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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1759 Introduced in House (IH)]

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-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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``EMPLOY Act'' or the ``Emission 
Migration Prevention with Long-term Output Yields Act''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) All domestic and foreign industries should contribute 
        to climate stabilization.
            (2) Domestic producers of certain energy-intensive products 
        subject to international competition present a unique challenge 
        for United States climate policy because the increased costs 
        associated with compliance may unintentionally cause domestic 
        industry to divert new investments and production to facilities 
        located in countries without commensurate greenhouse gas 
        regulation.
            (3) Without exempting any industries, the United States 
        must move forward with economy-wide action on climate change 
        while reducing incentives for producers to relocate to 
        unregulated countries, which could displace both jobs and 
        emissions.
            (4) International agreements are the most appropriate means 
        to reduce emissions from energy-intensive industries because 
        unilateral domestic efforts to reduce greenhouse gas emissions 
        could accelerate the relocation of energy-intensive 
        manufacturing abroad.
            (5) Carbon leakage can be mitigated substantially through 
        the output-based distribution of emission allowances.
            (6) Output-based emission allowance distribution is an 
        appropriate temporary measure that should complement other 
        targeted domestic and international policies and agreements 
        meant to encourage United States trading partners to 
        substantially reduce global greenhouse gas emissions.

SEC. 3. PURPOSES.

    The purposes of this Act are as follows:
            (1) To compensate the owners and operators of facilities in 
        eligible domestic industrial sectors and subsectors for carbon 
        emission costs incurred under any domestic cap-and-trade 
        program.
            (2) To limit compensation to the owners and operators of 
        facilities in eligible industrial sectors and subsectors to an 
        amount of emission allowances that will prevent carbon leakage 
        while also rewarding innovation and facility-level investments 
        in energy efficiency performance improvements.
            (3) To provide compensation to the owners and operators of 
        facilities in eligible industrial sectors and subsectors for 
        both the direct and indirect costs of purchasing emission 
        allowances needed for compliance with a domestic cap-and-trade 
        program, but not for costs associated with other related or 
        unrelated market dynamics.
            (4) To prevent carbon leakage resulting from direct and 
        indirect compliance costs incurred under a domestic cap-and-
        trade program.
            (5) To eliminate or reduce emission allowance distribution 
        under this Act when such distribution is no longer necessary to 
        prevent carbon leakage from eligible sectors or subsectors.

SEC. 4. DEFINITIONS.

    In this Act:
            (1) The term ``Administrator'' means the Administrator of 
        the Environmental Protection Agency.
            (2) The term ``cap-and-trade program'' means an economy-
        wide program enacted by Congress that distributes or auctions 
        emission allowances for the control of greenhouse gas emissions 
        under the Clean Air Act.
            (3) The term ``carbon dioxide equivalent'' means, for each 
        greenhouse gas, the quantity of greenhouse gas that the 
        Administrator determines makes the same contribution to global 
        warming as 1 metric ton of carbon dioxide.
            (4) The term ``carbon leakage'' means any substantial 
        increase (as determined by the Administrator) in greenhouse gas 
        emissions by manufacturing facilities located in countries 
        without commensurate greenhouse gas regulation which increase 
        is caused by an incremental cost of production increase in the 
        United States as a result of a domestic cap-and-trade program.
            (5) The term ``covered facility'' means, for each calendar 
        year, a facility that emits greenhouse gases in that year and 
        that has an obligation to submit emission allowances for such 
        greenhouse gas emissions under any cap-and-trade program.
            (6) The term ``emission allowance'' means an authorization, 
        under any cap-and-trade program, to emit 1 carbon dioxide 
        equivalent of greenhouse gas.
            (7) The term ``facility'' means 1 or more buildings, 
        structures, or installations of an entity on 1 or more 
        contiguous or adjacent properties located in the United States.
            (8) The term ``greenhouse gas'' means any gas designated as 
        a greenhouse gas under a cap-and-trade program.
            (9) The term ``output'' means the total tonnage or other 
        standard unit of production (as determined by the 
        Administrator) produced by a manufacturing facility.
            (10) The term ``vintage year'' means the calendar year for 
        which an emission allowance is established under a domestic 
        cap-and-trade program.
            (11) The term ``NAICS'' means the 2007 North American 
        Industrial Classification System.

