474 
offset credits, and practices of third-party verifiers. In 
each year, the Administrator shall conduct audits, at min-
imum, for a representative sample of project types and 
geographic areas. 
‘‘(b) DELEGATION.—The Administrator may delegate 
to a State or tribal government the responsibility for con-
ducting audits under this section if the Administrator 
finds that the program proposed by the State or tribal 
government provides assurances equivalent to those pro-
vided by the auditing program of the Administrator, and 
that the integrity of the offset program under this part 
will be maintained. Nothing in this subsection shall pre-
vent the Administrator from conducting any audit the Ad-
ministrator considers necessary and appropriate. 
‘‘SEC. 739. PROGRAM REVIEW AND REVISION. 
‘‘At least once every 5 years, the Administrator shall 
review and, based on new or updated information and tak-
ing into consideration the recommendations of the Advi-
sory Board, update and revise— 
‘‘(1) the list of eligible project types established 
under section 733; 
‘‘(2) the methodologies established, including 
specific activity baselines, under section 734(a); 
‘‘(3) the reversal requirements and mechanisms 
established or prescribed under section 734(b); 
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‘‘(4) measures to improve the accountability of 
the offsets program; and 
‘‘(5) any other requirements established under 
this part to ensure the environmental integrity and 
effective operation of this part. 
‘‘SEC. 740. EARLY OFFSET SUPPLY. 
‘‘(a) PROJECTS REGISTERED UNDER OTHER GOV-
ERNMENT-RECOGNIZED PROGRAMS.—Except as provided 
in subsection (b) or (c), the Administrator shall issue one 
offset credit for each ton of carbon dioxide equivalent 
emissions reduced, avoided, or sequestered— 
‘‘(1) under an offset project that was started 
after January 1, 2001; 
‘‘(2) for which a credit was issued under any 
regulatory or voluntary greenhouse gas emission off-
set program that the Administrator determines— 
‘‘(A) was established under State or tribal 
law or regulation prior to January 1, 2009; 
‘‘(B) has developed offset project type 
standards, 
methodologies, 
and 
protocols 
through a public consultation process or a peer 
review process; 
‘‘(C) has made available to the public 
standards, methodologies, and protocols that re-
quire that credited emission reductions, avoid-
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ance, or sequestration are permanent, addi-
tional, verifiable, and enforceable; 
‘‘(D) requires that all emission reductions, 
avoidance, or sequestration be verified by a 
State regulatory agency or an accredited third- 
party independent verification body; 
‘‘(E) requires that all credits issued are 
registered in a publicly accessible registry, with 
individual serial numbers assigned for each ton 
of carbon dioxide equivalent emission reduc-
tions, avoidance, or sequestration; and 
‘‘(F) ensures that no credits are issued for 
activities for which the entity administering the 
program, or a program administrator or rep-
resentative, has funded, solicited, or served as a 
fund administrator for the development of, the 
project or activity that caused the emission re-
duction, avoidance, or sequestration; and 
‘‘(3) for which the credit described in para-
graph (2) is transferred to the Administrator. 
‘‘(b) INELIGIBLE CREDITS.—Subsection (a) shall not 
apply to offset credits that have expired or have been re-
tired, canceled, or used for compliance under a program 
established under State or tribal law or regulation. 
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‘‘(c) 
LIMITATION.—Notwithstanding 
subsection 
(a)(1), offset credits shall be issued under this section— 
‘‘(1) only for reductions or avoidance of green-
house gas emissions, or sequestration of greenhouse 
gases, that occur after January 1, 2009; and 
‘‘(2) only until the date that is 3 years after the 
date of enactment of this title, or the date that regu-
lations promulgated under section 732(a) take ef-
fect, whichever occurs sooner. 
‘‘(d) RETIREMENT OF CREDITS.—The Administrator 
shall seek to ensure that offset credits described in sub-
section (a)(2) are retired for purposes of use under a pro-
gram described in subsection (b). 
‘‘(e) OTHER PROGRAMS.—(1) Offset programs that 
otherwise meet all of the criteria of subsection (a)(2), but 
do not meet one of the following criteria: 
‘‘(A) were not established under State or tribal 
law; or 
‘‘(B) were not established prior to January 1, 
2001. 
‘‘(2) The Administrator shall approve any such pro-
gram that the Administrator determines has criteria and 
methodologies of at least equal stringency to the criteria 
and methodologies of the programs established under 
State or tribal law that the Administrator determines meet 
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the criteria of subsection (a)(2). The Administrator may 
approve types of offsets under any such program that are 
subject to criteria and methodologies of at least equal 
stringency to the criteria and methodologies for such types 
of offsets applied under the programs established under 
State or tribal law that the Administrator determines meet 
the criteria of subsection (a)(2). 
‘‘SEC. 741. ENVIRONMENTAL CONSIDERATIONS. 
‘‘If the Administrator lists forestry projects as eligible 
offset project types under section 733, the Administrator, 
in consultation with appropriate Federal agencies, shall 
promulgate regulations for the selection and use of tree 
species in forestry offset projects— 
‘‘(1) to ensure that native species are given pri-
mary consideration in such projects; 
‘‘(2) to enhance biological diversity in such 
projects; 
‘‘(3) to prohibit the use of federally designated 
or State-designated noxious weeds; 
‘‘(4) to prohibit the use of a species listed by 
a regional or State invasive plant authority within 
the applicable region or State; and 
‘‘(5) in accordance with widely accepted, envi-
ronmentally sustainable forestry practices. 
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‘‘SEC. 742. TRADING. 
‘‘Section 724 shall apply to the trading of offset cred-
its. 
‘‘SEC. 743. INTERNATIONAL OFFSET CREDITS. 
‘‘(a) IN GENERAL.—The Administrator, in consulta-
tion with the Secretary of State and the Administrator 
of the United States Agency for International Develop-
ment, may issue, in accordance with this section, inter-
national offset credits based on activities that reduce or 
avoid greenhouse gas emissions, or increase sequestration 
of greenhouse gases, in a developing country. Such credits 
may be issued for projects pursuant to the requirements 
of this part or as provided in subsection (c), (d), or (e). 
‘‘(b) ISSUANCE.— 
‘‘(1) REGULATIONS.—Not later than 2 years 
after the date of enactment of this title, the Admin-
istrator, in consultation with the Secretary of State, 
the Administrator of the United States Agency for 
International Development, and any other appro-
priate Federal agency, and taking into consideration 
the recommendations of the Advisory Board, shall 
promulgate regulations for implementing this sec-
tion. Except as otherwise provided in this section, 
the issuance of international offset credits under this 
section shall be subject to the requirements of this 
part. 
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‘‘(2) 
REQUIREMENTS
FOR
INTERNATIONAL 
OFFSET
CREDITS.—The Administrator may issue 
international offset credits only if— 
‘‘(A) the United States is a party to a bi-
lateral or multilateral agreement or arrange-
ment that includes the country in which the 
project or measure achieving the relevant green-
house gas emission reduction or avoidance, or 
greenhouse gas sequestration, has occurred; 
‘‘(B) such country is a developing country; 
and 
‘‘(C) such agreement or arrangement— 
‘‘(i) ensures that all of the require-
ments of this part apply to the issuance of 
international offset credits under this sec-
tion; and 
‘‘(ii) provides for the appropriate dis-
tribution of international offset credits 
issued. 
‘‘(c) SECTOR-BASED CREDITS.— 
‘‘(1) IN GENERAL.—In order to minimize the 
potential for leakage and to encourage countries to 
take nationally appropriate mitigation actions to re-
duce or avoid greenhouse gas emissions, or sequester 
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481 
greenhouse gases, the Administrator, in consultation 
with the Secretary of State, shall— 
‘‘(A) identify sectors of specific countries 
with respect to which the issuance of inter-
national offset credits on a sectoral basis is ap-
propriate; and 
‘‘(B) issue international offset credits for 
such sectors only on a sectoral basis. 
‘‘(2) IDENTIFICATION OF SECTORS.— 
‘‘(A) GENERAL
RULE.—For purposes of 
paragraph (1)(A), a sectoral basis shall be ap-
propriate for activities— 
‘‘(i) in countries that have compara-
tively high greenhouse gas emissions, or 
comparatively greater levels of economic 
development; and 
‘‘(ii) that, if located in the United 
States, would be within a sector subject to 
the compliance obligation under section 
722. 
‘‘(B) FACTORS.—In determining the sec-
tors and countries for which international offset 
credits should be awarded only on a sectoral 
basis, the Administrator, in consultation with 
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482 
the Secretary of State, shall consider the fol-
lowing factors: 
‘‘(i) The country’s gross domestic 
product. 
‘‘(ii) The country’s total greenhouse 
gas emissions. 
‘‘(iii) Whether the comparable sector 
of the United States economy is covered by 
the compliance obligation under section 
722. 
‘‘(iv) The heterogeneity or homo-
geneity of sources within the relevant sec-
tor. 
‘‘(v) Whether the relevant sector pro-
vides products or services that are sold in 
internationally competitive markets. 
‘‘(vi) The risk of leakage if inter-
national offset credits were issued on a 
project-level basis, instead of on a sectoral 
basis, for activities within the relevant sec-
tor. 
‘‘(vii) The capability of accurately 
measuring, 
monitoring, 
reporting, 
and 
verifying the performance of sources across 
the relevant sector. 
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‘‘(viii) Such other factors as the Ad-
ministrator, in consultation with the Sec-
retary of State, determines are appropriate 
to— 
‘‘(I) ensure the integrity of the 
United States greenhouse gas emis-
sions cap established under section 
703; and 
‘‘(II) encourage countries to take 
nationally appropriate mitigation ac-
tions to reduce or avoid greenhouse 
gas emissions, or sequester green-
house gases. 
‘‘(3) SECTORAL BASIS.— 
‘‘(A) DEFINITION.—In this subsection, the 
term ‘sectoral basis’ means the issuance inter-
national offset credits only for the quantity of 
sector-wide reductions or avoidance of green-
house gas emissions, or sector-wide increases in 
sequestration of greenhouse gases, achieved 
across the relevant sector of the economy rel-
ative to a baseline level of performance estab-
lished in an agreement or arrangement de-
scribed in subsection (b)(2)(A) for the sector. 
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‘‘(B) BASELINE.—The baseline for a sec-
tor shall be established at levels of greenhouse 
gas emissions lower than would occur under a 
business-as-usual scenario taking into account 
relevant domestic or international policies or in-
centives to reduce greenhouse gas emissions, 
among other factors, and additionality and per-
formance shall be determined on the basis of 
such baseline. 
‘‘(d) CREDITS
ISSUED
BY
AN
INTERNATIONAL 
BODY.— 
‘‘(1) IN GENERAL.—The Administrator, in con-
sultation with the Secretary of State, may issue 
international offset credits in exchange for instru-
ments in the nature of offset credits that are issued 
by an international body established pursuant to the 
United Nations Framework Convention on Climate 
Change, to a protocol to such Convention, or to a 
treaty that succeeds such Convention. The Adminis-
trator may issue international offset credits under 
this subsection only if, in addition to the require-
ments of subsection (b), the Administrator has de-
termined that the international body that issued the 
instruments has implemented substantive and proce-
dural requirements for the relevant project type that 
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provide equal or greater assurance of the integrity of 
such instruments as is provided by the requirements 
of this part. 
‘‘(2) RETIREMENT.—The Administrator, in 
consultation with the Secretary of State, shall seek, 
by whatever means appropriate, including agree-
ments, arrangements, or technical cooperation with 
the international issuing body described in para-
graph (1), to ensure that such body— 
‘‘(A) is notified of the Administrator’s 
issuance, under this subsection, of an inter-
national offset credit in exchange for an instru-
ment issued by such international body; and 
‘‘(B) provides, to the extent feasible, for 
the disqualification of the instrument issued by 
such international body for subsequent use 
under any relevant foreign or international 
greenhouse gas regulatory program, regardless 
of whether such use is a sale, exchange, or sub-
mission to satisfy a compliance obligation. 
‘‘(e) OFFSETS FROM REDUCED DEFORESTATION.— 
‘‘(1) REQUIREMENTS.—The Administrator, in 
accordance with the regulations promulgated under 
subsection (b)(1) and an agreement or arrangement 
described in subsection (b)(2)(A), shall issue inter-
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ventories, remote sensing technology, and other 
methodologies to ensure that all relevant carbon 
stocks are accounted; 
‘‘(D) the Administrator has made appro-
priate adjustments, such as discounting for any 
additional uncertainty, to account for cir-
cumstances specific to the country, including its 
technical capacity described in paragraph 
(2)(A); 
‘‘(E) the activity is designed, carried out, 
and managed— 
‘‘(i) in accordance with widely accept-
ed, 
environmentally 
sustainable 
forest 
management practices; 
‘‘(ii) to promote or restore native for-
est species and ecosystems where prac-
ticable, and to avoid the introduction of 
invasive nonnative species; 
‘‘(iii) in a manner that gives due re-
gard to the rights and interests of forest- 
dependent communities, indigenous peo-
ples, and vulnerable social groups; 
‘‘(iv) with consultations with, and full 
participation of, forest-dependent commu-
nities and indigenous peoples in affected 
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areas, as partners and primary stake-
holders, prior to and during the design, 
planning, implementation, and monitoring 
and evaluation of activities; and 
‘‘(v) with equitable sharing of profits 
and benefits derived from offset credits 
with forest-dependent communities and in-
digenous peoples; and 
‘‘(F) the reduction otherwise satisfies and 
is consistent with any relevant requirements es-
tablished by an agreement reached under the 
auspices of the United Nations Framework 
Convention on Climate Change. 
‘‘(2) ELIGIBLE
COUNTRIES.—The Adminis-
trator, in consultation with the Secretary of State 
and the Administrator of the United States Agency 
for International Development, and in accordance 
with an agreement or arrangement described in sub-
section (b)(2)(A), shall establish, and periodically re-
view and update, a list of the developing countries 
that have the capacity to participate in deforestation 
reduction activities at a national level, including— 
‘‘(A) the technical capacity to monitor, 
measure, report, and verify forest carbon fluxes 
for all significant sources of greenhouse gas 
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emissions from deforestation with an acceptable 
level of uncertainty, as determined taking into 
account relevant international standards, such 
as those established by the Intergovernmental 
Panel on Climate Change; 
‘‘(B) the institutional capacity to reduce 
emissions from deforestation, including strong 
forest governance and mechanisms to equitably 
distribute deforestation resources for local ac-
tions; and 
‘‘(C) a land use or forest sector strategic 
plan that— 
‘‘(i) assesses national and local drivers 
of deforestation and forest degradation and 
identifies reforms to national policies need-
ed to address them; 
‘‘(ii) estimates the country’s emissions 
from deforestation and forest degradation; 
‘‘(iii) identifies improvements in data 
collection, monitoring, and institutional ca-
pacity necessary to implement a national 
deforestation reduction program; and 
‘‘(iv) establishes a timeline for imple-
menting the program and transitioning to 
low-emissions development. 
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‘‘(3) PROTECTION
OF
INTERESTS.—With re-
spect to an agreement or arrangement described in 
subsection (b)(2)(A) with a country that addresses 
international offset credits under this subsection, the 
Administrator, in consultation with the Secretary of 
State and the Administrator of the United States 
Agency for International Development, shall seek to 
ensure the establishment and enforcement by such 
country of legal regimes, standards, and safeguards 
that— 
‘‘(A) give due regard to the rights and in-
terests of forest-dependent communities, indige-
nous peoples, and vulnerable social groups; 
‘‘(B) promote consultations with, and full 
participation of, forest-dependent communities 
and indigenous peoples in affected areas, as 
partners and primary stakeholders, prior to and 
during the design, planning, implementation, 
and monitoring and evaluation of activities; and 
‘‘(C) facilitate sharing of profits and bene-
fits derived from international offset credits 
with forest-dependent communities and indige-
nous peoples. 
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491 
‘‘(4) NATIONAL DEFORESTATION BASELINE.—A 
national deforestation baseline established under this 
subsection shall— 
‘‘(A) be national in scope; 
‘‘(B) be consistent with nationally appro-
priate mitigation commitments or actions with 
respect to deforestation, taking into consider-
ation the average annual historical deforestation 
rates of the country during a period of at least 
5 years, the applicable drivers of deforestation, 
and other factors to ensure additionality; 
‘‘(C) establish a trajectory that would re-
sult in zero net deforestation by not later than 
20 years after the national deforestation base-
line has been established; 
‘‘(D) be adjusted over time to take account 
of changing national circumstances; 
‘‘(E) be designed to account for all signifi-
cant sources of greenhouse gas emissions from 
deforestation in the country; and 
‘‘(F) be consistent with the national defor-
estation baseline, if any, established for such 
country under section 754(d)(1). 
‘‘(5) STATE-LEVEL
OR
PROVINCE-LEVEL
AC-
TIVITIES.— 
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‘‘(A) ELIGIBLE STATES OR PROVINCES.— 
The Administrator, in consultation with the 
Secretary of State and the Administrator of the 
United States Agency for International Devel-
opment, shall establish, and periodically review 
and update, a list of states or provinces in de-
veloping countries where— 
‘‘(i) the developing country is not in-
cluded on the list of countries established 
pursuant to paragraph (6)(A); 
‘‘(ii) the state or province by itself is 
a major emitter of greenhouse gases from 
tropical deforestation on a scale commen-
surate to the emissions of other countries; 
and 
‘‘(iii) the state or province meets the 
eligibility criteria in paragraphs (2) and 
(3) for the geographic area under its juris-
diction. 
‘‘(B) ACTIVITIES.—The Administrator may 
issue international offset credits for greenhouse 
gas emission reductions achieved through activi-
ties to reduce deforestation at a state or provin-
cial level that meet the requirements of this sec-
tion. Such credits shall be determined by com-
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paring the emissions from deforestation within 
that state or province relative to the state or 
province deforestation baseline for that state or 
province established, in accordance with an 
agreement or arrangement described in sub-
section (b)(2)(A), pursuant to subparagraph 
(C) of this paragraph. 
