(1) Carbon dioxide and other greenhouse gas 
emissions continue to rise. 
(2) The warming of our planet has led to more 
frequent, dangerous and expensive extreme weather 
events, including heat waves, storms, fires, droughts, 
floods and tornadoes. 
(3) A 2018 report by the Intergovernmental 
Panel on Climate Change (IPCC) recommends that 
serious efforts be made to limit global warming to 
1.5 °C, which would require that CO2 emissions fall 
by 45 percent below 2010 levels by 2030, reaching 
net zero by the middle of this century. 
(4) The atmosphere is a common resource that 
belongs equally to all. 
(5) Stabilizing the climate can and must be 
done in a way that supports vibrant economic 
growth and a thriving middle class. 
(6) Stabilizing the climate can and must be 
done in a way that supports environmental justice 
by reducing pollution affecting communities that 
have suffered disproportionately from hazards aris-
ing from the extraction and combustion of fossil 
fuels and supports community right-to-know report-
ing on emissions from fossil fuel combustion. 
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(7) Legislation to address climate change and 
accelerate the transition to a clean energy economy 
must be fair, transparent and built to last. 
SEC. 3. AUCTION OF CARBON PERMITS AND DISTRIBUTION 
OF HEALTHY CLIMATE DIVIDENDS. 
(a) IN GENERAL.—The Internal Revenue Code of 
1986 is amended by adding at the end the following new 
subtitle: 
‘‘Subtitle 
L—Auction 
of 
Carbon 
Permits 
and 
Distribution 
of 
Healthy Climate Dividends 
‘‘Chapter 101. Cap and Dividend Program Rules. 
‘‘Chapter 102. Healthy Climate Dividends. 
‘‘Chapter 103. Border Adjustments. 
‘‘CHAPTER 101—CAP AND DIVIDEND 
PROGRAM RULES 
‘‘Sec. 9901. Definitions. 
‘‘Sec. 9902. Carbon permits. 
‘‘Sec. 9903. Auctions. 
‘‘Sec. 9904. Compliance obligation. 
‘‘Sec. 9905. Penalty for noncompliance. 
‘‘Sec. 9906. Tracking. 
‘‘Sec. 9907. Banking. 
‘‘Sec. 9908. Environmental justice. 
‘‘SEC. 9901. DEFINITIONS. 
‘‘For purposes of this subtitle: 
‘‘(1) ADMINISTRATOR.—The term ‘Adminis-
trator’ means the Administrator of the Environ-
mental Protection Agency. 
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‘‘(2) CARBON PERMIT.—The term ‘carbon per-
mit’ means a carbon permit established by the Sec-
retary under section 9902(a). 
‘‘(3) COVERED ENTITY.—The term ‘covered en-
tity’ means— 
‘‘(A) in the case of crude oil— 
‘‘(i) any producer of crude oil oper-
ating in the United States, and 
‘‘(ii) any importer of crude oil, petro-
leum, or any petroleum product into the 
United States, 
‘‘(B) in the case of coal— 
‘‘(i) any coal mine operating in the 
United States, and 
‘‘(ii) any importer of coal into the 
United States, and 
‘‘(C) in the case of natural gas— 
‘‘(i) any entity required to submit a 
report to the Energy Information Agency 
on Form 176 by reason of delivering nat-
ural gas to an end user, and 
‘‘(ii) any natural gas processor not de-
scribed in clause (i) with respect to sales of 
natural gas in the United States. 
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‘‘(4) COVERED FUEL.—The term ‘covered fuel’ 
means crude oil, natural gas, coal, or any other 
product derived therefrom for use as a combustible 
fuel offered for sale in United States markets. 
‘‘(5) CRUDE OIL.—The term ‘crude oil’ includes 
crude oil condensates, natural gasoline, shale oil, any 
bitumen or bituminous mixture, any oil derived from 
a bitumen or bituminous mixture, and any oil de-
rived from kerogen-bearing sources. 
‘‘(6) FAIR
MARKET
VALUE.—The term ‘fair 
market value’ means the average auction price for 
carbon permits during the 4 quarters immediately 
preceding a failure to surrender, when required 
under section 9904, the required number of carbon 
permits under such section. 