SEC. 5. DISTRIBUTION OF EMISSION ALLOWANCES TO CERTAIN ENERGY-INTENSIVE 
              MANUFACTURING FACILITIES.

    (a) Distribution of Emission Allowances.--
            (1) In general.--The Administrator shall annually 
        distribute emission allowances, in amounts calculated under 
        subsection (c), to the owners and operators of facilities in 
        eligible industrial sectors and subsectors designated under 
        subsection (b), subject to the maximum quantity limitation 
        established under paragraph (2) of this subsection.
            (2) Maximum.--The maximum quantity of emission allowances 
        distributed under paragraph (1) each year shall equal 15 
        percent of the total quantity of allowances distributed or 
        auctioned during the first year under a cap-and-trade program 
        for which allowances are required to be submitted under such 
        program. If the total allowances calculated under subsection 
        (c) exceed such maximum, the Administrator shall reduce the 
        amount distributed to owners and operators under paragraph (1) 
        on a pro rata basis.
    (b) Eligible Industrial Sectors and Subsectors.--
            (1) In general.--Not later than January 1, 2011, the 
        Administrator shall promulgate a rule designating, based on the 
        criteria under paragraph (2), the industrial sectors and 
        subsectors in which an owner or operator of a facility in such 
        a sector or subsector may receive emission allowances under 
        this Act.
            (2) Presumptively eligible sectors and subsectors.--An 
        owner or operator of a facility shall receive emission 
        allowances under subsection (a) if such facility is in a sector 
        or subsector that is included in a six-digit classification of 
        the NAICS and that meets either the energy intensity criteria 
        or greenhouse gas intensity criteria under subparagraph (A) (or 
        both the energy intensity criteria and greenhouse gas criteria 
        under subparagraph (A)) and the trade intensity criteria under 
        subparagraph (B). The Administrator, in consultation with other 
        Federal agencies, as appropriate, may rescind the eligibility 
        of a sector or subsector only if the Administrator determines, 
        after notice and opportunity for public comment, that such 
        sector or subsector does not meet the energy intensity criteria 
        or the greenhouse gas intensity criteria under subparagraph (A) 
        and the trade intensity criteria under subparagraph (B), and 
        such sector or subsector would not be subject to carbon leakage 
        in the absence of the allowance distribution under this 
        section.
                    (A) Energy intensity or greenhouse gas intensity.--
                            (i) Energy intensity.--The sector or 
                        subsector has an energy intensity of at least 5 
                        percent, calculated by dividing the cost of the 
                        purchased electricity and fuel costs of the 
                        sector or subsector by the value of the 
                        shipments of the sector or subsector, based on 
                        data described in subparagraph (C).
                            (ii) Greenhouse gas intensity.--The sector 
                        or subsector has a greenhouse gas intensity of 
                        at least 5 percent, calculated by dividing 40 
                        times the tons of carbon dioxide equivalent 
                        greenhouse gas emissions (including direct 
                        emissions from fuel combustion, process 
                        emissions, and indirect emissions from the 
                        generation of electricity used to produce 
                        output) of the sector or subsector by the value 
                        of the shipments of the sector or subsector, 
                        based on data described in subparagraph (C) 
                        from the most recent calendar year for which 
                        reliable data is available. When calculating 
                        the greenhouse gas intensity, the Administrator 
                        may, to the extent necessary, use economic and 
                        engineering models and the best available 
                        information on technology performance levels 
                        for such sector or subsector.
                    (B) Trade intensity.--The sector or subsector has a 
                trade intensity of at least 15 percent, calculated by 
                dividing the value of the total imports and exports of 
                such sector or subsector by the value of the shipments 
                plus the value of imports of such sector or subsector, 
                based on data described in subparagraph (C).
                    (C) Data sources.--
                            (i) Electricity and fuel costs, value of 
                        shipments.--For purposes of this subsection, 
                        the Administrator shall determine electricity 
                        and fuel costs and the value of shipments for 
                        data from years 2006, 2007, or 2008 from the 
                        United States Census of Mineral Industries and 
                        the United States Census Annual Survey of 
                        Manufacturers, or, if such data is unavailable, 
                        from data from the 2002 or 2006 Energy 
                        Information Agency's Manufacturing Energy 
                        Consumption Survey and the 2002 or 2007 
                        Economic Census of the United States. The 
                        Administrator shall use data from the most 
                        detailed industrial classification level if 
                        such data is available. If data are unavailable 
                        for any sector or subsector at the six-digit 
                        classification level in the NAICS, then the 
                        Administrator may extrapolate the information 
                        necessary to determine the eligibility of a 
                        sector or subsector under this paragraph from 
                        available data pertaining to a broader 
                        industrial category classified in the NAICS.
                            (ii) Imports and exports.--For purposes of 