‘‘(C) STATE-LEVEL
OR
PROVINCE-LEVEL 
DEFORESTATION
BASELINE.—A state-level or 
province-level deforestation baseline shall— 
‘‘(i) be consistent with any existing 
nationally appropriate mitigation commit-
ments or actions for the country in which 
the activity is occurring, taking into con-
sideration the average annual historical de-
forestation rates of the state or province 
during a period of at least 5 years, rel-
evant drivers of deforestation, and other 
factors to ensure additionality; 
‘‘(ii) establish a trajectory that would 
result in zero net deforestation by not later 
than 20 years after the state-level or prov-
ince-level deforestation baseline has been 
established; and 
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‘‘(iii) be designed to account for all 
significant sources of greenhouse gas emis-
sions from deforestation in the state or 
province and adjusted to fully account for 
emissions leakage outside the state or 
province. 
‘‘(D) PHASE OUT.—Beginning in 2017, the 
Administrator shall issue no further inter-
national offset credits for eligible state-level or 
province-level activities to reduce deforestation 
pursuant to this paragraph. 
‘‘(6) PROJECTS
AND
PROGRAMS
TO
REDUCE 
DEFORESTATION.— 
‘‘(A) ELIGIBLE COUNTRIES.—The Admin-
istrator, in consultation with the Secretary of 
State and the Administrator of the United 
States Agency for International Development, 
shall establish, and periodically review and up-
date, a list of developing countries that— 
‘‘(i) the Administrator determines, 
based on recent, credible, and reliable 
emissions data, account for less than 1 
percent of global greenhouse gas emissions 
and less than 3 percent of global forest- 
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495 
sector and land use change greenhouse gas 
emissions; and 
‘‘(ii) have, or in the determination of 
the Administrator are making a good faith 
effort to develop, a land use or forest sec-
tor strategic plan that meets the criteria 
described in paragraph (2)(C). 
‘‘(B) ACTIVITIES.—The Administrator may 
issue international offset credits for greenhouse 
gas emission reductions achieved through 
project or program level activities to reduce de-
forestation in countries listed under subpara-
graph (A) that meet the requirements of this 
section. The quantity of international offset 
credits shall be determined by comparing the 
project-level or program-level emissions from 
deforestation to a deforestation baseline for 
such project or program established pursuant to 
subparagraph (C). 
‘‘(C) PROJECT-LEVEL OR PROGRAM-LEVEL 
BASELINE.— 
‘‘(i) A project-level or program-level 
deforestation baseline shall— 
‘‘(I) be consistent with any exist-
ing nationally appropriate mitigation 
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commitments or actions for the coun-
try in which the project or program is 
occurring, taking into consideration 
the average annual historical deforest-
ation rates in the project or program 
boundary during a period of at least 
5 years, applicable drivers of deforest-
ation, and other factors to ensure 
additionality; 
‘‘(II) be designed to account for 
all significant sources of greenhouse 
gas emissions from deforestation in 
the project or program boundary; and 
‘‘(III) be adjusted to fully ac-
count for emissions leakage outside 
the project or program boundary. 
‘‘(D) PHASE OUT.—(i) Beginning in 2017, 
the Administrator shall issue no further inter-
national offset credits for project-level or pro-
gram-level activities as described in this para-
graph, except as provided in clause (ii). 
‘‘(ii) The Administrator may extend the 
phase out deadline for the issuance of inter-
national offset credits under this section to no 
later than 2025 with respect to eligible activi-
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ties taking place in a least developed nation, 
which is a foreign country that the United Na-
tions has identified as among the least devel-
oped of developing countries at the time that 
the Administrator determines to provide an ex-
tension, provided that the Administrator, in 
consultation with the Secretary of State and the 
Administrator of the United States Agency for 
International Development, determines the na-
tion— 
‘‘(I) lacks sufficient capacity to adopt 
and implement effective programs to 
achieve reductions in deforestation meas-
ured against national baselines; 
‘‘(II) is receiving support under part 
E to develop such capacity; and 
‘‘(III) has developed and is working 
towards implementation of a credible na-
tional strategy or plan to reduce deforest-
ation. 
‘‘(7) DEFORESTATION.—In implementing this 
subsection, the Administrator, taking into consider-
ation the recommendations of the Advisory Board, 
may include forest degradation, or soil carbon losses 
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associated with forested wetlands or peatlands, with-
in the meaning of deforestation. 
‘‘(f) MODIFICATION OF REQUIREMENTS.—In promul-
gating regulations under subsection (b)(1) with respect to 
the issuance of international offset credits under sub-
section (c), (d), or (e), the Administrator may modify or 
omit a requirement of this part (excluding the require-
ments of this section) if the Administrator determines that 
the application of that requirement to this subsection is 
not feasible. In modifying or omitting such a requirement 
on the basis of infeasibility, the Administrator shall en-
sure, with an adequate margin of safety, the integrity of 
international offset credits issued under this section and 
of the greenhouse gas emissions cap established pursuant 
to section 703. 
‘‘(g) AVOIDING DOUBLE COUNTING.—The Adminis-
trator, in consultation with the Secretary of State, shall 
seek, by whatever means appropriate, including agree-
ments, arrangements, or technical cooperation, to ensure 
that activities on the basis of which international offset 
credits are issued under this section are not used for com-
pliance with an obligation to reduce or avoid greenhouse 
gas emissions, or increase greenhouse gas sequestration, 
under a foreign or international regulatory system. In ad-
dition, no international offset credits shall be issued for 
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emission reductions from activities with respect to which 
emission allowances were allocated under section 781 for 
distribution under part E. 
‘‘(h) LIMITATION.—The Administrator shall not issue 
international offset credits generated by products based 
on the destruction of hydrofluorocarbons. 
‘‘PART E—SUPPLEMENTAL EMISSIONS 
REDUCTIONS FROM REDUCED DEFORESTATION 
‘‘SEC. 751. DEFINITIONS. 
‘‘In this part: 
‘‘(1) LEAKAGE PREVENTION ACTIVITIES.—The 
term ‘leakage prevention activities’ means activities 
in developing countries that are directed at pre-
serving existing forest carbon stocks, including for-
ested wetlands and peatlands, that might, absent 
such activities, be lost through leakage. 
‘‘(2) NATIONAL
DEFORESTATION
REDUCTION 
ACTIVITIES.—The term ‘national deforestation re-
duction activities’ means activities in developing 
countries that reduce a quantity of greenhouse gas 
emissions from deforestation that is calculated by 
measuring actual emissions against a national defor-
estation baseline established pursuant to section 
754(d)(1) and (2). 
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‘‘(3) SUBNATIONAL
DEFORESTATION
REDUC-
TION ACTIVITIES.—The term ‘subnational deforest-
ation reduction activities’ means activities in devel-
oping countries that reduce a quantity of greenhouse 
gas emissions from deforestation that are calculated 
by measuring actual emissions using an appropriate 
baseline established by the Administrator that is less 
than national in scope. 
‘‘(4) 
SUPPLEMENTAL
EMISSIONS
REDUC-
TIONS.—The term ‘supplemental emissions reduc-
tions’ means greenhouse gas emissions reductions 
achieved from reduced or avoided deforestation 
under this part. 
‘‘(5) USAID.—The term ‘USAID’ means the 
United States Agency for International Develop-
ment. 
‘‘SEC. 752. FINDINGS. 
‘‘Congress finds that— 
‘‘(1) as part of a global effort to mitigate cli-
mate change, it is in the national interest of the 
United States to assist developing countries to re-
duce and ultimately halt emissions from deforest-
ation; 
‘‘(2) deforestation is one of the largest sources 
of greenhouse gas emissions in developing countries, 
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amounting to roughly 20 percent of overall emissions 
globally; 
‘‘(3) recent scientific analysis shows that it will 
be substantially more difficult to limit the increase 
in global temperatures to less than 2 degrees centi-
grade above preindustrial levels without reducing 
and ultimately halting net emissions from deforest-
ation; 
‘‘(4) reducing emissions from deforestation is 
highly cost-effective, compared to many other 
sources of emissions reductions; 
‘‘(5) in addition to contributing significantly to 
worldwide efforts to address global warming, this as-
sistance will generate significant environmental and 
social cobenefits, including protection of biodiversity, 
ecosystem services, and forest-related livelihoods; 
and 
‘‘(6) Under the Bali Action Plan, developed 
country parties to the United Nations Framework 
Convention on Climate Change, including the United 
States, committed to ‘enhanced action on the provi-
sion of financial resources and investment to support 
action on mitigation and adaptation and technology 
cooperation,’ including, inter alia, consideration of 
improved access to adequate, predictable, and sus-
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tainable financial resources and financial and tech-
nical support, and the provision of new and addi-
tional resources, including official and concessional 
funding for developing country parties. 
‘‘SEC. 
753. 
SUPPLEMENTAL 
EMISSIONS 
REDUCTIONS 
THROUGH REDUCED DEFORESTATION. 
‘‘(a) REGULATIONS.—Not later than 2 years after 
the date of enactment of this title, the Administrator, in 
consultation with the Administrator of USAID and any 
other appropriate agencies, shall promulgate regulations 
establishing a program to use emission allowances set 
aside for this purpose under section 781 to achieve the 
reduction of greenhouse gas emissions from deforestation 
in developing countries in accordance with the require-
ments of this part. 
‘‘(b) OBJECTIVES.—The objectives of the program es-
tablished under this section shall be to— 
‘‘(1) achieve supplemental emissions reductions 
of at least 720,000,000 tons of carbon dioxide equiv-
alent in 2020, a cumulative amount of at least 
6,000,000,000 tons of carbon dioxide equivalent by 
December 31, 2025, and additional supplemental 
emissions reductions in subsequent years; 
‘‘(2) build capacity to reduce deforestation in 
developing countries experiencing deforestation, in-
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cluding preparing developing countries to participate 
in international markets for international offset 
credits for reduced emissions from deforestation; and 
‘‘(3) preserve existing forest carbon stocks in 
countries where such forest carbon may be vulner-
able to international leakage, particularly in devel-
oping countries with largely intact native forests. 
‘‘SEC. 754. REQUIREMENTS FOR INTERNATIONAL DEFOR-
ESTATION REDUCTION PROGRAM. 
‘‘(a) ELIGIBLE
COUNTRIES.—The Administrator 
may support activities under this part only with respect 
to a developing country that— 
‘‘(1) the Administrator, in consultation with the 
Administrator of USAID, determines is experiencing 
deforestation or forest degradation or has standing 
forest carbon stocks that may be at risk of deforest-
ation or degradation; and 
‘‘(2) has entered into a bilateral or multilateral 
agreement or arrangement with the United States 
establishing the conditions of its participation in the 
program established under this part, which shall in-
clude an agreement to meet the standards estab-
lished under subsection (d) for the activities to 
which those standards apply. 
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‘‘(b) ACTIVITIES.—(1) Subject to the requirements of 
this part, the Administrator, in consultation with the Ad-
ministrator of USAID, may support activities to achieve 
the objectives identified in section 753(b), including— 
‘‘(A) national deforestation reduction ac-
tivities; 
‘‘(B) subnational deforestation reduction 
activities, including pilot activities that reduce 
greenhouse gas emissions but are subject to sig-
nificant uncertainty; 
‘‘(C) activities to measure, monitor, and 
verify deforestation, avoided deforestation, and 
deforestation rates; 
‘‘(D) leakage prevention activities; 
‘‘(E) development of measurement, moni-
toring, and verification capacities to enable a 
country to quantify supplemental emissions re-
ductions and to generate for sale offset credits 
from reduced or avoided deforestation; 
‘‘(F) development of governance structures 
to reduce deforestation and illegal logging; 
‘‘(G) enforcement of requirements for re-
duced deforestation or forest conservation; 
‘‘(H) efforts to combat illegal logging and 
increase enforcement cooperation; 
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‘‘(I) providing incentives for policy reforms 
to achieve the objectives identified in section 
753(b); and 
‘‘(J) monitoring and evaluation of the re-
sults of the activities conducted under this sec-
tion. 
‘‘(2) ACTIVITIES SELECTED BY USAID.— 
‘‘(A) The Administrator of USAID, in con-
sultation with the Administrator, may select for 
support and implementation pursuant to sub-
section (c) any of the activities described in 
paragraph (1), consistent with this part and the 
regulations promulgated under subsection (d), 
and subject to the requirement to achieve the 
objectives listed in section 753(b)(1). 
‘‘(B) With respect to the activities listed in 
subparagraphs (iv) through (x) of this section, 
the Administrator of USAID, in consultation 
with the Administrator, shall have primary but 
not exclusive responsibility for selecting the ac-
tivities to be supported and implemented. 
‘‘(3) INTERAGENCY COORDINATION.—The Ad-
ministrator and the Administrator of USAID shall 
jointly develop and biennially update a strategic plan 
for meeting the objectives listed in section 753(b) 
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and shall execute a memorandum of understanding 
delineating the agencies’ respective roles in imple-
menting this part. 
‘‘(c) MECHANISMS.— 
‘‘(1) IN
GENERAL.—The Administrator may 
support activities to achieve the objectives identified 
in section 753(b) by— 
‘‘(A) developing and implementing pro-
grams and projects that achieve such objectives; 
and 
‘‘(B) distributing emission allowances to a 
country that is eligible under subsection (a), to 
any private or public group (including inter-
national organizations), or to an international 
fund established by an international agreement 
to which the United States is a party, to carry 
out activities to achieve such objectives. 
‘‘(2) USAID ACTIVITIES.—With respect to ac-
tivities selected and implemented by the Adminis-
trator of USAID pursuant to (b)(2), the Adminis-
trator shall distribute emission allowances as pro-
vided in subparagraph (1) based upon the direction 
of the Administrator of USAID, subject to the avail-
ability of allowances for such activities. 
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‘‘(3) 
IMPLEMENTATION
THROUGH
INTER-
NATIONAL
ORGANIZATIONS.—If support is distrib-
uted through an international organization, the 
agency responsible for selecting activities in accord-
ance with subparagraph (b)(1) or (2), in consulta-
tion with the Secretary of State, shall ensure the es-
tablishment and implementation of adequate mecha-
nisms to apply and enforce the eligibility require-
ments and other requirements of this section. 
‘‘(4) ROLE OF THE SECRETARY OF STATE.— 
The Administrator may not distribute emission al-
lowances to the government of another country or to 
an international organization or international fund 
unless the Secretary of State has concurred with 
such distribution. 
‘‘(d) STANDARDS.—The Administrator, in consulta-
tion with the Administrator of USAID, shall promulgate 
standards to ensure that supplemental emissions reduc-
tions achieved through supported activities are additional, 
measurable, verifiable, permanent, monitored, and account 
for leakage and uncertainty. In addition, such standards 
shall— 
‘‘(1) require the establishment of a national de-
forestation baseline for each country with national 
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deforestation reduction activities that is used to ac-
count for reductions achieved from such activities; 
‘‘(2) provide that a national deforestation base-
line established under paragraph (1) shall— 
‘‘(A) be national in scope; 
‘‘(B) be consistent with nationally appro-
priate mitigation commitments or actions with 
respect to deforestation, taking into consider-
ation the average annual historical deforestation 
rates of the country during a period of at least 
years 
and 
other 
factors 
to 
ensure 
additionality; 
‘‘(C) establish a trajectory that would re-
sult in zero net deforestation by not later than 
20 years from the date the baseline is estab-
lished; 
‘‘(D) be adjusted over time to take account 
of changing national circumstances; 
‘‘(E) be designed to account for all signifi-
cant sources of greenhouse gas emissions from 
deforestation in the country; and 
‘‘(F) be consistent with the national defor-
estation baseline, if any, established for such 
country under section 743(e)(4); 
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‘‘(3) with respect to support provided pursuant 
to subsection (b)(1) or (2), require supplemental 
emissions reductions to be achieved and verified 
prior to compensation through the distribution of 
emission allowances under this part; 
‘‘(4) with respect to accounting for subnational 
deforestation reduction activities that lack the stand-
ardized or precise measurement and monitoring 
techniques needed for a full accounting of changes 
in emissions or baselines, or are subject to other 
sources of uncertainty, apply a conservative discount 
factor to reflect the uncertainty regarding the levels 
of reductions achieved; 
‘‘(5) ensure that activities under this part shall 
be designed, carried out, and managed— 
‘‘(A) in accordance with widely accepted, 
environmentally sustainable forestry practices; 
and 
‘‘(B) to promote native species and con-
servation or restoration of native forests, if 
practicable, and to avoid the introduction of 
invasive nonnative species; and 
‘‘(6) with respect to support for all activities 
under this part, seek to ensure the establishment 
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and enforcement by the recipient country of legal re-
gimes, standards, and safeguards that— 
‘‘(A) give due regard to the rights and in-
terests of local communities, indigenous and 
forest-dependent peoples, and vulnerable social 
groups; 
‘‘(B) promote consultations with local com-
munities and indigenous and forest-dependent 
peoples in affected areas, as partners and pri-
mary stakeholders, prior to and during the de-
sign, planning, implementation, monitoring, and 
evaluation of activities under this part; and 
‘‘(C) encourage sharing of profits from in-
centives for emissions reductions or leakage 
prevention with local communities and indige-
nous and forest-dependent peoples. 
‘‘(e) EXPANSION OF SCOPE.—The Administrator, in 
consultation with the Administrator of USAID, may de-
cide, taking into account any advice from the Advisory 
Board, to expand, where appropriate, the scope of activi-
ties under this part to include— 
‘‘(1) reduced emissions from forest degradation; 
or 
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‘‘(2) reduced soil carbon-derived emissions asso-
ciated with deforestation and degradation of forested 
wetlands and peatlands. 
‘‘(f) ACCOUNTING.—The Administrator shall estab-
lish a publicly accessible registry of the supplemental emis-
sions reductions achieved through support provided under 
this part each year, after appropriately discounting for un-
certainty and other relevant factors as required by the 
standards established under subsection (d). 
