 (A) The potential for greater foreign 

18 sourcing of production or services and the effect 

19 of international competition on domestic pro20 duction. 

21 (B) The effect of international markets on 

22 product pricing. 

23 (C) The potential for net imports to in24 crease or exports to decrease (resulting in a loss 

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1 ers to manufacturers located in other countries) 

2 caused by the direct and indirect compliance 

3 costs under a domestic cap-and-trade program. 

4 (D) The state of international negotiations, 

5 agreements, and activities to reduce global 

6 greenhouse gas emissions. 

7 (c) CALCULATION OF ALLOWANCES.— 

8 (1) COVERED FACILITIES.—Except as provided 

9 in subsection (a)(2), the quantity of emission allow10 ances distributed by the Administrator under this 

11 section for a calendar year to the owner or operator 

12 of a covered facility shall be equal to the sum of the 

13 facility’s direct compliance allowance factor and the 

14 facility’s indirect carbon allowance factor. Calcula15 tions under this paragraph shall be based on the av16 erage of data from the calendar years that are 2 and 

17 3 calendar years prior to the calendar year of dis18 tribution. For purposes of determining such 

19 amounts for each calendar year: 

20 (A) DIRECT COMPLIANCE ALLOWANCE

21 FACTOR.—The direct compliance allowance fac22 tor for a facility for a calendar year is the prod23 uct of— 

24 (i) the output of the facility; and 


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1 (ii) 85 percent of the average tonnage 

2 (adjusted on a carbon dioxide equivalency 

3 basis) of greenhouse gas emissions per unit 

4 of output for all facilities in the sector or 

5 subsector, as determined by the Adminis6 trator based on reports provided under 

7 subparagraph (C). 

8 (B) INDIRECT CARBON ALLOWANCE FAC9 TOR.—The indirect carbon allowance factor for 

10 a facility for a calendar year is the product ob11 tained by multiplying the total output of the fa12 cility by the fraction set forth in clause (i) (the 

13 emissions intensity factor) and the fraction set 

14 forth in clause (ii) (the electricity efficiency fac15 tor) for the year concerned. 

16 (i) EMISSIONS INTENSITY FACTOR.— 

17 (I) REGULATED ELECTRICITY

18 MARKETS.—In a regulated electricity 

19 market, the emissions intensity factor 

20 is the average tonnage (adjusted on a 

21 carbon dioxide equivalency basis) of 

22 greenhouse gas emissions per kilowatt 

23 hour of the electricity purchased by 

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1 istrator based on reports provided 

2 under subparagraph (D). 

3 (II) WHOLESALE COMPETITIVE

4 ELECTRICITY MARKETS.—In a whole5 sale competitive electricity market, the 

6 emissions intensity factor is the aver7 age tonnage (adjusted on a carbon di8 oxide equivalency basis) of greenhouse 

9 gas emissions per kilowatt hour of the 

10 marginal source of supply of elec11 tricity purchased by the facility, as de12 termined by the Administrator based 

13 on reports provided under subpara14 graph (D). 

15 (ii) ELECTRICITY EFFICIENCY FAC16 TOR.—The electricity efficiency factor is 

17 85 percent of the average amount of elec18 tricity (in kilowatt hours) used per unit of 

19 output for all facilities in the sector or sub20 sector concerned, as determined by the Ad21 ministrator based on reports provided 

22 under subparagraph (C). 

23 (C) REPORT TO ADMINISTRATOR.—Each 

24 owner or operator of a facility in any sector or 

25 subsector designated under subsection (b) and 


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1 each department, agency, and instrumentality 

2 of the United States shall provide the Adminis3 trator with such information as the Adminis4 trator finds necessary to determine the direct 

5 compliance allowance factor and the indirect 

6 carbon allowance factor for each facility subject 

7 to this section. 

8 (D) GREENHOUSE GASES FROM ELEC9 TRICITY.—Each person selling electricity to the 

10 owner or operator of a facility in any sector or 

11 subsector designated under subsection (b) shall 

12 provide the owner or operator of the facility and 

13 the Administrator, on a quarterly basis, such 

14 information as is required to determine the 

15 emissions intensity factor under subparagraph 

16 (B)(i). 

17 (E) EMISSIONS INTENSITY FACTOR RE18 DUCTION.—In calculating the average tonnage 

19 (adjusted on a carbon dioxide equivalency basis) 

20 of greenhouse gas emissions for the numerator 

21 of the emissions intensity factor under subpara22 graph (B)(i), the Administrator shall reduce the 

23 actual, total tonnage (adjusted on a carbon di24 oxide equivalency basis) used by the tonnage of 

25 allowances the Administrator determines are 


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1 distributed at no cost under any cap-and-trade 

2 program to the person making the sale of elec3 tricity and are used by such person to prevent 

4 electricity rate increases to the owner or oper5 ator of the facility. 

6 (F) IRON AND STEEL SECTOR OR SUBSEC7 TORS.—For the purposes of determining the 

8 quantity of emission allowances to be distrib9 uted under this section to the owner or operator 

10 of any iron and steel manufacturing facility in 

11 a sector or subsector designated under sub12 section (b), the Administrator shall consider as 

13 in different sectors and subsectors facilities 

14 using integrated iron and steelmaking tech15 nologies (including coke ovens, blast furnaces, 

16 and other iron-making technologies) and facili17 ties using electric arc furnace technologies when 

18 calculating sector or subsector averages under 

19 subparagraphs (A) and (B). 