                        this subsection, the Administrator shall 
                        establish the value of imports and exports by 
                        using United States International Trade 
                        Commission data.
                            (iii) Percentages.--The Administrator shall 
                        round the energy intensity and greenhouse gas 
                        intensity percentages under subparagraph (A) 
                        and the trade intensity percentage under 
                        subparagraph (B) to the nearest whole number.
                            (iv) Greenhouse gas intensity data.--To 
                        determine greenhouse gas intensity under 
                        subparagraph (A), the Administrator may use the 
                        Bureau of Economic Analysis Benchmark Input-
                        Output Accounts or the 2002 or 2006 Energy 
                        Information Agency's Manufacturing Energy 
                        Consumption Survey. The Administrator shall use 
                        emissions data from a United States Registry of 
                        Greenhouse Gas Emissions for the purposes of 
                        determining eligibility under this subsection 
                        when such data becomes available.
                            (v) Metal production classified under more 
                        than one naics code.--In determining 
                        eligibility under this subsection, the 
                        Administrator shall--
                                    (I) aggregate data for the 
                                beneficiation or other processing of 
                                metal ores with subsequent steps in the 
                                process of metal manufacturing 
                                regardless of the NAICS code under 
                                which such activity is classified; and
                                    (II) aggregate data for the 
                                manufacturing of steel with the 
                                manufacturing of steel pipe and tube 
                                made from purchased steel in a non-
                                integrated process.
            (3) Individual showing.--Regardless of the section of the 
        NAICS code under which a sector or subsector is classified, the 
        owners or operators of a manufacturing facility (or facilities) 
        in such sector or subsector shall receive emission allowances 
        under subsection (a) if sufficient evidence exists, from 
        sources other than, and in addition to, those described in 
        paragraph (2), that such facility (or facilities) meets either 
        the energy intensity criteria or the greenhouse gas intensity 
        criteria (or both the energy intensity criteria and the 
        greenhouse gas intensity criteria) and the trade intensity 
        criteria under paragraph (2). For the purposes of this 
        paragraph, the Administrator may accept data submitted by the 
        owners or operators of a manufacturing facility (or 
        facilities).
            (4) Administrative determination of additional eligible 
        sectors or subsectors.--Any person may petition the 
        Administrator to designate as eligible under this subsection 
        any sector or subsector that does not meet the criteria under 
        paragraph (2) or (3) but demonstrates to the satisfaction of 
        the Administrator that it is subject to carbon leakage, 
        comparable to that of sectors or subsectors that meet the 
        criteria under paragraphs (2) or (3). In determining whether a 
        sector or subsector is subject to carbon leakage, the 
        Administrator, in consultation with other Federal agencies, as 
        appropriate, shall take into account, in addition to the sector 
        or subsector's energy intensity, greenhouse gas intensity, and 
        trade intensity, as calculated under paragraph (2), each of the 
        following:
                    (A) The potential for greater foreign sourcing of 
                production or services and the effect of international 
                competition on domestic production.
                    (B) The effect of international markets on product 
                pricing.
                    (C) The potential for net imports to increase or 
                exports to decrease (resulting in a loss of market 
                share held by domestic manufacturers to manufacturers 
                located in other countries) caused by the direct and 
                indirect compliance costs under a domestic cap-and-
                trade program.
                    (D) The state of international negotiations, 
                agreements, and activities to reduce global greenhouse 
                gas emissions.
    (c) Calculation of Allowances.--
            (1) Covered facilities.--Except as provided in subsection 
        (a)(2), the quantity of emission allowances distributed by the 
        Administrator under this section for a calendar year to the 
        owner or operator of a covered facility shall be equal to the 
        sum of the facility's direct compliance allowance factor and 
        the facility's indirect carbon allowance factor. Calculations 
        under this paragraph shall be based on the average of data from 
        the calendar years that are 2 and 3 calendar years prior to the 
        calendar year of distribution. For purposes of determining such 
        amounts for each calendar year:
                    (A) Direct compliance allowance factor.--The direct 
                compliance allowance factor for a facility for a 
                calendar year is the product of--
                            (i) the output of the facility; and
                            (ii) 85 percent of the average tonnage 
                        (adjusted on a carbon dioxide equivalency 
                        basis) of greenhouse gas emissions per unit of 
                        output for all facilities in the sector or 
                        subsector, as determined by the Administrator 
                        based on reports provided under subparagraph 
                        (C).
                    (B) Indirect carbon allowance factor.--The indirect 
                carbon allowance factor for a facility for a calendar 