‘‘(g) TRANSITION TO NATIONAL REDUCTIONS.—Be-
ginning 5 years after the date that a country entered into 
the agreement or arrangement required under subsection 
(a)(2), the Administrator shall provide no further com-
pensation through emission allowances to that country 
under this part for any subnational deforestation reduc-
tion activities, except that the Administrator may extend 
this period by an additional 5 years if the Administrator, 
in consultation with the Administrator of USAID, deter-
mines that— 
‘‘(1) the country is making substantial progress 
towards adopting and implementing a program to 
achieve reductions in deforestation measured against 
a national baseline; 
‘‘(2) the greenhouse gas emissions reductions 
achieved are not resulting in significant leakage; and 
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‘‘(3) the greenhouse gas emissions reductions 
achieved are being appropriately discounted to ac-
count for any leakage that is occurring. 
The limitation under this subsection shall not apply to 
support for activities to further the objectives listed in sec-
tion 753(b)(2) or (3). 
‘‘(h) COORDINATION WITH U.S. FOREIGN ASSIST-
ANCE.—Subject to the Direction of the President, the Ad-
ministrator and the Administrator of USAID shall, to the 
extent practicable and consistent with the objectives of 
this program, seek to align activities under this section 
with broader development, poverty alleviation, or natural 
resource management objectives and initiatives in the re-
cipient country. 
‘‘(i) SUPPORT AS SUPPLEMENT.—The provision of 
support for activities under this part shall be used to sup-
plement, and not to supplant, any other Federal, State, 
or local support available to carry out such qualifying ac-
tivities under this part. 
‘‘SEC. 755. REPORTS AND REVIEWS. 
‘‘(a) REPORTS.—Not later than January 1, 2014, 
and annually thereafter, the Administrator and the Ad-
ministrator of USAID shall submit to the Committee on 
Energy and Commerce and the Committee on Foreign Af-
fairs of the House of Representatives, and the Committee 
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on Environment and Public Works and the Committee on 
Foreign Relations of the Senate, and make available to 
the public, a report on the support provided under this 
part during the prior fiscal year. The report shall in-
clude— 
‘‘(1) a statement of the quantity of supple-
mental emissions reductions for which compensation 
was provided under this part during the prior fiscal 
year, as registered by the Administrator under sec-
tion 754(f); and 
‘‘(2) a description of the national and sub-
national deforestation reduction activities, capacity- 
building activities, and leakage prevention activities 
supported under this part, including a statement of 
the quantity of emission allowances distributed to 
each recipient for each activity during the prior fis-
cal year, and a description of what was accomplished 
through each of the activities. 
‘‘(b) REVIEWS.—Not later than 4 years after the date 
of enactment of this title and every 5 years thereafter, 
the Administrator and the Administrator of USAID and 
taking into consideration any evaluation by or rec-
ommendations from the Advisory Board established under 
section 731, shall conduct a review of the activities under-
taken pursuant to this part and make any appropriate 
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changes in the program established under this part based 
on the findings of the review. The review shall include the 
effects of the activities on— 
‘‘(1) total documented carbon stocks of each 
country that directly or indirectly received support 
under this part compared with such country’s na-
tional deforestation baseline established under sec-
tion 754(d)(1); 
‘‘(2) the number of countries with the capacity 
to generate for sale instruments in the nature of off-
set credits from forest-related activities, and the 
amount of such activities; 
‘‘(3) forest governance in each country that di-
rectly or indirectly received support under this part; 
‘‘(4) indigenous and forest-dependent peoples 
residing in areas affected by such activities; 
‘‘(5) biodiversity and ecosystem services within 
forested areas associated with the activities; 
‘‘(6) international leakage; and 
‘‘(7) any program or mechanism established 
under the United Nations Framework Convention on 
Climate Change related to greenhouse gas emissions 
from deforestation. 
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‘‘SEC. 756. LEGAL EFFECT OF PART. 
‘‘(1) IN GENERAL.—Nothing in this part super-
sedes, limits, or otherwise affects any restriction im-
posed by Federal law (including regulations) on any 
interaction between an entity located in the United 
States and an entity located in a foreign country. 
‘‘(2) ROLE OF THE SECRETARY OF STATE.— 
Nothing in this part shall be construed as affecting 
the role of the Secretary of State or the responsibil-
ities of the Secretary under section 622 (c) of the 
Foreign Assistance Act of 1961.’’. 
SEC. 312. DEFINITIONS. 
Title VII of the Clean Air Act, as added by section 
311 of this Act, is amended by inserting before part A 
the following new section: 
‘‘SEC. 700. DEFINITIONS. 
‘‘In this title: 
‘‘(1) 
ADDITIONAL.—The 
term 
‘additional’, 
when used with respect to reductions or avoidance of 
greenhouse gas emissions, or to sequestration of 
greenhouse gases, means reductions, avoidance, or 
sequestration that result in a lower level of net 
greenhouse gas emissions or atmospheric concentra-
tions than would occur in the absence of an offset 
project. 
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‘‘(2) ADDITIONALITY.—The term ‘additionality’ 
means the extent to which reductions or avoidance 
of greenhouse gas emissions, or sequestration of 
greenhouse gases, are additional. 
‘‘(3) ADVISORY
BOARD.—The term ‘Advisory 
Board’ means the Offsets Integrity Advisory Board 
established under section 731. 
‘‘(4) AFFILIATED.—The term ‘affiliated’— 
‘‘(A) when used in relation to an entity 
means owned or controlled by, or under com-
mon ownership or control with, another entity, 
as determined by the Administrator; and 
‘‘(B) when used in relation to a natural 
gas local distribution company, means owned or 
controlled by, or under common ownership or 
control with, another natural gas local distribu-
tion company, as determined by the Adminis-
trator. 
‘‘(5) 
ALLOWANCE.—The 
term 
‘allowance’ 
means a limited authorization to emit, or have at-
tributable greenhouse gas emissions in an amount 
of, 1 ton of carbon dioxide equivalent of a green-
house gas in accordance with this title, including an 
emission allowance, a compensatory allowance, or an 
international emission allowance. 
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‘‘(6) ATTRIBUTABLE GREENHOUSE GAS EMIS-
SIONS.—The term ‘attributable greenhouse gas emis-
sions’ means— 
‘‘(A) for a covered entity that is a fuel pro-
ducer 
or 
importer 
described 
in 
section 
700(14)(B), greenhouse gases that would be 
emitted from the combustion of any petroleum- 
based or coal-based liquid fuel, petroleum coke, 
or natural gas liquid, produced or imported by 
that covered entity for sale or distribution in 
interstate commerce, assuming no capture and 
sequestration of any greenhouse gas emissions; 
‘‘(B) for a covered entity that is an indus-
trial gas producer or importer described in sec-
tion 700(14)(C), the tons of carbon dioxide 
equivalent of carbon dioxide, nitrous oxide, any 
fluorinated gas, other than nitrogen trifluoride, 
that is a greenhouse gas, or any combination 
thereof— 
‘‘(i) produced or imported by such 
covered entity during the previous calendar 
year for sale or distribution in interstate 
commerce; or 
‘‘(ii) released as fugitive emissions in 
the production of fluorinated gas; and 
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‘‘(C) for a natural gas local distribution 
company described in section 700(14)(I), green-
house gases that would be emitted from the 
combustion of the natural gas, and any other 
gas meeting the specifications for commingling 
with natural gas for purposes of delivery, that 
such entity delivered during the previous cal-
endar year to customers that are not covered 
entities, assuming no capture and sequestration 
of that greenhouse gas. 
‘‘(7) 
BIOLOGICAL
SEQUESTRATION; 
BIO-
LOGICALLY
SEQUESTERED.—The terms ‘biological 
sequestration’ and ‘biologically sequestered’ mean 
the removal of greenhouse gases from the atmos-
phere by terrestrial biological means, such as by 
growing plants, and the storage of those greenhouse 
gases in plants or soils. 
‘‘(8) CAPPED
EMISSIONS.—The term ‘capped 
emissions’ means greenhouse gas emissions to which 
section 722 applies, including emissions from the 
combustion of natural gas, petroleum-based or coal- 
based liquid fuel, petroleum coke, or natural gas liq-
uid to which section 722(a)(2) or (7) applies. 
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‘‘(9) CAPPED
SOURCE.—The term ‘capped 
source’ means a source that directly emits capped 
emissions. 
‘‘(10) CARBON
DIOXIDE
EQUIVALENT.—The 
term ‘carbon dioxide equivalent’ means the unit of 
measure, expressed in metric tons, of greenhouse 
gases as provided under section 711 or 712. 
‘‘(11) CARBON
STOCK.—The term ‘carbon 
stock’ means the quantity of carbon contained in a 
biological reservoir or system which has the capacity 
to accumulate or release carbon. 
‘‘(12) COMPENSATORY ALLOWANCE.—The term 
‘compensatory allowance’ means an allowance issued 
under section 721(f). 
‘‘(13) COVERED
ENTITY.—The term ‘covered 
entity’ means each of the following: 
‘‘(A) Any electricity source. 
‘‘(B) Any stationary source that produces, 
and any entity that (or any group of two or 
more affiliated entities that, in the aggregate) 
imports, for sale or distribution in interstate 
commerce in 2008 or any subsequent year, pe-
troleum-based or coal-based liquid fuel, petro-
leum coke, or natural gas liquid, the combus-
tion of which would emit more than 25,000 
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tons of carbon dioxide equivalent, as determined 
by the Administrator. 
‘‘(C) Any stationary source that produces, 
and any entity that (or any group of two or 
more affiliated entities that, in the aggregate) 
imports, for sale or distribution in interstate 
commerce in bulk or products designated by the 
Administrator for sale or distribution in inter-
state commerce in 2008 or any subsequent year 
more than 25,000 tons of carbon dioxide equiv-
alent of— 
‘‘(i) fossil fuel-based carbon dioxide; 
‘‘(ii) nitrous oxide; 
‘‘(iii) perfluorocarbons; 
‘‘(iv) sulfur hexafluoride; 
‘‘(v) any other fluorinated gas, except 
for nitrogen trifluoride, that is a green-
house gas, as designated by the Adminis-
trator under section 711(b) or (c); or 
‘‘(vi) any combination of greenhouse 
gases described in clauses (i) through (vi). 
‘‘(D) Any geologic sequestration site. 
‘‘(E) Any stationary source in the fol-
lowing industrial sectors: 
‘‘(i) Adipic acid production. 
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‘‘(ii) Primary aluminum production. 
‘‘(iii) Ammonia manufacturing. 
‘‘(iv) Cement production, excluding 
grinding-only operations. 
‘‘(v) Hydrochlorofluorocarbon produc-
tion. 
‘‘(vi) Lime manufacturing. 
‘‘(vii) Nitric acid production. 
‘‘(viii) Petroleum refining. 
‘‘(ix) Phosphoric acid production. 
‘‘(x) Silicon carbide production. 
‘‘(xi) Soda ash production. 
‘‘(xii) Titanium dioxide production. 
‘‘(xiii) Coal-based liquid or gaseous 
fuel production. 
‘‘(F) Any stationary source in the chemical 
or petrochemical sector that, in 2008 or any 
subsequent year— 
‘‘(i) produces acrylonitrile, carbon 
black, ethylene, ethylene dichloride, ethyl-
ene oxide, or methanol; or 
‘‘(ii) produces a chemical or petro-
chemical product if producing that product 
results in annual combustion plus process 
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emissions of 25,000 or more tons of carbon 
dioxide equivalent. 
‘‘(G) Any stationary source that— 
‘‘(i) is in one of the following indus-
trial sectors: ethanol production; ferroalloy 
production; fluorinated gas production; 
food processing; glass production; hydrogen 
production; iron and steel production; lead 
production; pulp and paper manufacturing; 
and zinc production; and 
‘‘(ii) has emitted 25,000 or more tons 
of carbon dioxide equivalent in 2008 or 
any subsequent year. 
‘‘(H) Any fossil fuel-fired combustion de-
vice (such as a boiler) or grouping of such de-
vices that— 
‘‘(i) is all or part of an industrial 
source not specified in subparagraph (E), 
(F), or (G); and 
‘‘(ii) has emitted 25,000 or more tons 
of carbon dioxide equivalent in 2008 or 
any subsequent year. 
‘‘(I) Any natural gas local distribution 
company that (or any group of 2 or more affili-
ated natural gas local distribution companies 
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that, in the aggregate) in 2008 or any subse-
quent year, delivers 460,000,000 cubic feet or 
more of natural gas to customers that are not 
covered entities. 
‘‘(J) Any stationary source that has emit-
ted 25,000 or more tons of carbon dioxide 
equivalent emission of nitrogen trifluoride in 
2008 or any subsequent year. 
‘‘(14) CREDITING PERIOD.—The term ‘crediting 
period’ means the period with respect to which an 
offset project is eligible to earn offset credits under 
part D, as determined under section 734(c). 
‘‘(15) DESIGNATED
REPRESENTATIVE.—The 
term ‘designated representative’ means, with respect 
to a covered entity, a reporting entity, an offset 
project developer, or any other entity receiving or 
holding allowances or offset credits under this title, 
an individual authorized, through a certificate of 
representation submitted to the Administrator by 
the owners and operators, to represent the owners 
and operators in all matters pertaining to this title 
(including the holding, transfer, or disposition of al-
lowances or offset credits), and to make all submis-
sions to the Administrator under this title. 
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‘‘(16) DEVELOPING COUNTRY.—The term ‘de-
veloping country’ means a country eligible to receive 
official development assistance according to the in-
come guidelines of the Development Assistance Com-
mittee of the Organization for Economic Coopera-
tion and Development. 
‘‘(17) DOMESTIC OFFSET CREDIT.—The term 
‘domestic offset credit’ means an offset credit issued 
under part D, other than an international offset 
credit. 
‘‘(18) ELECTRICITY SOURCE.—The term ‘elec-
tricity source’ means a stationary source that in-
cludes one or more utility units. 
‘‘(19) EMISSION.—The term ‘emission’ means 
the release of a greenhouse gas into the ambient air. 
Such term does not include gases that are captured 
and sequestered, except to the extent that they are 
later released into the atmosphere, in which case 
they shall be subject to section 722(a)(4). 
‘‘(20) EMISSION ALLOWANCE.—The term ‘emis-
sion allowance’ means an allowance established 
under section 721(a) or section 726(g)(2) or 
(h)(1)(C). 
‘‘(21) FAIR MARKET VALUE.—The term ‘fair 
market value’ means the average daily closing price 
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on registered exchanges or, if such a price is un-
available, the average price as determined by the Ad-
ministrator, during a specified time period, of an 
emission allowance. 
‘‘(22) FEDERAL
LAND.—The term ‘Federal 
land’ means land that is owned by the United 
States, other than land held in trust for an Indian 
or Indian tribe. 
‘‘(23) FOSSIL
FUEL.—The term ‘fossil fuel’ 
means natural gas, petroleum, coal, or any form of 
solid, liquid, or gaseous fuel derived from such mate-
rial, including consumer products that are derived 
from such materials and are combusted. 
‘‘(24) FOSSIL
FUEL-FIRED.—The term ‘fossil 
fuel-fired’ means powered by combustion of fossil 
fuel, alone or in combination with any other fuel, re-
gardless of the percentage of fossil fuel consumed. 
‘‘(25) FUGITIVE EMISSIONS.—The term ‘fugi-
tive emissions’ means emissions from leaks, valves, 
joints, or other small openings in pipes, ducts, or 
other equipment, or from vents. 
‘‘(26) GEOLOGIC
SEQUESTRATION; GEOLOGI-
CALLY SEQUESTERED.—The terms ‘geologic seques-
tration’ and ‘geologically sequestered’ mean the se-
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questration of greenhouse gases in subsurface geo-
logic formations for purposes of permanent storage. 
‘‘(27) GEOLOGIC
SEQUESTRATION
SITE.—The 
term ‘geologic sequestration site’ means a site where 
carbon dioxide is geologically sequestered. 
‘‘(28) GREENHOUSE
GAS.—The term ‘green-
house gas’ means any gas described in section 
711(a) or designated under section 711(b), (c), or 
(d), except to the extent that it is regulated under 
title VI. 
‘‘(29) HIGH CONSERVATION PRIORITY LAND.— 
The term ‘high conservation priority land’ means 
land that is not Federal land and is— 
‘‘(A) globally or State ranked as critically 
imperiled or imperiled under a State Natural 
Heritage Program; or 
‘‘(B) old-growth or late-successional forest, 
as identified by the office of the State Forester 
or relevant State agency with regulatory juris-
diction over forestry activities. 
‘‘(30) HOLD.—The term ‘hold’ means, with re-
spect to an allowance or offset credit, to have in the 
appropriate account in the allowance tracking sys-
tem, or submit to the Administrator for recording in 
such account. 
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‘‘(31) INDUSTRIAL SOURCE.—The term ‘indus-
trial source’ means any stationary source that— 
‘‘(A) is not an electricity source; and 
‘‘(B) is in— 
‘‘(i) the manufacturing sector (as de-
fined in North American Industrial Classi-
fication System codes 31, 32, and 33); or 
‘‘(ii) the natural gas processing or 
natural gas pipeline transportation sector 
(as defined in North American Industrial 
Classification System codes 211112 or 
486210). 
‘‘(32) 
INTERNATIONAL
EMISSION
ALLOW-
ANCE.—The term ‘international emission allowance’ 
means a tradable authorization to emit 1 ton of car-
bon dioxide equivalent of greenhouse gas that is 
issued by a national or supranational foreign govern-
ment pursuant to a qualifying international program 
designated by the Administrator pursuant to section 
728(a). 
‘‘(33) INTERNATIONAL FOREST CARBON ACTIVI-
TIES.—The term ‘international forest carbon activi-
ties’ means national or subnational activities in 
countries other than the United States that are di-
rected at— 
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‘‘(A) reducing greenhouse gas emissions 
from deforestation or forest degradation; or 
‘‘(B) increasing sequestration of carbon 
through— 
‘‘(i) afforestation or reforestation of 
acreage not forested as of January 1, 
2009; 
‘‘(ii) restoration of degraded land or 
forest; or 
‘‘(iii) improved forest management. 