20 (2) OTHER ELIGIBLE ENTITIES.—The quantity 

21 of emission allowances distributed by the Adminis22 trator for a calendar year to an owner or operator 

23 of a facility in an eligible industrial sector or sub24 sector that is not a covered facility shall be equal to 

25 the indirect carbon allowance factor for the facility, 


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1 as determined under paragraph (1)(B). Calculations 

2 under this paragraph shall be based on the average 

3 of data from the calendar years that are 2 and 3 

4 calendar years prior to the calendar year of distribu5 tion. 

6 (3) INITIAL YEARS OF OPERATION.—The Ad7 ministrator shall issue regulations governing the dis8 tribution of emission allowances to a facility entitled 

9 to emission allowances under this Act for such facili10 ty’s first and second years of operation. These regu11 lations shall provide for— 

12 (A) the distribution of emission allowances 

13 to such facilities based on comparable facilities 

14 in the same sector or subsector; and 

15 (B) an adjustment in the third year of op16 eration to reconcile the total quantity of emis17 sion allowances received during the first and 

18 second years of operation to the quantity the 

19 facility would have received during the first and 

20 second years of operation had the appropriate 

21 data been available. 

22 SEC. 6. REPORTS TO CONGRESS. 

23 Not later than one year after the first year in which 

24 allowances are distributed pursuant to this Act, and at 

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1 sultation with other Federal agencies, as appropriate, shall 

2 transmit to Congress a report on the carbon leakage of 

3 domestic industrial manufacturers and the effectiveness of 

4 the distribution of emission allowances under section 5 in 

5 achieving the purposes of this Act. Such reports shall in6 clude recommendations on how to better achieve the pur7 poses of this Act. 

8 SEC. 7. MODIFICATION OR ELIMINATION OF DISTRIBUTION 

9 OF ALLOWANCES TO ENERGY-INTENSIVE 

10 MANUFACTURING FACILITIES. 

11 (a) ANNUAL PHASE DOWN SUBJECT TO REVIEW.— 

12 (1) REDUCTION.—Subject to paragraph (2), be13 ginning in calendar year 2026, and in each calendar 

14 year thereafter, the Administrator shall reduce, on a 

15 pro-rata basis, the amount of emission allowances 

16 distributed under this Act by an amount equal to 10 

17 percent of the amount of emission allowances dis18 tributed in calendar year 2025. 

19 (2) REVIEW.—If the Administrator, in con20 sultation with other Federal agencies, as appro21 priate, determines that less than 90 percent of the 

22 global output from a sector or subsector is manufac23 tured in countries subject to commensurate green24 house gas regulation, then the Administrator shall, 

25 by rule, eliminate the reduction under paragraph 


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1 (1). The Administrator may eliminate the reduction 

2 under paragraph (1) for individual sectors or aggre3 gates of sectors and subsectors, as appropriate. In 

4 making such determination, the Administrator shall 

5 consider a country to have commensurate green6 house gas regulation if— 

7 (A) such country’s annual greenhouse gas 

8 intensity or energy intensity (as described in 

9 section (5)(b)) for a sector or subsector is less 

10 than the greenhouse gas intensity or energy in11 tensity for such sector or subsector in the 

12 United States in the most recent calendar year 

13 for which reliable data are available; and 

14 (B) such country has implemented policies, 

15 including cap-and-trade systems, export tariffs, 

16 electricity generation regulations, and green17 house gas emission fees, that individually or col18 lectively impose a incremental cost of produc19 tion increase associated with greenhouse gas 

20 emissions from a sector or subsector that is at 

21 least 70 percent of the cost of complying with 

22 a domestic cap-and-trade program in the 

23 United States for comparable facilities in the 

24 same sector or subsector, averaged over a two 

25 year period. 


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1 (b) PRESIDENTIAL DETERMINATION AND MODIFICA2 TION.—Notwithstanding subsection (a), if the President 

3 determines that other countries have taken actions that 

4 have substantially mitigated the risk that companies in a 

5 particular sector or subsector will reduce existing or not 

6 initiate new production in the same sector or subsector 

7 in the United States due to the costs of complying with 

8 a domestic cap-and-trade program, then the President 

9 shall so notify the Administrator. Upon such notification, 

10 the Administrator, in consultation with other Federal 

11 agencies, as appropriate, shall by rule reduce the amount 

12 of emission allowances distributed under this Act to reflect 

13 the reduced risk. The Administrator shall take no action 

14 under this subsection unless the Administrator deter15 mines, by clear and convincing evidence, such risk has 

16 been reduced. No reduction in the distribution of emission 

17 allowances under this paragraph shall be effective before 

18 January 1, 2020. 

19 SEC. 8. CESSATION OF QUALIFYING ACTIVITIES. 

20 If, as determined by the Administrator, a facility is 

21 no longer in an eligible sector or subsector designated 

22 under section 5(b)— 

23 (1) the Administrator shall not distribute emis24 sion allowances to the owner or operator of such fa25 cility under this Act; and 


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1 (2) the owner or operator of such facility shall 

2 return to the Administrator all allowances that have 

3 been distributed to it for future vintage years and 

4 the number of emission allowances equal to the 

5 product of— 

6 (A) the number of emission allowances dis7 tributed to the facility under this Act for the 

8 vintage year in which the facility ceases to be 

9 in an eligible sector or subsector designated 

10 under section 5(b); and 

11 (B) one-twelfth of the number of months 

12 that the facility or entity was in an eligible sec13 tor or subsector designated under section 5(b). 

Æ 


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