                year is the product obtained by multiplying the total 
                output of the facility by the fraction set forth in 
                clause (i) (the emissions intensity factor) and the 
                fraction set forth in clause (ii) (the electricity 
                efficiency factor) for the year concerned.
                            (i) Emissions intensity factor.--
                                    (I) Regulated electricity 
                                markets.--In a regulated electricity 
                                market, the emissions intensity factor 
                                is the average tonnage (adjusted on a 
                                carbon dioxide equivalency basis) of 
                                greenhouse gas emissions per kilowatt 
                                hour of the electricity purchased by 
                                the facility, as determined by 
                                Administrator based on reports provided 
                                under subparagraph (D).
                                    (II) Wholesale competitive 
                                electricity markets.--In a wholesale 
                                competitive electricity market, the 
                                emissions intensity factor is the 
                                average tonnage (adjusted on a carbon 
                                dioxide equivalency basis) of 
                                greenhouse gas emissions per kilowatt 
                                hour of the marginal source of supply 
                                of electricity purchased by the 
                                facility, as determined by the 
                                Administrator based on reports provided 
                                under subparagraph (D).
                            (ii) Electricity efficiency factor.--The 
                        electricity efficiency factor is 85 percent of 
                        the average amount of electricity (in kilowatt 
                        hours) used per unit of output for all 
                        facilities in the sector or subsector 
                        concerned, as determined by the Administrator 
                        based on reports provided under subparagraph 
                        (C).
                    (C) Report to administrator.--Each owner or 
                operator of a facility in any sector or subsector 
                designated under subsection (b) and each department, 
                agency, and instrumentality of the United States shall 
                provide the Administrator with such information as the 
                Administrator finds necessary to determine the direct 
                compliance allowance factor and the indirect carbon 
                allowance factor for each facility subject to this 
                section.
                    (D) Greenhouse gases from electricity.--Each person 
                selling electricity to the owner or operator of a 
                facility in any sector or subsector designated under 
                subsection (b) shall provide the owner or operator of 
                the facility and the Administrator, on a quarterly 
                basis, such information as is required to determine the 
                emissions intensity factor under subparagraph (B)(i).
                    (E) Emissions intensity factor reduction.--In 
                calculating the average tonnage (adjusted on a carbon 
                dioxide equivalency basis) of greenhouse gas emissions 
                for the numerator of the emissions intensity factor 
                under subparagraph (B)(i), the Administrator shall 
                reduce the actual, total tonnage (adjusted on a carbon 
                dioxide equivalency basis) used by the tonnage of 
                allowances the Administrator determines are distributed 
                at no cost under any cap-and-trade program to the 
                person making the sale of electricity and are used by 
                such person to prevent electricity rate increases to 
                the owner or operator of the facility.
                    (F) Iron and steel sector or subsectors.--For the 
                purposes of determining the quantity of emission 
                allowances to be distributed under this section to the 
                owner or operator of any iron and steel manufacturing 
                facility in a sector or subsector designated under 
                subsection (b), the Administrator shall consider as in 
                different sectors and subsectors facilities using 
                integrated iron and steelmaking technologies (including 
                coke ovens, blast furnaces, and other iron-making 
                technologies) and facilities using electric arc furnace 
                technologies when calculating sector or subsector 
                averages under subparagraphs (A) and (B).
            (2) Other eligible entities.--The quantity of emission 
        allowances distributed by the Administrator for a calendar year 
        to an owner or operator of a facility in an eligible industrial 
        sector or subsector that is not a covered facility shall be 
        equal to the indirect carbon allowance factor for the facility, 
        as determined under paragraph (1)(B). Calculations under this 
        paragraph shall be based on the average of data from the 
        calendar years that are 2 and 3 calendar years prior to the 
        calendar year of distribution.
            (3) Initial years of operation.--The Administrator shall 
        issue regulations governing the distribution of emission 
        allowances to a facility entitled to emission allowances under 
        this Act for such facility's first and second years of 
        operation. These regulations shall provide for--
                    (A) the distribution of emission allowances to such 
                facilities based on comparable facilities in the same 
                sector or subsector; and
                    (B) an adjustment in the third year of operation to 
                reconcile the total quantity of emission allowances 
                received during the first and second years of operation 
                to the quantity the facility would have received during 
                the first and second years of operation had the 
                appropriate data been available.