‘‘(34) INTERNATIONAL OFFSET CREDIT.—The 
term ‘international offset credit’ means an offset 
credit issued by the Administrator under section 
743. 
‘‘(35) LEAKAGE.—The term ‘leakage’ means a 
significant increase in greenhouse gas emissions, or 
significant decrease in sequestration, which is caused 
by an offset project and occurs outside the bound-
aries of the offset project. 
‘‘(36) MINERAL
SEQUESTRATION.—The term 
‘mineral sequestration’ means sequestration of car-
bon dioxide from the atmosphere by capturing car-
bon dioxide into a permanent mineral, such as the 
aqueous precipitation of carbonate minerals that re-
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sults in the storage of carbon dioxide in a mineral 
form. 
‘‘(37) NATURAL GAS LIQUID.—The term ‘nat-
ural gas liquid’ means ethane, butane, isobutene nat-
ural gasoline, and propane which is ready for com-
mercial sale or use. 
‘‘(38) NATURAL
GAS
LOCAL
DISTRIBUTION 
COMPANY.—The term ‘natural gas local distribution 
company’ has the meaning given the term ‘local dis-
tribution company’ in section 2(17) of the Natural 
Gas Policy Act of 1978 (15 U.S.C. 3301(17)). 
‘‘(39) OFFSET CREDIT.—The term ‘offset cred-
it’ means a credit issued under part D. 
‘‘(40) OFFSET
PROJECT.—The term ‘offset 
project’ means a project or activity that reduces or 
avoids greenhouse gas emissions, or sequesters 
greenhouse gases, and for which offset credits are 
issued under part D. 
‘‘(41) OFFSET
PROJECT
DEVELOPER.—The 
term ‘offset project developer’ means the individual 
or entity designated as the offset project developer 
in an offset project approval petition under section 
735(c)(1). 
‘‘(42) PETROLEUM.—The term ‘petroleum’ in-
cludes crude oil, tar sands, oil shale, and heavy oils. 
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‘‘(43) RENEWABLE
BIOMASS.—The term ‘re-
newable biomass’ means any of the following: 
‘‘(A) Plant material, including waste mate-
rial, harvested or collected from actively man-
aged agricultural land that was in cultivation, 
cleared, or fallow and nonforested on the date 
of enactment; 
‘‘(B) Plant material, including waste mate-
rial, harvested or collected from pastureland 
that was nonforested on the date of enactment; 
‘‘(C) Nonhazardous vegetative matter de-
rived from waste, including separated yard 
waste, landscape right-of-way trimmings, con-
struction and demolition debris or food waste 
(but not municipal solid waste, recyclable waste 
paper, painted, treated or pressurized wood, or 
wood contaminated with plastic or metals); 
‘‘(D) Animal waste or animal byproducts, 
including products of animal waste digesters; 
‘‘(E) Algae; 
‘‘(F) Trees, brush, slash, residues, or any 
other vegetative matter removed from within 
600 feet of any building, campground, or route 
designated for evacuation by a public official 
with responsibility for emergency preparedness, 
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or from within 300 feet of a paved road, electric 
transmission line; utility tower, or water supply 
line; 
‘‘(G) Residues from or byproducts of 
milled logs; 
‘‘(H) Any of the following removed from 
forested land that is not Federal and is not 
high conservation priority land: 
‘‘(i) Trees, brush, slash, residues, 
interplanted energy crops, or any other 
vegetative matter removed from an actively 
managed tree plantation established— 
‘‘(I) prior to the date of enact-
ment of this section; or 
‘‘(II) on land that, as of the date 
of enactment of this section, was cul-
tivated or fallow and non-forested. 
‘‘(ii) Trees, logging residue, thinnings, 
cull trees, pulpwood, and brush removed 
from naturally regenerated forests or other 
non-plantation forests, including for the 
purposes of hazardous fuel reduction or 
preventative treatment for reducing or con-
taining insect or disease infestation. 
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‘‘(iii) Logging residue, thinnings, cull 
trees, pulpwood, brush and species that are 
non-native and noxious, from stands that 
were planted and managed after the enact-
ment of this sentence to restore or main-
tain native forest types. 
‘‘(iv) Dead or severely damaged trees 
removed within 5 years of fire, blowdown, 
or other natural disaster, and badly in-
fested trees. 
‘‘(I) Materials, pre-commercial thinnings, 
or removed invasive species from National For-
est System land and public lands (as defined in 
section 103 of the Federal Land Policy and 
Management Act of 1976 (43 U.S.C. 1702)), 
including those that are byproducts of preven-
tive treatments (such as trees, wood, brush, 
thinnings, chips, and slash), that are removed 
as part of a federally recognized timber sale, or 
that are removed to reduce hazardous fuels, to 
reduce or contain disease or insect infestation, 
or to restore ecosystem health, and that are— 
‘‘(i) not from are not from compo-
nents of the National Wilderness Preserva-
tion System, Wilderness Study Areas, 
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Inventoried Roadless Areas, old growth or 
mature forest stands, components of the 
National Landscape Conservation System, 
National Monuments, National Conserva-
tion Areas, Designated Primitive Areas; or 
Wild and Scenic Rivers corridors; 
‘‘(ii) harvested in environmentally sus-
tainable quantities, as determined by the 
appropriate Federal land manager; and 
‘‘(iii) are harvested in accordance with 
Federal and State law, and applicable land 
management plans. 
‘‘(44) RETIRE.—The term ‘retire’, with respect 
to an allowance or offset credit established or issued 
under this title, means to disqualify such allowance 
or offset credit for any subsequent use under this 
title, regardless of whether the use is a sale, ex-
change, or submission of the allowance or offset 
credit to satisfy a compliance obligation. 
‘‘(45) REVERSAL.—The term ‘reversal’ means 
an intentional or unintentional loss of sequestered 
greenhouse gases to the atmosphere. 
‘‘(46) SEQUESTERED AND SEQUESTRATION.— 
The terms ‘sequestered’ and ‘sequestration’ mean 
the separation, isolation, or removal of greenhouse 
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gases from the atmosphere, as determined by the 
Administrator. The terms include biological, geo-
logic, and mineral sequestration, but do not include 
ocean fertilization techniques. 
‘‘(47) STATIONARY
SOURCE.—The term ‘sta-
tionary source’ means any integrated operation com-
prising any plant, building, structure, or stationary 
equipment, including support buildings and equip-
ment, that is located within one or more contiguous 
or adjacent properties, is under common control of 
the same person or persons, and emits or may emit 
a greenhouse gas. 
‘‘(48) STRATEGIC RESERVE ALLOWANCE.—The 
term ‘strategic reserve allowance’ means an emission 
allowance reserved for, transferred to, or deposited 
in the strategic reserve, or established, under section 
726. 
‘‘(49) TON
OF
CARBON
DIOXIDE
EQUIVA-
LENT.—The term ‘ton of carbon dioxide equivalent’ 
has the meaning specified in section 712(b) or deter-
mined by the Administrator under section 711 or 
712. 
‘‘(50) UNCAPPED EMISSIONS.—The term ‘un-
capped emissions’ means emissions of greenhouse 
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gases emitted after December 31, 2011, that are not 
capped emissions. 
‘‘(51) UNITED STATES GREENHOUSE GAS EMIS-
SIONS.—The term ‘United States greenhouse gas 
emissions’ means the total quantity of annual green-
house gas emissions from the United States, as cal-
culated by the Administrator and reported to the 
United Nations Framework Convention on Climate 
Change Secretariat. 
‘‘(52) UTILITY UNIT.—The term ‘utility unit’ 
means a combustion device that, on January 1, 
2009, or any date thereafter, is fossil fuel-fired and 
serves a generator that produces electricity for sale, 
unless such combustion device, during the 12-month 
period starting the later of January 1, 2009, or the 
commencement of commercial operation and each 
calendar year starting after such later date— 
‘‘(A) is part of an integrated cycle system 
that cogenerates steam and electricity during 
normal operation and that supplies one-third or 
less of its potential electric output capacity and 
25 MW or less of electrical output for sale; or 
‘‘(B) combusts materials of which more 
than 95 percent is municipal solid waste on a 
heat input basis. 
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‘‘(53) VINTAGE YEAR.—The term ‘vintage year’ 
means the calendar year for which an emission al-
lowance is established under section 721(a) or which 
is assigned to an emission allowance under section 
726(g)(3)(A), except that the vintage year for a 
strategic reserve allowance shall be the year in which 
such allowance is purchased at auction.’’. 
Subtitle B—Disposition of 
Allowances 
SEC. 321. DISPOSITION OF ALLOWANCES FOR GLOBAL 
WARMING 
POLLUTION 
REDUCTION 
PRO-
GRAM. 
Title VII of the Clean Air Act, as added by section 
311 of this Act, is amended by adding at the end the fol-
lowing part: 
‘‘PART H—DISPOSITION OF ALLOWANCES 
‘‘SEC. 781. ALLOCATION OF ALLOWANCES FOR SUPPLE-
MENTAL REDUCTIONS. 
‘‘(a) IN GENERAL.—The Administrator shall allocate 
for each vintage year the following percentage of the emis-
sion allowances established under section 721(a), for dis-
tribution in accordance with part E: 
‘‘(1) For vintage years 2012 through 2025, 5 
percent. 
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‘‘(2) For vintage years 2026 through 2030, 3 
percent. 
‘‘(3) For vintage years 2031 through 2050, 2 
percent. 
‘‘(b) ADJUSTMENT.—The Administrator shall modify 
the percentages set forth in subsection (a) as necessary 
to ensure the achievement of the annual supplemental 
emission reduction objective for 2020, and the cumulative 
reduction objective through 2025, set forth in section 
753(b)(1). 
‘‘(c) CARRYOVER.—If the Administrator has not dis-
tributed all of the allowances allocated pursuant to this 
section for a given vintage year by the end of that year, 
the Administrator shall— 
‘‘(1) auction the remaining emission allowances 
under section 791 not later than March 31 of the 
year following that vintage year; and 
‘‘(2) increase the allocation for the vintage year 
after the vintage year for which emission allowances 
were undistributed by the amount of undistributed 
emission allowances. 
‘‘SEC. 782. ALLOCATION OF EMISSION ALLOWANCES. 
‘‘(a) ELECTRICITY CONSUMERS.—The Administrator 
shall allocate emission allowances for the benefit of elec-
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tricity consumers, to be distributed in accordance with sec-
tion 783 in the following amounts: 
‘‘(1) For vintage years 2012 and 2013, 43.75 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(2) For vintage years 2014 and 2015, 38.89 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(3) For vintage years 2016 through 2025, 
35.00 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(4) For vintage year 2026, 28 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(5) For vintage year 2027, 21 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(6) For vintage year 2028, 14 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(7) For vintage year 2029, 7 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(b) NATURAL GAS CONSUMERS.—The Adminis-
trator shall allocate emission allowances for the benefit of 
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natural gas consumers to be distributed in accordance 
with section 784 in the following amounts: 
‘‘(1) For vintage years 2016 through 2025, 9 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(2) For vintage year 2026, 7.2 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(3) For vintage year 2027, 5.4 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(4) For vintage year 2028, 3.6 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(5) For vintage year 2029, 1.8 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(c) HOME HEATING OIL
AND PROPANE CON-
SUMERS.—The Administrator shall allocate emission al-
lowances for the benefit of home heating oil and propane 
consumers to be distributed in accordance with section 
785 in the following amounts: 
‘‘(1) For vintage years 2012 and 2013, 1.875 
percent of the emission allowances established for 
each year under section 721(a). 
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‘‘(2) For vintage years 2014 and 2015, 1.67 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(3) For vintage years 2016 through 2025, 1.5 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(4) For vintage year 2026, 1.2 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(5) For vintage year 2027, 0.9 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(6) For vintage year 2028, 0.6 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(7) For vintage year 2029, 0.3 percent of the 
emission allowances established for each year under 
section 721(a). 
‘‘(d) LOW INCOME CONSUMERS.—For each vintage 
year starting in 2012, the Administrator shall auction 15 
percent of the emission allowances established for each 
year under section 721(a), pursuant to section 791, with 
the proceeds used for the benefit of low income consumers 
to fund the program set forth in subtitle C of title IV of 
American Clean Energy and Security Act of 2009. 
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‘‘(e) TRADE-VULNERABLE INDUSTRIES.—The Ad-
ministrator shall allocate emission allowances to energy- 
intensive, trade-exposed entities, to be distributed in ac-
cordance with part F, in the following amounts: 
‘‘(1) For vintage years 2012 and 2013, up to 
2.0 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(2) For vintage years 2014, up to 15 percent 
of the emission allowances established for that year 
under section 721(a). 
‘‘(3) For vintage years 2015 through 2025, the 
maximum number of allowances that shall be dis-
tributed shall decline by the same amount that the 
annual reduction target set forth in section 702 de-
clines (which is 1.75 percentage points annually for 
2015 through 2020, and 2.5 percentage points an-
nually from 2021 through 2025). 
‘‘(4) For vintage years 2026 through 2050, the 
maximum number of allowances that shall be dis-
tributed shall decline by the same amount that the 
annual reduction target set forth in section 702 de-
clines (which is 2.5 percentage points annually for 
2026 through 2030, and 1.55 percentage points an-
nually from 2031 through 2050) and shall be multi-
plied by a factor, which shall be 90 percent in 2026 
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and decline 10 percentage points a year until it 
reaches zero, unless the President sets a different 
factor under section 767(c)(3)(A), that shall not ex-
ceed 100 percent. 
‘‘(f) DEPLOYMENT OF CARBON CAPTURE AND SE-
QUESTRATION TECHNOLOGY.— 
‘‘(1) ANNUAL
ALLOCATION.—The Adminis-
trator shall allocate emission allowances for the de-
ployment of carbon capture and sequestration tech-
nology to be distributed in accordance with section 
786 in the following amounts: 
‘‘(A) For vintage years 2014 through 
2017, 2 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(B) For vintage years 2018 through 
2050, 5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(2) CARRYOVER.—If the Administrator has 
not distributed all of the allowances allocated pursu-
ant to this section for a given vintage year by the 
end of that year, the Administrator shall— 
‘‘(A) auction those emission allowances 
under section 791 not later than March 31 of 
the year following that vintage year; and 
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‘‘(B) increase the allocation under this 
subsection for the vintage year after the vintage 
year for which emission allowances were 
undisbursed by the amount of undisbursed 
emission allowances. 
‘‘(g) INVESTMENT IN ENERGY EFFICIENCY AND RE-
NEWABLE ENERGY.—The Administrator shall allocate 
emission allowances to invest in energy efficiency and re-
newable energy as follows: 
‘‘(1) To be distributed in accordance with sec-
tion 132 of the American Clean Energy and Security 
Act of 2009 in the following amounts: 
‘‘(A) For vintage years 2012 through 
2015, 9.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(B) For vintage years 2016 through 
2017, 7.0 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(C) For vintage years 2018 through 
2021, 6.0 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(D) For vintage years 2022 through 
2025, 1.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
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‘‘(E) For vintage years 2026 through 
2050, 4.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(F) At the same time the vintage year 
2022 through 2025 allowances are distributed, 
3.55 percent of emission allowances established 
under section 721(a) for the vintage year four 
years greater shall also be distributed (which 
shall be in addition to the emission allowances 
in subparagraph (E)). 
‘‘(2) To be distributed in accordance with sec-
tion 201 of the American Clean Energy and Security 
Act of 2009 in the amount of 0.5 percent of emis-
sion allowances established under section 721(a) for 
each vintage year from 2012 through 2050. 
‘‘(h) CLEAN ENERGY INNOVATION CENTERS.—The 
Administrator shall allocate 1 percent of emission allow-
ances for each vintage year from 2012 through 2050 to 
be distributed to Clean Energy Innovation Centers in ac-
cordance with section 181 of the American Clean Energy 
and Security Act of 2009. 
‘‘(i) INVESTMENT
IN
CLEAN
VEHICLE
TECH-
NOLOGY.—The Administrator shall allocate emission al-
lowances to invest in the development and deployment of 
clean vehicles, to be distributed in accordance with section 
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124 of the American Clean Energy and Security Act of 
2009 in the following amounts: 
‘‘(1) For vintage years 2012 through 2017, 3 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(2) For vintage years 2018 through 2025, 1 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(j) DOMESTIC FUEL PRODUCTION.—For vintage 
years 2014 through 2026, the Administrator shall allocate 
2.0 percent of the emission allowances established under 
section 721(a) to domestic refiners, to be distributed in 
accordance with part F. 
‘‘(k) INVESTMENT IN WORKERS.—The Administrator 
shall auction pursuant to section 791 emission allowances 
for workers in the following amounts and shall report to 
the Secretary of Labor the amount of proceeds from the 
sale of these allowances: 
‘‘(1) For vintage years 2012 through 2021, 0.5 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(2) For vintage years 2022 through 2050, 1.0 
percent of the emission allowances established for 
each year under section 721(a). 
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‘‘(l) DOMESTIC ADAPTATION.—The Administrator 
shall allocate emission allowances for domestic adaptation 
as follows: 
‘‘(1) To be distributed in accordance with sec-
tion 453 of the American Clean Energy and Security 
Act in the following amounts: 
‘‘(A) For vintage years 2012 through 
2021, 0.9 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(B) For vintage years 2022 through 
2026, 1.9 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(C) For vintage years 2027 through 
2050, 3.9 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(2) For vintage year 2012 and thereafter, the 
Administrator shall auction 0.1 percent of the emis-
sion allowances established for each year under sec-
tion 721(a), pursuant to section 791, and shall de-
posit the proceeds in the Climate Change Health 
Protection and Promotion Fund established by sec-
tion 467 of the American Clean Energy and Security 
Act. 
‘‘(m) WILDLIFE AND NATURAL RESOURCE ADAPTA-
TION.—The Administrator shall auction pursuant to sec-
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tion 791 emission allowances for domestic wildlife and nat-
ural resource adaptation in the amounts listed in para-
graphs (1) through (3) and shall deposit the proceeds from 
the sale of these allowances in the Natural Resources Cli-
mate Change Adaptation Account established pursuant to 
section 480(a) of the American Clean Energy and Security 
Act. Funds so deposited shall be available for expenditure, 
without further appropriation or fiscal year limitation. 