‘‘(7) STATE.—The term ‘State’ means the sev-
eral States, the District of Columbia, the Common-
wealth of Puerto Rico, the United States Virgin Is-
lands, Guam, American Samoa, the Commonwealth 
of the Northern Mariana Islands, and any other 
commonwealth, territory, or possession of the United 
States. 
‘‘(8) VINTAGE YEAR.—The term ‘vintage year’ 
means the calendar year for which a carbon permit 
is established under section 9902. 
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‘‘(9) CO-POLLUTANT.—The term ‘co-pollutant’ 
means— 
‘‘(A) any criteria pollutant for which there 
are national ambient air quality standards 
under section 109 of the Clean Air Act (42 
U.S.C. 7409), and 
‘‘(B) any precursor to such a criteria pol-
lutant which is released in fossil fuel combus-
tion. 
‘‘(10) FRONTLINE
COMMUNITIES.—The term 
‘frontline communities’ means locations in which mi-
nority populations and low-income populations in the 
United States and its territories and possessions, the 
District of Columbia, the Commonwealth of Puerto 
Rico, and the Commonwealth of the Mariana Islands 
are exposed to disproportionately high and adverse 
human health or environmental effects of air pollu-
tion. 
‘‘SEC. 9902. CARBON PERMITS. 
‘‘(a) IN GENERAL.—The Secretary, in consultation 
with the Administrator, shall establish a separate quantity 
of carbon permits for calendar year 2023 and each cal-
endar year thereafter, as set forth under subsection (b). 
‘‘(b) EMISSIONS REDUCTION SCHEDULE.— 
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‘‘(1) IN
GENERAL.—The quantity of carbon 
permits established by the Secretary, in consultation 
with the Administrator, under subsection (a) for any 
calendar year before 2050 that is between the near-
est target years specified in paragraph (2) preceding 
and succeeding such calendar year shall be the quan-
tity of such permits that represents an equal, pro 
rata reduction from the preceding year to the suc-
ceeding year. 
‘‘(2) TARGETS.— 
‘‘(A) INITIAL
TARGET.—The quantity of 
carbon permits established for 2023 shall be 
equal to 15 percent less than the number of 
metric tons of carbon dioxide emitted in the 
United States in 2015. 
‘‘(B) DECADAL
TARGETS.—The quantity 
of carbon permits established for— 
‘‘(i) 2027 shall be equal to 35 percent 
less than the number of metric tons of car-
bon dioxide emitted in the United States in 
2015, 
‘‘(ii) 2030 shall be equal to 50 percent 
less than the number of metric tons of car-
bon dioxide emitted in the United States in 
2015, 
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years thereafter, the Secretary shall report to 
Congress on any recommended revisions to the 
decadal targets under paragraph (2) and the 
basis for those recommendations if the Sec-
retary, after consultation with the Adminis-
trator, determines the emissions reductions tar-
gets under this subsection should be further 
tightened in order to— 
‘‘(i) reach a net-zero carbon economy 
by 2050, or 
‘‘(ii) avert catastrophic climate im-
pacts. 
‘‘(c) IDENTIFICATION
NUMBERS.—The Secretary 
shall assign to each carbon permit established under sub-
section (a) a unique identification number that includes 
the vintage year for that carbon permit. 
‘‘(d) LEGAL STATUS OF CARBON PERMITS.— 
‘‘(1) IN GENERAL.—A carbon permit does not 
constitute a property right. 
‘‘(2) TERMINATION OR LIMITATION.—Nothing 
in this subtitle or any other provision of law shall be 
construed to limit or alter the authority of the 
United States, including the Secretary acting pursu-
ant to statutory authority, to terminate or limit a 
carbon permit. 
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‘‘(3) OTHER PROVISIONS UNAFFECTED.—Noth-
ing in this subtitle relating to carbon permits issued 
under this section shall affect the application of any 
other provision of law to a covered entity (including 
the Clean Air Act), or the responsibility for a cov-
ered entity to comply with any such provision of law. 
Regional and State greenhouse gas initiatives are 
not preempted by this subtitle. 
‘‘(e) REGULATIONS.—Not later than December 31, 
2023, the Secretary shall promulgate regulations to carry 
out the provisions of this subtitle. 