SEC. 6. REPORTS TO CONGRESS.

    Not later than one year after the first year in which allowances 
are distributed pursuant to this Act, and at least every two years 
thereafter, the Administrator, in consultation with other Federal 
agencies, as appropriate, shall transmit to Congress a report on the 
carbon leakage of domestic industrial manufacturers and the 
effectiveness of the distribution of emission allowances under section 
5 in achieving the purposes of this Act. Such reports shall include 
recommendations on how to better achieve the purposes of this Act.

SEC. 7. MODIFICATION OR ELIMINATION OF DISTRIBUTION OF ALLOWANCES TO 
              ENERGY-INTENSIVE MANUFACTURING FACILITIES.

    (a) Annual Phase Down Subject to Review.--
            (1) Reduction.--Subject to paragraph (2), beginning in 
        calendar year 2026, and in each calendar year thereafter, the 
        Administrator shall reduce, on a pro-rata basis, the amount of 
        emission allowances distributed under this Act by an amount 
        equal to 10 percent of the amount of emission allowances 
        distributed in calendar year 2025.
            (2) Review.--If the Administrator, in consultation with 
        other Federal agencies, as appropriate, determines that less 
        than 90 percent of the global output from a sector or subsector 
        is manufactured in countries subject to commensurate greenhouse 
        gas regulation, then the Administrator shall, by rule, 
        eliminate the reduction under paragraph (1). The Administrator 
        may eliminate the reduction under paragraph (1) for individual 
        sectors or aggregates of sectors and subsectors, as 
        appropriate. In making such determination, the Administrator 
        shall consider a country to have commensurate greenhouse gas 
        regulation if--
                    (A) such country's annual greenhouse gas intensity 
                or energy intensity (as described in section (5)(b)) 
                for a sector or subsector is less than the greenhouse 
                gas intensity or energy intensity for such sector or 
                subsector in the United States in the most recent 
                calendar year for which reliable data are available; 
                and
                    (B) such country has implemented policies, 
                including cap-and-trade systems, export tariffs, 
                electricity generation regulations, and greenhouse gas 
                emission fees, that individually or collectively impose 
                a incremental cost of production increase associated 
                with greenhouse gas emissions from a sector or 
                subsector that is at least 70 percent of the cost of 
                complying with a domestic cap-and-trade program in the 
                United States for comparable facilities in the same 
                sector or subsector, averaged over a two year period.
    (b) Presidential Determination and Modification.--Notwithstanding 
subsection (a), if the President determines that other countries have 
taken actions that have substantially mitigated the risk that companies 
in a particular sector or subsector will reduce existing or not 
initiate new production in the same sector or subsector in the United 
States due to the costs of complying with a domestic cap-and-trade 
program, then the President shall so notify the Administrator. Upon 
such notification, the Administrator, in consultation with other 
Federal agencies, as appropriate, shall by rule reduce the amount of 
emission allowances distributed under this Act to reflect the reduced 
risk. The Administrator shall take no action under this subsection 
unless the Administrator determines, by clear and convincing evidence, 
such risk has been reduced. No reduction in the distribution of 
emission allowances under this paragraph shall be effective before 
January 1, 2020.

SEC. 8. CESSATION OF QUALIFYING ACTIVITIES.

    If, as determined by the Administrator, a facility is no longer in 
an eligible sector or subsector designated under section 5(b)--
            (1) the Administrator shall not distribute emission 
        allowances to the owner or operator of such facility under this 
        Act; and
            (2) the owner or operator of such facility shall return to 
        the Administrator all allowances that have been distributed to 
        it for future vintage years and the number of emission 
        allowances equal to the product of--
                    (A) the number of emission allowances distributed 
                to the facility under this Act for the vintage year in 
                which the facility ceases to be in an eligible sector 
                or subsector designated under section 5(b); and
                    (B) one-twelfth of the number of months that the 
                facility or entity was in an eligible sector or 
                subsector designated under section 5(b).
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