‘‘(1) For vintage years 2012 through 2021, 1.0 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(2) For vintage years 2022 through 2026, 2.0 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(3) For vintage years 2027 through 2050, 4.0 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(n) INTERNATIONAL ADAPTATION.—The Adminis-
trator shall allocate emission allowances for international 
adaptation to be distributed in accordance with part 2 of 
subtitle E of title IV of the American Clean Energy and 
Security Act in the following amounts: 
‘‘(1) For vintage years 2012 through 2021, 1.0 
percent of the emission allowances established for 
each year under section 721(a). 
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and not distributed by March 31 of the calendar 
year following the allowance’s vintage year, shall be 
auctioned by the Administrator and the proceeds 
shall be deposited into the Treasury. 
‘‘(3) For auctions conducted through vintage 
year 2025 pursuant to subsection (p), the auction 
proceeds shall be deposited into the Treasury. 
‘‘(r) CLIMATE CHANGE CONSUMER DIVIDEND.—For 
each of vintage years 2026 through 2050, the Adminis-
trator shall auction pursuant to section 791 any allowance 
established under section 721(a) for that year and not des-
ignated for distribution or auction pursuant to subsections 
(a) through (p), and place the proceeds from the sale of 
these allowances in the Climate Change Dividend Fund. 
For auctions conducted in 2026 and thereafter pursuant 
to subsection (p), the auction proceeds shall be deposited 
into the Climate Change Dividend Fund. Funds so depos-
ited shall be available for expenditure, without further ap-
propriation or fiscal year limitation. 
‘‘SEC. 783. ELECTRICITY CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) ELECTRICITY LOCAL DISTRIBUTION COM-
PANY.—The term ‘electricity local distribution com-
pany’ means an electric utility— 
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‘‘(A) that has a legal, regulatory, or con-
tractual obligation to deliver electricity directly 
to retail consumers in the United States, re-
gardless of whether that entity or another enti-
ty sells the electricity as a commodity to those 
retail consumers; and 
‘‘(B) the retail rates of which, except in 
the case of a registered electric cooperative, are 
regulated by a State regulatory authority, regu-
latory commission, municipality, public utility, 
or by an Indian tribe pursuant to tribal law. 
‘‘(2) LONG-TERM CONTRACT GENERATOR.—The 
term ‘long-term contract generator’ means a quali-
fying small power production facility or a qualifying 
cogeneration facility (within the meaning of section 
3(17)(C) or 3(18)(B) of the Federal Power Act), or 
a new independent power production facility (within 
the meaning of section 416(a)(2) of this Act, except 
that subparagraph (C) of such definition shall not 
apply for purposes of this paragraph), that is— 
‘‘(A) a covered entity; 
‘‘(B) as of the commencement of operation, 
a facility consisting of one or more utility units 
with total installed net output capacity (in 
MWe) of no more than 130 percent of the fa-
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cility’s total planned net output capacity (in 
MWe); 
‘‘(C) as of the date of enactment of this 
title, a facility with a power sales agreement ex-
ecuted before January 1, 2007, that governs 
the facility’s electricity sales and provides for 
sales at a price (whether a fixed price or a price 
formula) for electricity that does not allow for 
recovery of the costs of compliance with the lim-
itation on greenhouse gas emissions under this 
title; and 
‘‘(B) not a merchant coal generator (within 
the meaning of paragraph (3)). 
‘‘(3) MERCHANT COAL GENERATOR.—The term 
‘merchant coal generator’ means an electric genera-
tion facility that— 
‘‘(A) is a covered entity; 
‘‘(B) derives at least 85 percent of its heat 
input from coal, petroleum coke, or any com-
bination of these 2 fuels; 
‘‘(C) is not owned by a Federal, State, or 
regional agency or power authority; and 
‘‘(D) generates electricity for sale to oth-
ers, provided that such sales are not subject 
to— 
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‘‘(i) retail rate regulation by a State 
public utility commission; or 
‘‘(ii) self-regulation of rates by a local 
government, State agency, or electric coop-
erative. 
‘‘(4) STATE
REGULATORY
AUTHORITY.—The 
term ‘State regulatory authority’ has the meaning 
given that term in section 3(17) of the Public Utility 
Regulatory Policies Act of 1978 (16 U.S.C. 
2602(17)). 
‘‘(b) ELECTRICITY LOCAL DISTRIBUTION COMPA-
NIES.— 
‘‘(1) ALLOCATION.—Not later than June 30 of 
2011 and each calendar year thereafter through 
2028, the Administrator shall distribute to electricity 
local distribution companies the quantity of emission 
allowances allocated for the electricity sector for the 
following vintage year pursuant to section 782(a), 
provided that the Administrator shall first subtract 
from such quantity and distribute or reserve for dis-
tribution the quantity of emission allowances for the 
relevant vintage year that are required for distribu-
tion under subsections (c) and (d) of this section. 
‘‘(2) DISTRIBUTION OF ALLOWANCES.— 
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‘‘(A) DISTRIBUTION
BASED
ON
EMIS-
SIONS.— 
‘‘(i) IN GENERAL.—For each vintage 
year, 50 percent of the emission allowances 
available for distribution under paragraph 
(1) shall be distributed by the Adminis-
trator among individual electricity local 
distribution companies ratably based on 
the annual average carbon dioxide emis-
sions attributable to generation of elec-
tricity sold at retail by each such company 
during— 
‘‘(I) calendar years 2006 through 
2008; or 
‘‘(II) any 3 consecutive calendar 
years between 1999 and 2008, inclu-
sive, that such company selects, pro-
vided that the company timely informs 
the Administrator of such selection. 
‘‘(ii) 
DETERMINATION
OF
EMIS-
SIONS.—As part of the regulations promul-
gated pursuant to subsection (e), the Ad-
ministrator, after consultation with the 
Energy Information Administration, shall 
determine the average amount of carbon 
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dioxide emissions attributable to genera-
tion of electricity sold at retail by each 
electricity local distribution company for 
each of the years 1999 through 2008. 
Such determinations shall be as precise as 
practicable, taking into account the nature 
of data currently available and the nature 
of markets and regulation in effect in var-
ious regions of the country. The following 
requirements shall apply to such deter-
minations: 
‘‘(I) The Administrator shall de-
termine the amount of fossil fuel- 
based electricity delivered at retail by 
each electricity local distribution com-
pany, and shall use appropriate emis-
sion factors to calculate carbon diox-
ide emissions associated with the gen-
eration of such electricity. 
‘‘(II) Where it is not practical to 
determine the precise fuel mix for the 
electricity delivered at retail by an in-
dividual electricity local distribution 
company, the Administrator may use 
the best available data, including aver-
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age data on a regional basis with ref-
erence to Regional Transmission Or-
ganizations or regional entities (as 
that term is defined in section 
215(a)(7) of the Federal Power Act 
(16 U.S.C. 824o(a)(7)), to estimate 
fuel mix and emissions. Different 
methodologies may be applied in dif-
ferent regions if appropriate to obtain 
the most accurate estimate. 
‘‘(B) DISTRIBUTION
BASED
ON
DELIV-
ERIES.— 
‘‘(i) 
INITIAL
ALLOCATION
FOR-
MULA.—Except as provided in clause (ii), 
for each vintage year, the Administrator 
shall distribute 50 percent of the emission 
allowances allocated under paragraph (1) 
of this subsection among individual elec-
tricity local distribution companies ratably 
based on each electricity local distribution 
company’s annual average retail electricity 
deliveries for 2006 through 2008, unless 
the owner or operator of the company se-
lects 3 other consecutive years between 
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1999 and 2008, inclusive, and timely noti-
fies the Administrator of its selection. 
‘‘(ii) UPDATING.—Prior to distrib-
uting 2015 vintage emission allowances 
under this subparagraph and at 3-year in-
tervals thereafter, the Administrator shall 
update the distribution formula under this 
subparagraph to reflect changes in each 
electricity local distribution company’s 
service territory since the most recent for-
mula was established. For each successive 
3-year period, the Administrator shall dis-
tribute allowances ratably among indi-
vidual electricity local distribution compa-
nies based on the product of— 
‘‘(I) each electricity local dis-
tribution company’s average annual 
deliveries per customer during cal-
endar years 2006 through 2008, or 
during the 3 alternative consecutive 
years selected by such company under 
clause (i); and 
‘‘(II) the number of customers of 
such electricity local distribution com-
pany in the most recent year in which 
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the formula is updated under this 
clause. 
‘‘(3) USE OF ALLOWANCES.— 
‘‘(A) RATEPAYER BENEFIT.—Emission al-
lowances distributed to an electricity local dis-
tribution company under this subsection shall 
be used exclusively for the benefit of retail rate-
payers of such electricity local distribution com-
pany. Emission allowances received by an elec-
tricity local distribution company under this 
subsection may not be used to support elec-
tricity sales to entities or persons other than 
the retail ratepayers of such electricity local dis-
tribution company. 
‘‘(B) 
RATEPAYER
CLASSES.—In 
using 
emission allowances distributed under this sec-
tion for the benefit of ratepayers, an electricity 
local distribution company shall ensure that 
ratepayer benefits are distributed— 
‘‘(i) among ratepayer classes ratably 
based on electricity deliveries to each class; 
and 
‘‘(ii) equitably among individual rate-
payers within each ratepayer class, includ-
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ing entities that receive emission allow-
ances pursuant to part F. 
‘‘(C) LIMITATION.—No electricity local dis-
tribution company may use emission allowances 
to provide to any ratepayer a rebate that is 
based solely on the quantity of electricity deliv-
ered to such ratepayer. To the extent an elec-
tricity local distribution company uses the value 
of emission allowances distributed under this 
subsection to provide rebates, it shall, to the 
maximum extent practicable, provide such re-
bates with regard to the fixed portion of rate-
payers’ bills. 
‘‘(D) GUIDELINES.—As part of the regula-
tions promulgated under subsection (e), the Ad-
ministrator shall prescribe specific guidelines 
for the implementation of the requirements of 
this paragraph. 
‘‘(4) REGULATORY PROCEEDINGS.— 
‘‘(A) REQUIREMENT.—No electricity local 
distribution company shall be eligible to receive 
emission allowances under this subsection un-
less the State regulatory authority with author-
ity over such company, or the entity with au-
thority to regulate retail electricity rates of an 
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electricity local distribution company not regu-
lated by a State regulatory authority, has— 
‘‘(i) promulgated a regulation or com-
pleted a rate proceeding (or the equivalent, 
in the case of a ratemaking entity other 
than a State regulatory authority) that 
provides for the full implementation of the 
requirements of paragraph (3) of this sub-
section; and 
‘‘(ii) made available to the Adminis-
trator and the public a report describing, 
in adequate detail, the manner in which 
the requirements of paragraph (3) will be 
implemented. 
‘‘(B) UPDATING.—The Administrator shall 
require, as a condition of continued receipt of 
emission allowances under this subsection by an 
electricity local distribution company, that a 
new regulation be promulgated or rate pro-
ceeding be completed, and a new report be 
made available to the Administrator and the 
public, pursuant to subparagraph (A), not less 
frequently than every 5 years. 
‘‘(5) PLANS AND REPORTING.— 
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‘‘(A) REGULATIONS.—As part of the regu-
lations promulgated under subsection (e), the 
Administrator shall prescribe requirements gov-
erning plans and reports to be submitted by 
electricity local distribution companies in ac-
cordance with this paragraph. 
‘‘(B) PLANS.—Not later than April 30 of 
2011 and every 5 years thereafter through 
2026, each electricity local distribution com-
pany shall submit to the Administrator a plan, 
approved by the State regulatory authority or 
other entity charged with regulating the retail 
rates of such company, describing such com-
pany’s plans for the disposition of the value of 
emission allowances to be received pursuant to 
this subsection, in accord with the requirements 
of this subsection. 
‘‘(C) REPORTS.—Not later than June 30 
of 2013 and each calendar year thereafter 
through 2031, each electricity local distribution 
company that received emission allowances 
under this subsection in the preceding calendar 
year shall submit a report to the Administrator, 
and to the relevant State regulatory authority 
or the entity with authority to regulate retail 
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electricity rates in the case of an electricity 
local distribution company not regulated by a 
State regulatory authority, describing the dis-
position of the value of any emission allowances 
received by the company in the prior calendar 
year pursuant to this subsection, including— 
‘‘(i) a description of sales, transfer, 
exchange, or use by the company for com-
pliance with obligations under this title, of 
any such emission allowances; 
‘‘(ii) the monetary value received by 
the company, whether in money or in some 
other form, from the sale, transfer, or ex-
change of emission allowances received by 
the company under this section; 
‘‘(iii) the manner in which the com-
pany’s disposition of emission allowances 
received under this subsection complies 
with the requirements of this subsection, 
including each of the requirements of para-
graph (3); and 
‘‘(iv) such other information as the 
Administrator may require pursuant to 
subparagraph (A). 
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‘‘(D) PUBLICATION.—The Administrator 
shall make available to the public all plans and 
reports submitted by electricity local distribu-
tion companies under this section, including by 
publishing such plans and reports on the Inter-
net. 
‘‘(6) AUDITS.—Each year, the Administrator 
shall conduct an audit of a representative sample of 
electricity local distribution companies receiving 
emission allowances under this subsection to ensure 
compliance with the requirements of this subsection. 
In selecting electricity local distribution companies 
for audit, the Administrator shall take into account 
any credible evidence of noncompliance with the re-
quirements of this subsection. The Administrator 
shall make available to the public a report describing 
the results of each such audit, including by pub-
lishing such report on the Internet. 
‘‘(7) ENFORCEMENT.—A violation of any re-
quirement of this subsection shall be a violation of 
this Act. Each emission allowance the value of which 
is used in violation of the requirements of this sub-
section shall be a separate violation. 
‘‘(c) MERCHANT COAL GENERATORS.— 
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‘‘(1) QUALIFYING EMISSIONS.—The qualifying 
emissions for a merchant coal generator for a given 
calendar year shall be the product of the number of 
megawatt hours of electricity generated by such gen-
erator in such calendar year and the average carbon 
dioxide emissions per megawatt hour generated by 
such generator during calendar years 2006 through 
2008, provided that the number of megawatt hours 
in a given calendar year for purposes of such cal-
culation shall be reduced in proportion to the portion 
of such generator’s carbon dioxide emissions that 
were captured and sequestered in such calendar year 
and for which such generator received or will receive 
bonus emission allowances under section 785. 
‘‘(2) PHASE-DOWN SCHEDULE.—The Adminis-
trator shall identify an annual phase-down factor, 
applicable to distributions to merchant coal genera-
tors for each of calendar years 2012 through 2029, 
that corresponds to the overall decline in the amount 
of emission allowances to be allocated to the elec-
tricity sector in such years pursuant to section 
782(a). Such factor shall— 
‘‘(A) for calendar year 2012, be equal to 
1.0; 
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‘‘(B) for each of calendar years 2013 
through 2029, correspond to the quotient of— 
‘‘(i) the quantity of emission allow-
ances to be allocated to the electricity sec-
tor under section 782(a) for such calendar 
year; divided by 
‘‘(ii) the quantity of emission allow-
ances to be allocated to the electricity sec-
tor under section 782(a) for calendar year 
2012. 
‘‘(3) DISTRIBUTION
OF
EMISSION
ALLOW-
ANCES.—Not later than March 1 of 2013 and each 
calendar year through 2030, the Administrator shall 
distribute emission allowances of the preceding vin-
tage year to each merchant coal generator equal to 
the product of— 
‘‘(A) 0.5; 
‘‘(B) the qualifying emissions for such 
merchant coal generator for the preceding year, 
as determined under paragraph (1); and 
‘‘(C) the phase-down factor for the pre-
ceding calendar year, as identified under para-
graph (2). 
‘‘(4) ADJUSTMENT.— 
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‘‘(A) STUDY.—Not later than July 1, 
2014, the Administrator, in consultation with 
the Federal Energy Regulatory Commission, 
shall complete a study to determine whether the 
allocation formula under paragraph (3) is re-
sulting in, or is likely to result in, windfall prof-
its to merchant coal generators or substantially 
disparate treatment of merchant coal genera-
tors operating in different markets or regions. 
‘‘(B) REGULATION.—If the Administrator, 
in consultation with the Federal Energy Regu-
latory Commission, makes an affirmative find-
ing of windfall profits or disparate treatment 
under subparagraph (A), the Administrator 
shall, not later than 18 months after the com-
pletion of the study described in subparagraph 
(A), promulgate regulations providing for the 
adjustment of the allocation formula under 
paragraph (3) to mitigate, to the extent prac-
ticable, such windfall profits, if any, and such 
disparate treatment, if any. 
‘‘(5) LIMITATION ON ALLOWANCES.—Notwith-
standing paragraph (3) or (4), for any vintage year 
the Administrator shall distribute under this sub-
section no more than 10 percent of the total quan-
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tity of emission allowances available for such vintage 
year for distribution to the electricity sector under 
section 782(a). If the quantity of emission allow-
ances that would otherwise be distributed pursuant 
to paragraph (3) or (4) for any vintage year would 
exceed such limit, the Administrator shall distribute 
10 percent of the total emission allowances available 
for distribution under section 782(a) for such vin-
tage year ratably among merchant coal generators 
based on the formula in paragraph (3) or (4). 
‘‘(d) GENERATORS WITH LONG-TERM POWER PUR-
CHASE AGREEMENTS.— 
‘‘(1) 
RESERVED
ALLOWANCES.—Notwith-
standing subsections (b) and (c) of this section, the 
Administrator shall withhold from distribution to 
electricity local distribution companies a number of 
emission allowances equal to 105 percent of the 
emission allowances the Administrator anticipates 
will be distributed to long-term contract generators 
under this subsection. If not required to distribute 
all of these reserved allowances under this sub-
section, the Administrator shall distribute any re-
maining emission allowances to the electricity local 
distribution companies in accordance with subsection 
(b). 