‘‘SEC. 9903. AUCTIONS. 
‘‘(a) PERIODIC AUCTIONS.—The Secretary shall con-
duct periodic public auctions of carbon permits established 
under section 9902(a). The Secretary shall conduct at 
least 1 such auction in each calendar quarter of each year 
for which carbon permits are established, and shall dis-
tribute the available permits for each such year pro rata 
among the quarters of such year. 
‘‘(b) AUCTION RULES.—The Secretary shall— 
‘‘(1) limit auction participation only to covered 
entities, 
‘‘(2) establish a limit on the amount of carbon 
permits that can be purchased by a single entity at 
each auction and an aggregate limit on the total 
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amount of permits that can be held by a single enti-
ty at any one time that— 
‘‘(A) reflects anticipated sector and partici-
pant demand, 
‘‘(B) prevents speculation, manipulation, 
or hoarding of permits, and 
‘‘(C) does not interfere with normal mar-
ket competition, and 
‘‘(3) set a minimum permit price at the initial 
auction of $40 per ton of carbon dioxide that will be 
released when the covered fuel is burned, increase 
this minimum price by $10 in each successive year 
and adjust for inflation, and have the authority to 
set higher minimum permit prices. 
‘‘(c) UNSOLD PERMITS.—Any carbon permit unsold 
at the auction at which it is offered shall expire. 
‘‘SEC. 9904. COMPLIANCE OBLIGATION. 
‘‘(a) IN GENERAL.—Not later than April 1, 2023, 
and April 1 of each year thereafter, each covered entity 
shall surrender to the Secretary a quantity of carbon per-
mits at least as great as the number of metric tons of 
carbon dioxide that the Secretary, in consultation with the 
Administrator, determines would be emitted by the com-
bustion of covered fuels with respect to which the covered 
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entity made the first sale in United States markets during 
the previous calendar year. 
‘‘(b) USE TREATED AS SALE.—For purposes of sub-
section (a), consumption for an emitting use by the cov-
ered entity of covered fuels produced by the covered entity 
shall be treated as a first sale. 
‘‘SEC. 9905. PENALTY FOR NONCOMPLIANCE. 
‘‘(a) IN GENERAL.—Any covered entity that fails for 
any year to surrender, by the deadline described in section 
9904, one or more of the carbon permits due pursuant 
to such section shall be required to surrender permits in 
order to meet this past due obligation and shall be liable 
for payment to the Secretary of a penalty in the amount 
described in subsection (b). 
‘‘(b) AMOUNT.—The amount of a penalty required to 
be paid under subsection (a) shall be equal to the product 
obtained by multiplying— 
‘‘(1) the number of carbon permits that the cov-
ered entity failed to surrender by the deadline, by 
‘‘(2) 3 times the fair market value of carbon 
permits issued for emissions occurring in the cal-
endar year for which the carbon permits were due. 
‘‘(c) TIMING.—A penalty required under this section 
shall be immediately due and payable to the Secretary, 
without demand, in accordance with regulations promul-
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gated by the Secretary, which shall be issued not later 
than 1 year after the date of enactment of this subtitle. 
‘‘(d) NO EFFECT ON LIABILITY.—A penalty due and 
payable by the covered entity under this section shall not 
diminish the liability of the covered entity for any fine, 
penalty, or assessment against the covered entity for the 
same violation under any other provision of law. 
‘‘(e) PENALTY NOT DEDUCTIBLE.—No deduction 
shall be allowed under subtitle A for a penalty paid under 
this section. 
‘‘SEC. 9906. TRACKING. 
‘‘The regulations promulgated under section 9902(e) 
shall include a system for issuing, recording, holding, and 
tracking carbon permits that shall specify all necessary 
procedures and requirements for an orderly and competi-
tive functioning of the carbon permit system. Such regula-
tions shall provide for appropriate publication of the infor-
mation in the system on the Internet. 
‘‘SEC. 9907. BANKING. 
‘‘(a) BANKING.—A carbon permit may be used to 
meet the compliance obligation requirements of section 
9904 for emissions only in the permit’s vintage year, the 
year prior, or the year following. At least 80 percent of 
permits used by an entity to meet its compliance obligation 
for a year must be of that year’s vintage. The Secretary 
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