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‘‘(2) DISTRIBUTION.—Not later than March 1 
of 2013 and each calendar year through 2030, the 
Administrator shall distribute to the owner or oper-
ator of each long-term contract generator the num-
ber of emission allowances of the preceding vintage 
year that are equal to the number of tons of carbon 
dioxide emitted as a result of a qualifying long-term 
power purchase agreement referred to in subsection 
(a)(2)(C). 
‘‘(3) DURATION.—A long-term contract gener-
ator shall cease to be eligible to receive allocations 
under this subsection upon the earliest of the fol-
lowing dates: 
‘‘(A) The date when the facility no longer 
qualifies as a qualifying small power production 
facility or a qualifying cogeneration facility 
(within the meaning of section 3(17)(C) or 
3(18)(B) of the Federal Power Act), or a new 
independent power production facility (within 
the meaning of section 416(a)(2) of this Act, 
except that subparagraph (C) of such definition 
shall not apply for purposes of this clause). 
‘‘(B) The date when the facility no longer 
meets the total installed net output capacity cri-
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terion required to be met as of the commence-
ment of operation in subsection (a)(2)(B). 
‘‘(C) The date when the power purchase 
agreement referred to in subsection (a)(2)(C)— 
‘‘(i) expires; 
‘‘(ii) is terminated; or 
‘‘(iii) is amended in any way that 
changes the location of the facility, the 
price (whether a fixed price or price for-
mula) for electricity sold under such agree-
ment, the quantity of electricity sold under 
the agreement, or the expiration or termi-
nation date of the agreement. 
‘‘(4) ELIGIBILITY.—To be eligible to receive al-
lowance distributions under this subsection, a long- 
term contract generator shall submit each of the fol-
lowing in writing to the Administrator within 180 
days after the date of enactment of this title, and 
not later than September 30 of each vintage year for 
which such generator wishes to receive emission al-
lowances: 
‘‘(A) A certificate of representation de-
scribed in section 700(16). 
‘‘(B) An identification of each owner and 
each operator of the facility. 
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‘‘(C) An identification of the units at the 
facility and the location of the facility. 
‘‘(D) A written certification by the des-
ignated representative that the facility meets all 
the requirements of the definition of a long- 
term contract generator. 
‘‘(E) The expiration date of the power pur-
chase agreement referred to in subsection 
(a)(2)(C). 
‘‘(F) A copy of the power purchase agree-
ment referred to in subsection (a)(2)(C). 
‘‘(5) NOTIFICATION.—Not later than 30 days 
after a facility loses, in accordance with paragraph 
(3), its eligibility for emission allowances distributed 
pursuant to this subsection, the designated rep-
resentative of such facility shall notify the Adminis-
trator in writing when, and on what basis, the facil-
ity lost its eligibility to receive emission allowances. 
‘‘(e) REGULATIONS.—Not later than 2 years after the 
date of enactment of this title, the Administrator, in con-
sultation with the Federal Energy Regulatory Commis-
sion, shall promulgate regulations to implement the re-
quirements of this section. 
‘‘SEC. 784. NATURAL GAS CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
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‘‘(1) NATURAL GAS LOCAL DISTRIBUTION COM-
PANY.—The term ‘natural gas local distribution 
company’ means a natural gas local distribution 
company that is a covered entity. 
‘‘(2) COST-EFFECTIVE.—The term ‘cost-effec-
tive’, with respect to an energy efficiency program, 
means that the program meets the Total Resource 
Cost Test, which requires that the net present value 
of economic benefits over the life of the program, in-
cluding avoided supply and delivery costs and de-
ferred or avoided investments, is greater than the 
net present value of the economic costs over the life 
of the program, including program costs and incre-
mental costs borne by the energy consumer. 
‘‘(b) ALLOCATION.—Not later than June 30 of 2015 
and each calendar year thereafter through 2028, the Ad-
ministrator shall distribute to natural gas local distribu-
tion companies the quantity of emission allowances allo-
cated for the following vintage year pursuant to section 
782(b). Such allowances shall be distributed among local 
natural gas distribution companies based on the following 
formula: 
‘‘(1) INITIAL FORMULA.—Except as provided in 
paragraph (2), for each vintage year, the Adminis-
trator shall distribute emission allowances among 
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natural gas local distribution companies ratably 
based on each such company’s annual average retail 
natural gas deliveries for 2006 through 2008, unless 
the owner or operator of the company selects 3 other 
consecutive years between 1999 and 2008, inclusive, 
and timely notifies the Administrator of its selection. 
‘‘(2) UPDATING.—Prior to distributing 2019 
vintage emission allowances and at 3-year intervals 
thereafter, the Administrator shall update the dis-
tribution formula under this subsection to reflect 
changes in each natural gas local distribution com-
pany’s service territory since the most recent for-
mula was established. For each successive 3-year pe-
riod, the Administrator shall distribute allowances 
ratably among natural gas local distribution compa-
nies based on the product of— 
‘‘(A) each natural gas local distribution 
company’s average annual natural gas deliveries 
per customer during calendar years 2006 
through 2008, or during the 3 alternative con-
secutive years selected by such company under 
paragraph (1); and 
‘‘(B) the number of customers of such nat-
ural gas local distribution company in the most 
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recent year in which the formula is updated 
under this paragraph. 
‘‘(c) USE OF ALLOWANCES.— 
‘‘(1) RATEPAYER
BENEFIT.—Emission allow-
ances distributed to a natural gas local distribution 
company under this section shall be used exclusively 
for the benefit of retail ratepayers of such natural 
gas local distribution company. Emission allowances 
received by a natural gas local distribution company 
under this section may not be used to support nat-
ural gas sales to entities or persons other than the 
retail ratepayers of such natural gas local distribu-
tion company. 
‘‘(2) RATEPAYER CLASSES.—In using emission 
allowances distributed under this section for the ben-
efit of ratepayers, a natural gas local distribution 
company shall ensure that ratepayer benefits are 
distributed— 
‘‘(A) among ratepayer classes ratably 
based on natural gas deliveries to each class; 
and 
‘‘(B) equitably among individual ratepayers 
within each ratepayer class. 
‘‘(3) LIMITATION.—No natural gas local dis-
tribution company may use emission allowances to 
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provide to any ratepayer a rebate that is based solely 
on the quantity of natural gas delivered to such 
ratepayer. To the extent a natural gas local distribu-
tion company uses the value of emission allowances 
distributed under this subsection to provide rebates, 
it shall, to the maximum extent practicable, provide 
such rebates with regard to the fixed portion of rate-
payers’ bills. 
‘‘(4) ENERGY
EFFICIENCY
PROGRAMS.—The 
value of no less than one third of the emission allow-
ances distributed to natural gas local distribution 
companies pursuant to this section in any calendar 
year shall be used for cost-effective energy efficiency 
programs for natural gas consumers. Such programs 
must be authorized and overseen by the State regu-
latory authority, or by the entity with regulatory au-
thority over retail natural gas rates in the case of 
a natural gas local distribution company that is not 
regulated by a State regulatory authority. 
‘‘(5) GUIDELINES.—As part of the regulations 
promulgated under subsection (h), the Administrator 
shall prescribe specific guidelines for the implemen-
tation of the requirements of this subsection. 
‘‘(d) REGULATORY PROCEEDINGS.— 
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‘‘(1) REQUIREMENT.—No natural gas local dis-
tribution company shall be eligible to receive emis-
sion allowances under this section unless the State 
regulatory authority with authority over such com-
pany, or the entity with authority to regulate retail 
rates of a natural gas local distribution company not 
regulated by a State regulatory authority, has— 
‘‘(A) promulgated a regulation or com-
pleted a rate proceeding (or the equivalent, in 
the case of a ratemaking entity other than a 
State regulatory authority) that provides for 
the full implementation of the requirements of 
subsection (c); and 
‘‘(B) made available to the Administrator 
and the public a report describing, in adequate 
detail, the manner in which the requirements of 
subsection (c) will be implemented. 
‘‘(2) UPDATING.—The Administrator shall re-
quire, as a condition of continued receipt of emission 
allowances under this section by a natural gas local 
distribution company, that a new regulation be pro-
mulgated or rate proceeding be completed, and a 
new report be made available to the Administrator 
and the public, pursuant to paragraph (1), not less 
frequently than every 5 years. 
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‘‘(e) PLANS AND REPORTING.— 
‘‘(1) REGULATIONS.—As part of the regulations 
promulgated under subsection (h), the Administrator 
shall prescribe requirements governing plans and re-
ports to be submitted by natural gas local distribu-
tion companies in accordance with this subsection. 
‘‘(2) PLANS.—Not later than April 30 of 2015 
and every 5 years thereafter through 2025, each 
natural gas local distribution company shall submit 
to the Administrator a plan, approved by the State 
regulatory authority or other entity charged with 
regulating the retail rates of such company, describ-
ing such company’s plans for the disposition of the 
value of emission allowances to be received pursuant 
to this section, in accord with the requirements of 
this section. 
‘‘(3) REPORTS.—Not later than June 30 of 
2017 and each calendar year thereafter through 
2031, each natural gas local distribution company 
that received emission allowances under this section 
in the preceding calendar year shall submit a report 
to the Administrator, approved by the relevant State 
regulatory authority or the entity with authority to 
regulate retail natural gas rates in the case of a nat-
ural gas local distribution company not regulated by 
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a State regulatory authority, describing the disposi-
tion of the value of any emission allowances received 
by the company in the prior calendar year pursuant 
to this subsection, including— 
‘‘(A) a description of sales, transfer, ex-
change, or use by the company for compliance 
with obligations under this title, of any such 
emission allowances; 
‘‘(B) the monetary value received by the 
company, whether in money or in some other 
form, from the sale, transfer, or exchange of 
emission allowances received by the company 
under this section; 
‘‘(C) the manner in which the company’s 
disposition of emission allowances received 
under this subsection complies with the require-
ments of this section, including each of the re-
quirements of subsection (c); 
‘‘(D) the cost-effectiveness of, and energy 
savings achieved by, energy efficiency programs 
supported through such emission allowances; 
and 
‘‘(E) such other information as the Admin-
istrator may require pursuant to paragraph (1). 
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‘‘(4) PUBLICATION.—The Administrator shall 
make available to the public all plans and reports 
submitted by natural gas local distribution compa-
nies under this subsection, including by publishing 
such plans and reports on the Internet. 
‘‘(f) AUDITS.—Each year, the Administrator shall 
conduct an audit of a representative sample of natural gas 
local distribution companies receiving emission allowances 
under this section to ensure compliance with the require-
ments of this section. In selecting natural gas local dis-
tribution companies for audit, the Administrator shall 
take into account any credible evidence of noncompliance 
with the requirements of this section. The Administrator 
shall make available to the public a report describing the 
results of each such audit, including by publishing such 
report on the Internet. 
‘‘(g) ENFORCEMENT.—A violation of any require-
ment of this section shall be a violation of this Act. Each 
emission allowance the value of which is used in violation 
of the requirements of this section shall be a separate vio-
lation. 
‘‘(h) REGULATIONS.—Not later than January 1, 
2014, the Administrator, in consultation with the Federal 
Energy Regulatory Commission, shall promulgate regula-
tions to implement the requirements of this section. 
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‘‘SEC. 785. HOME HEATING OIL AND PROPANE CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) CARBON
CONTENT.—The term ‘carbon 
content’ means the amount of carbon dioxide that 
will be emitted as a result of the combustion of a 
fuel. 
‘‘(2) COST-EFFECTIVE.—The term ‘cost-effec-
tive’, with respect to an energy efficiency program, 
means that the program meets the Total Resource 
Cost Test, which requires that the net present value 
of economic benefits over the life of the program, in-
cluding avoided supply and delivery costs and de-
ferred or avoided investments, is greater than the 
net present value of the economic costs over the life 
of the program, including program costs and incre-
mental costs borne by the energy consumer. 
‘‘(b) ALLOCATION.—Not later than September 30 of 
each of calendar years 2012 through 2030, the Adminis-
trator shall distribute among the States, in accordance 
with this section, the quantity of emission allowances allo-
cated pursuant to section 782(c). 
‘‘(c) DISTRIBUTION AMONG STATES.—The Adminis-
trator shall distribute allowances among the States under 
this section each year ratably based on the ratio of— 
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‘‘(1) the carbon content of home heating oil and 
propane sold to consumers within each State in the 
preceding year for residential or commercial uses; to 
‘‘(2) the carbon content of home heating oil and 
propane sold to consumers within the United States 
in the preceding year for residential or commercial 
uses. 
‘‘(d) USE OF ALLOWANCES.— 
‘‘(1) IN GENERAL.—States shall use emission 
allowances distributed under this section exclusively 
for the benefit of consumers of home heating oil or 
propane for residential or commercial purposes. 
Such proceeds shall be used exclusively for— 
‘‘(A) cost-effective energy efficiency pro-
grams for consumers that use home heating oil 
or propane for residential or commercial pur-
poses; or 
‘‘(B) rebates or other direct financial as-
sistance programs for consumers of home heat-
ing oil or propane used for residential or com-
mercial purposes. 
‘‘(2) ADMINISTRATION AND DELIVERY MECHA-
NISMS.—In administering programs supported by 
this section, States shall— 
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‘‘(A) use no less than 50 percent of the 
value of emission allowances received under this 
section for cost-effective efficiency programs to 
reduce consumers’ overall fuel costs; 
‘‘(B) to the extent practicable, deliver con-
sumer support under this section through exist-
ing energy efficiency and consumer energy as-
sistance programs or delivery mechanisms, in-
cluding, where appropriate, programs or mecha-
nisms administered by parties other than the 
State; and 
‘‘(C) seek to coordinate the administration 
and delivery of energy efficiency and consumer 
energy assistance programs funded under this 
section, with one another and with existing pro-
grams for various fuel types, so as to deliver 
comprehensive, fuel-blind, coordinated programs 
to consumers. 
‘‘(e) REPORTING.—Each State receiving emission al-
lowances under this section shall submit to the Adminis-
trator, within 12 months of each receipt of such allow-
ances, a report, in accordance with such requirements as 
the Administrator may prescribe, that— 
‘‘(1) describes the State’s use of emission allow-
ances distributed under this section, including a de-
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scription of the energy efficiency and consumer as-
sistance programs supported with such allowances; 
‘‘(2) demonstrates the cost-effectiveness of, and 
the energy savings achieved by, energy efficiency 
programs supported under this section; and 
‘‘(3) includes a report prepared by an inde-
pendent third party, in accordance with such regula-
tions as the Administrator may promulgate, evalu-
ating the performance of the energy efficiency and 
consumer assistance programs supported under this 
section. 
‘‘(f) ENFORCEMENT.—If the Administrator deter-
mines that a State is not in compliance with this section, 
the Administrator may withhold a portion of the allow-
ances, the value of which is equal to up to twice the value 
of the allowances that the State failed to use in accordance 
with the requirements of this section, that such State 
would otherwise be eligible to receive under this section 
in later years. Allowances withheld pursuant to this sub-
section shall be distributed among the remaining States 
ratably in accordance with the formula in subsection (c). 
‘‘SEC. 786–788. øSECTIONS RESERVED¿. 
‘‘SEC. 789. CLIMATE CHANGE REBATES. 
‘‘(a) REBATE.—Not later than October 31 of each 
calendar year, the President, or such Federal agency or 
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department as the President may designate, shall dis-
tribute the funds in the Consumer Climate Change Rebate 
Fund on a per capita basis to each household in the 
United States. 
‘‘(b) LIMITATIONS.—The President, or such Federal 
agency or department as the President may designate, 
shall establish procedures to ensure that individuals who 
are not— 
‘‘(1) citizens or nationals of the United States; 
or 
‘‘(2) immigrants lawfully residing in the United 
States, 
are excluded for the purpose of calculating and distrib-
uting rebates under this section. 
‘‘SEC. 790. EXCHANGE FOR STATE-ISSUED ALLOWANCES. 
‘‘(a) IN GENERAL.—Not later than one year after the 
date of enactment of this title, the Administrator shall 
issue regulations allowing any person in the United States 
to exchange greenhouse gas emission allowances issued be-
fore December 31, 2011, by the State of California or for 
the Regional Greenhouse Gas Initiative, or the Western 
Climate Initiative (in this section referred to as ‘State al-
lowances’) for emission allowances established by the Ad-
ministrator under section 721(a). 
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‘‘(b) REGULATIONS.—Regulations issued under sub-
section (a) shall— 
‘‘(1) provide that a person exchanging State al-
lowances under this section receive emission allow-
ances established under section 721(a) in the 
amount that is sufficient to compensate for the cost 
of obtaining and holding such State allowances; 
‘‘(2) establish a deadline by which persons must 
exchange the State allowances; and 
‘‘(3) provide that the Federal emission allow-
ances disbursed pursuant to this section shall be de-
ducted from the allowances to be auctioned pursuant 
to section 782(b). 
‘‘(c) COST OF OBTAINING STATE ALLOWANCE.—For 
purposes of this section, the cost of obtaining a State al-
lowance shall be the average auction price, for emission 
allowances issued in the year in which the State allowance 
was issued, under the program under which the State al-
lowance was issued. 
‘‘SEC. 791. AUCTION PROCEDURES. 
‘‘(a) IN GENERAL.—To the extent that auctions of 
emission allowances by the Administrator are authorized 
by this part, such auctions shall be carried out pursuant 
to this section and the regulations established hereunder. 
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‘‘(b) INITIAL REGULATIONS.—Not later than 12 
months after the date of enactment of this title, the Ad-
ministrator, in consultation with other agencies, as appro-
priate, shall promulgate regulations governing the auction 
of allowances under this section. Such regulations shall in-
clude the following requirements: 
‘‘(1) FREQUENCY; FIRST
AUCTION.—Auctions 
shall be held four times per year at regular intervals, 
with the first auction to be held no later than March 
31, 2011. 
‘‘(2) AUCTION SCHEDULE; CURRENT AND FU-
TURE VINTAGES.—The Administrator shall, at each 
quarterly auction under this section, offer for sale 
both a portion of the allowances with the same vin-
tage year as the year in which the auction is being 
conducted and a portion of the allowances with vin-
tage years from future years. The preceding sen-
tence shall not apply to auctions held before 2012, 
during which period, by necessity, the Administrator 
shall auction only allowances with a vintage year 
that is later than the year in which the auction is 
held. Beginning with the first auction and at each 
quarterly auction held thereafter, the Administrator 
may offer for sale allowances with vintage years of 
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up to four years after the year in which the auction 
is being conducted. 
‘‘(3) AUCTION FORMAT.—Auctions shall follow 
a single-round, sealed-bid, uniform price format. 
‘‘(4) PARTICIPATION; FINANCIAL ASSURANCE.— 
Auctions shall be open to any person, except that 
the Administrator may establish financial assurance 
requirements to ensure that auction participants can 
and will perform on their bids. 
‘‘(5) DISCLOSURE
OF
BENEFICIAL
OWNER-
SHIP.—Each bidder in the auction shall be required 
to disclose the person or entity sponsoring or bene-
fitting from the bidder’s participation in the auction 
if such person or entity is, in whole or in part, other 
than the bidder. 
‘‘(6) PURCHASE LIMITS.—No person may, di-
rectly or in concert with another participant, pur-
chase more than 5 percent of the allowances offered 
for sale at any quarterly auction. 
‘‘(7) PUBLICATION
OF
INFORMATION.—After 
the auction, the Administrator shall, in a timely 
fashion, publish the identities of winning bidders, 
the quantity of allowances obtained by each winning 
bidder, and the auction clearing price. 
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‘‘(8) OTHER
REQUIREMENTS.—The Adminis-
trator may include in the regulations such other re-
quirements or provisions as the Administrator, in 
consultation with other agencies, as appropriate, 
considers appropriate to promote effective, efficient, 
transparent, and fair administration of auctions 
under this section. 
‘‘(c) REVISION
OF REGULATIONS.—The Adminis-
trator may, in consultation with other agencies, as appro-
priate, at any time, revise the initial regulations promul-
gated under subsection (b). Such revised regulations need 
not meet the requirements identified in subsection (b) if 
the Administrator determines that an alternative auction 
design would be more effective, taking into account factors 
including costs of administration, transparency, fairness, 
and risks of collusion or manipulation. In determining 
whether and how to revise the initial regulations under 
this subsection, the Administrator shall not consider maxi-
mization of revenues to the Federal Government. 
‘‘(d) RESERVE AUCTION PRICE.—The minimum re-
serve auction price shall be $10 for auctions occurring in 
2012. The minimum reserve price for auctions occurring 
in years after 2012 shall be the minimum reserve auction 
price for the previous year increased by 5 percent plus 
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the rate of inflation (as measured by the Consumer Price 
Index for all urban consumers). 
‘‘(e) DELEGATION OR CONTRACT.—Pursuant to reg-
ulations under this section, the Administrator may by del-
egation or contract provide for the conduct of auctions 
under the Administrator’s supervision by other depart-
ments or agencies of the Federal Government or by non-
governmental agencies, groups, or organizations. 
‘‘SEC. 792. AUCTIONING ALLOWANCES FOR OTHER ENTI-
TIES. 
‘‘(a) CONSIGNMENT.—Any entity holding emission al-
lowances or compensatory allowances may request that the 
Administrator auction, pursuant to section 791, the allow-
ances on consignment. 
‘‘(b) PRICING.—When the Administrator acts under 
this section as the agent of an entity in possession of emis-
sion allowances, the Administrator is not obligated to ob-
tain the highest price possible for the emission allowances, 
and instead shall auction consignment allowances in the 
same manner and pursuant to the same rules as auctions 
of other allowances under section 791. The Administrator 
may permit emission allowance owners to condition the 
sale of their allowances pursuant to this section on a min-
imum reserve price. 
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‘‘(c) PROCEEDS.—For emission allowances and com-
pensatory allowances auctioned pursuant to this section, 
notwithstanding section 3302 of title 31, United States 
Code, or any other provision of law, within 90 days of re-
ceipt, the United States shall transfer the proceeds from 
the auction to the entity which held the allowances auc-
tioned. No funds transferred from a purchaser to a seller 
of emission allowances or compensatory allowances under 
this subsection shall be held by any officer or employee 
of the United States or treated for any purpose as public 
monies. 
‘‘(d) REGULATIONS.—The Administrator shall issue 
regulations within 24 months after the date of enactment 
of this title to implement this section. 
‘‘SEC. 793. ESTABLISHMENT OF FUNDS. 
‘‘There is established in the Treasury of the United 
States the following funds: 
‘‘(1) The Strategic Reserve Fund. 
‘‘(2) The Climate Change Rebate Fund.’’. 
Subtitle C—Additional Greenhouse 
Gas Standards 
SEC. 331. GREENHOUSE GAS STANDARDS. 
The Clean Air Act (42 U.S.C. 7401 and following), 
as amended by subtitles A and B of this title, is further 
amended by adding the following new title after title VII: 
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‘‘TITLE VIII—ADDITIONAL 
GREENHOUSE GAS STANDARDS 
‘‘SEC. 801. DEFINITIONS. 
‘‘For purposes of this title, terms that are defined 
in title VII, except for the term ‘stationary source’, shall 
have the meaning given those terms in title VII. 
‘‘PART A—STATIONARY SOURCE STANDARDS 
‘‘SEC. 811. STANDARDS OF PERFORMANCE. 
‘‘(a) UNCAPPED STATIONARY SOURCES.— 
‘‘(1) INVENTORY OF SOURCE CATEGORIES.—(A) 
Within 12 months after the date of enactment of 
this title, the Administrator shall publish under sec-
tion 111(b)(1)(A) an inventory of categories of sta-
tionary sources that consist of those categories that 
contain sources that individually had uncapped 
greenhouse gas emissions greater than 10,000 tons 
of carbon dioxide equivalent and that, in the aggre-
gate, were responsible for emitting at least 20 per-
cent annually of the uncapped greenhouse gas emis-
sions. 
‘‘(B) The Administrator shall include in the in-
ventory under this paragraph each source category 
that is responsible for at least 10 percent of the un-
capped methane emissions. Notwithstanding any 
other provision, the inventory required by this sec-
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tion shall not include sources of enteric fermenta-
tion. The list under this paragraph shall include in-
dustrial sources, the emissions from which, when 
added to the capped emissions from industrial 
sources, constitute at least 95 percent of the green-
house gas emissions of the industrial sector. 
‘‘(C) For purposes of this subsection, emissions 
shall be calculated using tons of carbon dioxide 
equivalents. In promulgating the inventory required 
by this paragraph and the schedule required under 
by paragraph (2)(C), the Administrator shall use the 
most current emissions data available at the time of 
promulgation. 
‘‘(D) Notwithstanding any other provisions, the 
Administrator may list under 111(b) any source cat-
egory identified in the inventory required by this 
subsection without making a finding that the source 
category causes or contributes significantly to, air 
pollution with may be reasonably anticipated to en-
danger public health or welfare. 
‘‘(2) STANDARDS
AND
SCHEDULE.—(A) For 
each category identified as provided in paragraph 
(1), the Administrator shall promulgate standards of 
performance under section 111 for the uncapped 
emissions of greenhouse gases from stationary 
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sources in that category and shall promulgate cor-
responding regulations under section 111(d). 
‘‘(B) The Administrator shall promulgate 
standards as required by this subsection for sta-
tionary sources in categories identified as provided 
in paragraph (1) as expeditiously as practicable, as-
suring that— 
‘‘(i) standards for identified source cat-
egories that, combined, emitted 80 percent or 
more of the greenhouse gas emissions of the 
identified source categories shall be promul-
gated not later than 3 years after the date of 
enactment of this title and shall include stand-
ards for natural gas extraction; and 
‘‘(ii) for all other identified source cat-
egories— 
‘‘(I) standards for not less than an 
additional 25 percent of the identified cat-
egories shall be promulgated not later than 
5 years after the date of enactment of this 
title; 
‘‘(II) standards for not less than an 
additional 25 percent of the identified cat-
egories shall be promulgated not later than 
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7 years after the date of enactment of this 
title; and 
‘‘(III) standards for all the identified 
categories shall be promulgated not later 
than 10 years after the date of enactment 
of this title. 
‘‘(C) Not later than 24 months after the date 
of enactment of this title and after notice and oppor-
tunity for comment, the Administrator shall publish 
a schedule establishing a date for the promulgation 
of standards for each category of sources identified 
pursuant to paragraph (1). The date for each cat-
egory shall be consistent with the requirements of 
subparagraph (B). The determination of priorities 
for the promulgation of standards pursuant to this 
paragraph is not a rulemaking and shall not be sub-
ject to judicial review, except that failure to promul-
gate any standard pursuant to the schedule estab-
lished by this paragraph shall be subject to review 
under section 304(a)(2). 
‘‘(D) Notwithstanding section 307, no action of 
the Administrator listing a source category under 
paragraph (1) shall be a final agency action subject 
to judicial review, except that any such action may 
be reviewed under section 307 when the Adminis-
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trator issues performance standards for such cat-
egory. 
‘‘(b) CAPPED SOURCES.—No standard of perform-
ance shall be established under section 111 for capped 
greenhouse gas emissions from a capped source unless the 
Administrator determines that such standards are appro-
priate because of impacts, not including climate change 
effects. In promulgating a standard of performance under 
section 111 for the emission from capped sources of any 
air pollutant that is not a greenhouse gas, the Adminis-
trator shall treat the emission of any greenhouse gas by 
those entities as a nonair quality public health and envi-
ronmental impact within the meaning of section 
111(a)(1). 
‘‘(c) PERFORMANCE STANDARDS.—For purposes of 
setting a performance standard for source categories iden-
tified pursuant to subsection (a)— 
‘‘(1) The Administrator shall take into account 
the goal of reducing total United States greenhouse 
gas emissions as set forth in section 702. 
‘‘(2) The Administrator may promulgate a de-
sign, equipment, work practice, or operational stand-
ard, or any combination thereof, under section 111 
in lieu of a standard of performance under that sec-
tion without regard to any determination of feasi-
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bility that would otherwise be required under section 
111(h). 
‘‘(3) Notwithstanding any other provision, in 
setting the level of each standard required by this 
section, the Administrator shall take into account 
projections of allowance prices, such that the mar-
ginal cost of compliance (expressed as dollars per 
ton of carbon dioxide equivalent reduced) imposed by 
the standard would not, in the judgement of the Ad-
ministrator, be expected to exceed the Administra-
tor’s projected allowance prices over the time period 
spanning from the date of initial compliance to the 
date that the next revisions of the standard would 
come into effect pursuant to the schedule under sec-
tion 111(b)(1)(B). 
‘‘(d) DEFINITIONS.—In this section, the terms ‘un-
capped greenhouse gas emissions’ and ‘uncapped methane 
emissions’ mean those greenhouse gas or methane emis-
sions, respectively, to which section 722 would not have 
applied if the requirements of this title had been in effect 
for the same year as the emissions data upon which the 
list is based. 
‘‘(e) STUDY OF THE EFFECTS OF PERFORMANCE 
STANDARDS.— 
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‘‘(1) STUDY.—The Administrator shall conduct 
a study of the impacts of performance standards re-
quired under this section, which shall evaluate the 
effect of such standards on the— 
‘‘(A) costs of achieving compliance with the 
economy-wide reduction goals specified in sec-
tion 702 and the reduction targets specified in 
section 703; 
‘‘(B) available supply of offset credits; and 
‘‘(C) ability to achieve the economy-wide 
reduction goals specified in section 702 and any 
other benefits of such standards. 
‘‘(2) REPORT.—The Administrator shall submit 
to the House Energy and Commerce Committee a 
report that describes the results of the study not 
later than 18 months after the publication of the 
standards required under subsection (a)(2)(B)(i). 
‘‘PART C—EXEMPTIONS FROM OTHER PROGRAMS 
‘‘SEC. 831. CRITERIA POLLUTANTS. 
‘‘No greenhouse gas may be listed under section 
108(a) on the basis of its effect on climate change. 
‘‘SEC. 832. HAZARDOUS AIR POLLUTANTS. 
‘‘No greenhouse gas may be added to the list of haz-
ardous air pollutants under section 112 unless such green-
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house gas meets the listing criteria of section 112(b) inde-
pendent of its effects on climate change. 
‘‘SEC. 833. NEW SOURCE REVIEW. 
‘‘The provisions of part C of title I shall not apply 
to a greenhouse gas solely on the basis of its effect on 
climate change or regulation under title VII or this title. 
‘‘SEC. 834. TITLE V PERMITS. 
‘‘Notwithstanding any provision of title III or V, in 
determining whether a stationary source is required to 
apply for, or operate pursuant to, a permit under title V, 
the Administrator shall not consider the source’s green-
house gas emissions. 
‘‘SEC. 835. EXISTING PROCEEDINGS. 
‘‘Nothing in the American Clean Energy and Security 
Act of 2009, or the adoption thereof, shall affect the re-
quirements to be applied in administrative proceedings or 
litigation initiated under the Clean Air Act prior to the 
date of enactment of the American Clean Energy and Se-
curity Act of 2009. The preceding sentence does not apply 
to any covered EGU that is subject to the requirements 
of section 812(b).’’. 
SEC. 332. HFC REGULATION. 
(a) IN GENERAL.—Title VI of the Clean Air Act (42 
U.S.C. 7671 et seq.) (relating to stratospheric ozone pro-
tection) is amended by adding at the end the following: 
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‘‘SEC. 619. HYDROFLUOROCARBONS (HFCS). 
‘‘(a) TREATMENT
AS CLASS II, GROUP II SUB-
STANCES.—Except as otherwise provided in this section, 
hydrofluorocarbons shall be treated as class II substances 
for purposes of applying the provisions of this title. The 
Administrator shall establish two groups of class II sub-
stances. Class II, group I substances shall include all 
hydrochlorofluorocarbons (HCFCs) listed pursuant to sec-
tion 602(b). Class II, group II substances shall include 
each of the following: 
‘‘(1) Hydrofluorocarbon-23 (HFC-23). 
‘‘(2) Hydrofluorocarbon-32 (HFC-32). 
‘‘(3) Hydrofluorocarbon-41 (HFC-41). 
‘‘(4) Hydrofluorocarbon-125 (HFC-125). 
‘‘(5) Hydrofluorocarbon-134 (HFC-134). 
‘‘(6) Hydrofluorocarbon-134a (HFC-134a). 
‘‘(7) Hydrofluorocarbon-143 (HFC-143). 
‘‘(8) Hydrofluorocarbon-143a (HFC-143a). 
‘‘(9) Hydrofluorocarbon-152 (HFC-152). 
‘‘(10) Hydrofluorocarbon-152a (HFC-152a). 
‘‘(11) Hydrofluorocarbon-227ea (HFC-227ea). 
‘‘(12) Hydrofluorocarbon-236cb (HFC-236cb). 
‘‘(13) Hydrofluorocarbon-236ea (HFC-236ea). 
‘‘(14) Hydrofluorocarbon-236fa (HFC-236fa). 
‘‘(15) Hydrofluorocarbon-245ca (HFC-245ca). 
‘‘(16) Hydrofluorocarbon-245fa (HFC-245fa). 
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‘‘(17) 
Hydrofluorocarbon-365mfc 
(HFC- 
365mfc). 
‘‘(18) Hydrofluorocarbon-43-10mee (HFC-43- 
10mee). 
‘‘(19) Hydrofluoroolefin-1234yf (HFO-1234yf). 
‘‘(20) Hydrofluoroolefin-1234ze (HFO-1234ze). 
Not later than 6 months after the date of enactment of 
this title, the Administrator shall publish an initial list of 
class II, group II substances, which shall include the sub-
stances listed in this subsection. The Administrator may 
add to the list of class II, group II substances any other 
substance used as a substitute for a class I or II substance 
if the Administrator determines that 1 metric ton of the 
gas makes the same or greater contribution to global 
warming over 100 years as 1 metric ton of carbon dioxide. 
Within 24 months after the date of enactment of this sec-
tion, the Administrator shall amend the regulations under 
this title (including the regulations referred to in sections 
603, 608, 609, 610, 611, 612, and 613) to apply to class 
II, group II substances. 
‘‘(b) CONSUMPTION AND PRODUCTION OF CLASS II, 
GROUP II SUBSTANCES.— 
‘‘(1) IN GENERAL.— 
‘‘(A) CONSUMPTION PHASE DOWN.—In the 
case of class II, group II substances, in lieu of 
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applying section 605 and the regulations there-
under, the Administrator shall promulgate reg-
ulations phasing down the consumption of class 
II, group II substances in the United States, 
and the importation of products containing any 
class II, group II substance, in accordance with 
this subsection within 18 months after the date 
of enactment of this section. Effective January 
1, 2012, it shall be unlawful for any person to 
produce any class II, group II substance, im-
port any class II, group II substance, or import 
any product containing any class II, group II 
substance without holding one consumption al-
lowance or one destruction offset credit for each 
carbon dioxide equivalent ton of the class II, 
group II substance. Any person who exports a 
class II, group II substance for which a con-
sumption allowance was retired may receive a 
refund of that allowance from the Adminis-
trator following the export. 
‘‘(B) PRODUCTION.—If the United States 
becomes a party or otherwise adheres to a mul-
tilateral agreement, including any amendment 
to the Montreal Protocol on Substances That 
Deplete the Ozone Layer, that restricts the pro-
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duction of class II, group II substances, the Ad-
ministrator shall promulgate regulations estab-
lishing a baseline for the production of class II, 
group II substances in the United States and 
phasing down the production of class II, group 
II substances in the United States, in accord-
ance with such multilateral agreement and sub-
ject to the same exceptions and other provisions 
as are applicable to the phase down of con-
sumption of class II, group II substances under 
this section (except that the Administrator shall 
not require a person who obtains production al-
lowances from the Administrator to make pay-
ment for such allowances if the person is mak-
ing payment for a corresponding quantity of 
consumption allowances of the same vintage 
year). Upon the effective date of such regula-
tions, it shall be unlawful for any person to 
produce any class II, group II substance with-
out holding one consumption allowance and one 
production allowance, or one destruction offset 
credit, for each carbon dioxide equivalent ton of 
the class II, group II substance. 
‘‘(C) INTEGRITY
OF
CAP.—To maintain 
the integrity of the class II, group II cap, the 
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Administrator may, through rulemaking, limit 
the percentage of each person’s compliance obli-
gation that may be met through the use of de-
struction offset credits or banked allowances. 
‘‘(D) COUNTING
OF
VIOLATIONS.—Each 
emission allowance not held as required by this 
section shall be a separate violation of this sec-
tion. 
‘‘(2) SCHEDULE.—Pursuant to the regulations 
promulgated pursuant to paragraph (1), the number 
of class II, group II consumption allowances estab-
lished by the Administrator for each calendar year 
beginning in 2012 shall be the following percentage 
of the baseline, as established by the Administrator 
pursuant to paragraph (3): 
‘‘Calendar Year 
Percent of Baseline 
2012 
2013 
87.5 
2014 
2015 
82.5 
2016 
2017 
77.5 
2018 
2019 
2020 
2021 
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‘‘Calendar Year 
Percent of Baseline 
2022 
2023 
2024 
2025 
2026 
2027 
2028 
2029 
2030 
2031 
2032 
after 2032 
‘‘(3) BASELINE.—(A) Within 12 months after 
the date of enactment of this section, the Adminis-
trator shall promulgate regulations to establish the 
baseline for purposes of paragraph (2). The baseline 
shall be the sum, expressed in tons of carbon dioxide 
equivalents, of— 
‘‘(i) the annual average consumption of all 
class II substances in calendar years 2004, 
2005, and 2006; plus 
‘‘(ii) the annual average quantity of all 
class II substances contained in imported prod-
ucts in calendar years 2004, 2005, and 2006. 
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‘‘(B) Notwithstanding subparagraph (A), if the 
Administrator determines that the baseline is higher 
than 370 million metric tons of carbon dioxide 
equivalents, then the Administrator shall establish 
the baseline at 370 million metric tons of carbon di-
oxide equivalents. 
‘‘(C) Notwithstanding subparagraph (A), if the 
Administrator determines that the baseline is lower 
than 280 million metric tons of carbon dioxide 
equivalents, then the Administrator shall establish 
the baseline at 280 million metric tons of carbon di-
oxide equivalents. 
‘‘(4) DISTRIBUTION OF ALLOWANCES.— 
‘‘(A) IN GENERAL.—Pursuant to the regu-
lations promulgated under paragraph (1), for 
each calendar year beginning in 2012, the Ad-
ministrator shall sell consumption allowances in 
accordance with this paragraph. 
‘‘(B) ESTABLISHMENT
OF
POOLS.—The 
Administrator shall establish two allowance 
pools. Eighty percent of the consumption allow-
ances available for a calendar year shall be 
placed in the producer-importer pool, and 20 
percent of the consumption allowances available 
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for a calendar year shall be placed in the sec-
ondary pool. 
‘‘(C) PRODUCER-IMPORTER POOL.— 
‘‘(i) AUCTION.—(I) For each calendar 
year, the Administrator shall offer for sale 
at auction the following percentage of the 
consumption allowances in the producer- 
importer pool: 
‘‘Calendar Year 
Percent Available for Auction 
2012 
2013 
2014 
2015 
2016 
2017 
2018 
2019 
2020 and thereafter 
‘‘(II) Any person who produced or im-
ported any class II substance during cal-
endar year 2004, 2005, or 2006 may par-
ticipate in the auction. No other persons 
may participate in the auction unless per-
mitted to do so pursuant to subclause 
(III). 
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‘‘(III) Not later than three years after 
the date of the initial auction and from 
time to time thereafter, the Administrator 
shall determine through rulemaking wheth-
er any persons who did not produce or im-
port a class II substance during calendar 
year 2004, 2005, or 2006 will be permitted 
to participate in future auctions. The Ad-
ministrator shall base this determination 
on the duration, consistency, and scale of 
such person’s purchases of consumption al-
lowances in the secondary pool under sub-
paragraph (D), as well as economic or 
technical 
hardship 
and 
other 
factors 
deemed relevant by the Administrator. 
‘‘(IV) The Administrator shall set a 
minimum bid per consumption allowance of 
the following: 
‘‘(aa) For vintage year 2012, 
$1.00. 
‘‘(bb) For vintage year 2013, 
$1.20. 
‘‘(cc) For vintage year 2014, 
$1.40. 
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‘‘(dd) For vintage year 2015, 
$1.60. 
‘‘(ee) For vintage year 2016, 
$1.80. 
‘‘(ff) For vintage year 2017, 
$2.00. 
‘‘(gg) For vintage year 2018 and 
thereafter, $2.00 adjusted for infla-
tion after vintage year 2017 based 
upon the producer price index as pub-
lished by the Department of Com-
merce. 
‘‘(ii) NON-AUCTION
SALE.—(I) For 
each calendar year, as soon as practicable 
after auction, the Administrator shall offer 
for sale the remaining consumption allow-
ances in the producer-importer pool at the 
following prices: 
‘‘(aa) A fee of $1.00 per vintage 
year 2012 allowance. 
‘‘(bb) A fee of $1.20 per vintage 
year 2013 allowance. 
‘‘(cc) A fee of $1.40 per vintage 
year 2014 allowance. 
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‘‘(dd) For each vintage year 
2015 allowance, a fee equal to the av-
erage of $1.10 and the auction clear-
ing price for vintage year 2014 allow-
ances. 
‘‘(ee) For each vintage year 2016 
allowance, a fee equal to the average 
of $1.30 and the auction clearing 
price for vintage year 2015 allow-
ances. 
‘‘(ff) For each vintage year 2017 
allowance, a fee equal to the average 
of $1.40 and the auction clearing 
price for vintage year 2016 allow-
ances. 
‘‘(gg) For each allowance of vin-
tage year 2018 and subsequent vin-
tage years, a fee equal to the auction 
clearing price for that vintage year. 
‘‘(II) The Administrator shall offer to 
sell the remaining consumption allowances 
in the producer-importer pool to producers 
of class II, group II substances and im-
porters of class II, group II substances in 
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proportion to their relative allocation 
share. 
‘‘(III) Such allocation share for such 
sale shall be determined by the Adminis-
trator using such producer’s or importer’s 
annual average data on class II substances 
from calendar years 2004, 2005, and 
2006, on a carbon dioxide equivalent basis, 
and— 
‘‘(aa) shall be based on a pro-
ducer’s production, plus importation, 
plus acquisitions and purchases from 
persons who produced class II sub-
stances in the United States during 
calendar years 2004, 2005, or 2006, 
less exportation, less transfers and 
sales to persons who produced class II 
substances in the United States dur-
ing calendar years 2004, 2005, or 
2006; and 
‘‘(bb) for an importer of class II 
substances that did not produce in the 
United States any class II substance 
during calendar years 2004, 2005, 
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and 2006, shall be based on the im-
porter’s importation less exportation. 
For purposes of item (aa), the Adminis-
trator shall account for 100 percent of 
class II, group II substances and 60 per-
cent of class II, group I substances. For 
purposes of item (bb), the Administrator 
shall account for 100 percent of class II, 
group II substances and 100 percent of 
class II, group I substances. 
‘‘(IV) Any consumption allowances 
made available for nonauction sale to a 
specific producer or importer of class II, 
group II substances but not purchased by 
the specific producer or importer shall be 
made available for sale to any producer or 
importer of class II substances during cal-
endar years 2004, 2005, and 2006. If de-
mand for such consumption allowances ex-
ceeds supply of such consumption allow-
ances, the Administrator shall develop and 
utilize criteria for the sale of such con-
sumption allowances that may include pro 
rata shares, historic production and impor-
tation, economic or technical hardship, or 
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other factors deemed relevant by the Ad-
ministrator. If the supply of such con-
sumption allowances exceeds demand, the 
Administrator may offer such consumption 
allowances for sale in the secondary pool as 
set forth in subparagraph (D). 
‘‘(D) SECONDARY POOL.—(i) For each cal-
endar year, as soon as practicable after the auc-
tion required in subparagraph (C), the Adminis-
trator shall offer for sale the consumption al-
lowances in the secondary pool at the prices 
listed in subparagraph (C)(ii). 
‘‘(ii) The Administrator shall accept appli-
cations for purchase of secondary pool con-
sumption allowances from— 
‘‘(I) importers of products containing 
class II, group II substances; 
‘‘(II) persons who purchased any class 
II, group II substance directly from a pro-
ducer or importer of class II, group II sub-
stances for use in a product containing a 
class II, group II substance, a manufac-
turing process, or a reclamation process; 
‘‘(III) persons who did not produce or 
import a class II substance during cal-
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endar year 2004, 2005, or 2006, but who 
the Administrator determines have subse-
quently taken significant steps to produce 
or import a substantial quantity of any 
class II, group II substance; and 
‘‘(IV) persons who produced or im-
ported any class II substance during cal-
endar year 2004, 2005, or 2006. 
‘‘(iii) If the supply of consumption allow-
ances in the secondary pool equals or exceeds 
the demand for consumption allowances in the 
secondary pool as presented in the applications 
for purchase, the Administrator shall sell the 
consumption allowances in the secondary pool 
to the applicants in the amounts requested in 
the applications for purchase. Any consumption 
allowances in the secondary pool not purchased 
in a calendar year may be rolled over and added 
to the quantity available in the secondary pool 
in the following year. 
‘‘(iv) If the demand for consumption allow-
ances in the secondary pool as presented in the 
applications for purchase exceeds the supply of 
consumption allowances in the secondary pool, 
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the Administrator shall sell the consumption al-
lowances as follows: 
‘‘(I) The Administrator shall first sell 
the consumption allowances in the sec-
ondary pool to any importers of products 
containing class II, group II substances in 
the amounts requested in their applications 
for purchase. If the demand for such con-
sumption allowances exceeds supply of 
such consumption allowances, the Adminis-
trator shall develop and utilize criteria for 
the sale of such consumption allowances 
among importers of products containing 
class II, group II substances that may in-
clude pro rata shares, historic importation, 
economic or technical hardship, or other 
factors deemed relevant by the Adminis-
trator. 
‘‘(II) The Administrator shall next 
sell any remaining consumption allowances 
to persons identified in subclauses (II) and 
(III) of clause (ii) in the amounts re-
quested in their applications for purchase. 
If the demand for such consumption allow-
ances exceeds remaining supply of such 
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consumption allowances, the Administrator 
shall develop and utilize criteria for the 
sale 
of 
such 
consumption 
allowances 
among subclauses (II) and (III) applicants 
that may include pro rata shares, historic 
use, economic or technical hardship, or 
other factors deemed relevant by the Ad-
ministrator. 
‘‘(III) The Administrator shall then 
sell any remaining consumption allowances 
to persons who produced or imported any 
class II substance during calendar year 
2004, 2005, or 2006 in the amounts re-
quested in their applications for purchase. 
If demand for such consumption allow-
ances exceeds remaining supply of such 
consumption allowances, the Administrator 
shall develop and utilize criteria for the 
sale of such consumption allowances that 
may include pro rata shares, historic pro-
duction and importation, economic or tech-
nical hardship, or other factors deemed rel-
evant by the Administrator. 
‘‘(IV) Each person who purchases 
consumption allowances in a non-auction 
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sale under this subparagraph shall be re-
quired to disclose the person or entity 
sponsoring or benefitting from the pur-
chases if such person or entity is, in whole 
or in part, other than the purchaser or the 
purchaser’s employer. 
‘‘(E) DISCRETION TO WITHHOLD ALLOW-
ANCES.—Nothing in this paragraph prevents 
the Administrator from exercising discretion to 
withhold and retire consumption allowances 
that would otherwise be available for auction or 
nonauction sale. Not later than 18 months after 
the date of enactment of this section, the Ad-
ministrator shall promulgate regulations estab-
lishing criteria for withholding and retiring con-
sumption allowances. 
‘‘(5) BANKING.—A consumption allowance or 
destruction offset credit may be used to meet the 
compliance obligation requirements of paragraph (1) 
in— 
‘‘(A) the vintage year for the allowance or 
destruction offset credit; or 
‘‘(B) any calendar year subsequent to the 
vintage year for the allowance or destruction 
offset credit. 
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‘‘(6) AUCTIONS.— 
‘‘(A) INITIAL
REGULATIONS.—Not later 
than 18 months after the date of enactment of 
this section, the Administrator shall promulgate 
regulations governing the auction of allowances 
under this section. Such regulations shall in-
clude the following requirements: 
‘‘(i) FREQUENCY; FIRST AUCTION.— 
Auctions shall be held one time per year at 
regular intervals, with the first auction to 
be held no later than October 31, 2011. 
‘‘(ii) 
AUCTION
FORMAT.—Auctions 
shall follow a single-round, sealed-bid, uni-
form price format. 
‘‘(iii) FINANCIAL
ASSURANCE.—The 
Administrator may establish financial as-
surance requirements to ensure that auc-
tion participants can and will perform on 
their bids. 
‘‘(iv) DISCLOSURE
OF
BENEFICIAL 
OWNERSHIP.—Each bidder in the auction 
shall be required to disclose the person or 
entity sponsoring or benefitting from the 
bidder’s participation in the auction if such 
person or entity is, in whole or in part, 
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other than the bidder or the bidder’s em-
ployer. 
‘‘(v) 
PUBLICATION
OF
INFORMA-
TION.—After the auction, the Adminis-
trator shall, in a timely fashion, publish 
the number of bidders, number of winning 
bidders, the quantity of allowances sold, 
and the auction clearing price. 
‘‘(vi) BIDDING
LIMITS
IN
2012.—In 
the vintage year 2012 auction, no auction 
participant may, directly or in concert with 
another participant, bid for or purchase 
more allowances offered for sale at the 
auction than the greater of— 
‘‘(I) the number of allowances 
which, when added to the number of 
allowances available for purchase by 
the participant in the producer-im-
porter pool non-auction sale, would 
equal the participant’s annual average 
consumption of class II, group II sub-
stances in calendar years 2004, 2005, 
and 2006; or 
‘‘(II) the number of allowances 
equal to the product of— 
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‘‘(aa) 1.20 multiplied by the 
participant’s allocation share of 
the producer-importer pool non- 
auction sale as determined under 
paragraph (4)(C)(ii); and 
‘‘(bb) the number of vintage 
year 2012 allowances offered at 
auction. 
‘‘(vii) BIDDING
LIMITS
IN
2013.—In 
the vintage year 2013 auction, no auction 
participant may, directly or in concert with 
another participant, bid for or purchase 
more allowances offered for sale at the 
auction than the product of— 
‘‘(I) 1.15 multiplied by the ratio 
of the total number of vintage year 
2012 allowances purchased by the 
participant from the auction and from 
the producer-importer pool non-auc-
tion sale to the total number of vin-
tage year 2012 allowances in the pro-
ducer-importer pool; and 
‘‘(II) the number of vintage year 
2013 allowances offered at auction. 
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‘‘(viii) BIDDING
LIMITS
IN
SUBSE-
QUENT YEARS.—In the auctions for vin-
tage year 2014 and subsequent vintage 
years, no auction participant may, directly 
or in concert with another participant, bid 
for or purchase more allowances offered 
for sale at the auction than the product 
of— 
‘‘(I) 1.15 multiplied by the ratio 
of the highest number of allowances 
held by the participant in any of the 
three prior vintage years to meet its 
compliance obligation under para-
graph (1) to the total number of al-
lowances in the producer-importer 
pool for such vintage year; and 
‘‘(II) the number of allowances 
offered at auction for that vintage 
year. 
‘‘(ix) OTHER
REQUIREMENTS.—The 
Administrator may include in the regula-
tions such other requirements or provisions 
as the Administrator considers necessary 
to promote effective, efficient, transparent, 
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and fair administration of auctions under 
this section. 
‘‘(B) REVISION
OF
REGULATIONS.—The 
Administrator may, at any time, revise the ini-
tial regulations promulgated under subpara-
graph (A) based on the Administrator’s experi-
ence in administering allowance auctions. Such 
revised regulations need not meet the require-
ments identified in subparagraph (A) if the Ad-
ministrator determines that an alternative auc-
tion design would be more effective, taking into 
account factors including costs of administra-
tion, transparency, fairness, and risks of collu-
sion or manipulation. In determining whether 
and how to revise the initial regulations under 
this paragraph, the Administrator shall not con-
sider maximization of revenues to the Federal 
Government. 
‘‘(C) DELEGATION OR CONTRACT.—Pursu-
ant to regulations under this section, the Ad-
ministrator may, by delegation or contract, pro-
vide for the conduct of auctions under the Ad-
ministrator’s supervision by other departments 
or agencies of the Federal Government or by 
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nongovernmental agencies, groups, or organiza-
tions. 
‘‘(7) PAYMENTS FOR ALLOWANCES.— 
‘‘(A) INITIAL
REGULATIONS.—Not later 
than 18 months after the date of enactment of 
this section, the Administrator shall promulgate 
regulations governing the payment for allow-
ances purchased in auction and non-auction 
sales under this section. Such regulations shall 
include the requirement that, in the event that 
full payment for purchased allowances is not 
made on the date of purchase, equal payments 
shall be made one time per calendar quarter 
with all payments for allowances of a vintage 
year made by the end of that vintage year. 
‘‘(B) REVISION
OF
REGULATIONS.—The 
Administrator may, at any time, revise the ini-
tial regulations promulgated under subpara-
graph (A) based on the Administrator’s experi-
ence in administering collection of payments. 
Such revised regulations need not meet the re-
quirements identified in subparagraph (A) if 
the Administrator determines that an alter-
native payment structure or frequency would be 
more effective, taking into account factors in-
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