‘‘(i) NITROGEN OXIDES.—The excess 
emissions penalty for nitrogen oxides shall 
be equal to the product obtained by multi-
plying— 
‘‘(I) the number of tons of nitro-
gen oxides emitted in excess of the 
total quantity of nitrogen oxide allow-
ances held; and 
‘‘(II) $5,000, adjusted (in ac-
cordance with regulations promul-
gated by the Administrator) for 
changes in the Consumer Price Index 
for All-Urban Consumers published by 
the Department of Labor. 
‘‘(ii) MERCURY.—The excess emis-
sions penalty for mercury shall be equal to 
the product obtained by multiplying— 
‘‘(I) the number of pounds of 
mercury emitted in excess of the total 
quantity of mercury allowances held; 
and 
‘‘(II) $10,000, adjusted (in ac-
cordance with regulations promul-
gated by the Administrator) for 
changes in the Consumer Price Index
for All-Urban Consumers published by 
the Department of Labor. 
‘‘SEC. 704. CARBON DIOXIDE ALLOWANCE TRADING PRO-
GRAM. 
‘‘(a) REGULATIONS.— 
‘‘(1) IN GENERAL.—Not later than 180 days 
after the enactment of this section, the Adminis-
trator shall promulgate regulations to establish a 
carbon dioxide allowance trading program for cov-
ered units in the United States. 
‘‘(2) REQUIRED ELEMENTS.—Regulations pro-
mulgated under paragraph (1) shall establish re-
quirements for the carbon dioxide allowance trading 
program under this section, including requirements 
concerning— 
‘‘(A)(i) the generation, allocation, issuance, 
recording, tracking, transfer, and use of carbon 
dioxide allowances; and 
‘‘(ii) the public availability of all informa-
tion concerning the activities described in clause 
(i) that is not confidential; 
‘‘(B) compliance with subsection (f)(1); 
‘‘(C) the monitoring and reporting of emis-
sions under paragraphs (2) and (3) of sub-
section (f);
‘‘(D) excess emission penalties under sub-
section (f)(4); and 
‘‘(E) standards, guidelines, and procedures 
concerning the generation, certification, and use 
of additional carbon dioxide allowances made 
available under subsection (d). 
‘‘(b) NEW UNIT RESERVE.— 
‘‘(1) 
ESTABLISHMENT.—The 
Administrator 
shall establish by regulation a reserve of carbon di-
oxide allowances to be set aside for use by new units 
and new renewable energy units. 
‘‘(2) DETERMINATION OF QUANTITY.—The Ad-
ministrator, in consultation with the Secretary of 
Energy, shall determine, based on projections of 
electricity output for new units and new renewable 
energy units— 
‘‘(A) not later than June 30, 2006, the 
quantity of carbon dioxide allowances required 
to be held in reserve for new units and new re-
newable energy units for each of calendar years 
2010 through 2013; and 
‘‘(B) not later than June 30 of each fifth 
calendar year thereafter, the quantity of carbon 
dioxide allowances required to be held in reserve
for new units and renewable energy units for 
the following 5-calendar year period. 
‘‘(c) CARBON DIOXIDE ALLOWANCE ALLOCATION.— 
‘‘(1) TIMING OF ALLOCATIONS.—The Adminis-
trator shall allocate carbon dioxide allowances to 
covered units— 
‘‘(A) not later than December 31, 2006, 
for calendar year 2010; and 
‘‘(B) not later than December 31 of cal-
endar year 2007 and each calendar year there-
after, for the fourth calendar year that begins 
after that December 31. 
‘‘(2) ALLOCATIONS TO COVERED UNITS THAT 
ARE NOT NEW UNITS.— 
‘‘(A) IN
GENERAL.—The Administrator 
shall allocate to each affected unit that is not 
a new unit, to each nuclear generating unit 
with respect to incremental nuclear generation, 
and to each renewable energy unit that is not 
a new renewable energy unit, a quantity of car-
bon dioxide allowances that is equal to the 
product obtained by multiplying— 
‘‘(i) the quantity of carbon dioxide al-
lowances available for allocation under sub-
paragraph (B); and
‘‘(ii) the quotient obtained by divid-
ing— 
‘‘(I) the average net quantity of 
electricity generated by the unit in a 
calendar year during the most recent 
3-calendar year period for which data 
are available, measured in megawatt 
hours; and 
‘‘(II) the total of the average net 
quantities described in subclause (I) 
with respect to all such units. 
‘‘(B) QUANTITY TO BE ALLOCATED.—For 
each calendar year, the quantity of carbon diox-
ide allowances allocated under subparagraph 
(A) shall be equal to the difference between— 
‘‘(i) the annual tonnage limitation for 
emissions of carbon dioxide from affected 
units specified in section 702(d) for the 
calendar year; and 
‘‘(ii) the quantity of carbon dioxide al-
lowances placed in the new unit reserve es-
tablished under subsection (b) for the cal-
endar year. 
‘‘(3) ALLOCATION TO NEW UNITS AND NEW RE-
NEWABLE ENERGY UNITS.—
‘‘(A) METHODOLOGY.—The Administrator 
shall promulgate regulations to establish a 
methodology for allocating carbon dioxide allow-
ances to new units and new renewable energy 
units. 
‘‘(B) QUANTITY OF CARBON DIOXIDE AL-
LOWANCES
ALLOCATED.—The Administrator 
shall determine the quantity of carbon dioxide 
allowances to be allocated to each new unit and 
each new renewable energy unit based on the 
unit’s projected share of the total electric power 
generation attributable to covered units. 
‘‘(d) ISSUANCE AND USE OF ADDITIONAL CARBON 
DIOXIDE ALLOWANCES.— 
‘‘(1) IN GENERAL.— 
‘‘(A) ALLOWANCES
FOR
PROJECTS
CER-
TIFIED BY INDEPENDENT REVIEW BOARD.—In 
addition to carbon dioxide allowances allocated 
under subsection (c), the Administrator shall 
make carbon dioxide allowances available to 
projects that are certified, in accordance with 
paragraph (3), by the independent review board 
established under paragraph (2) as eligible to 
receive the carbon dioxide allowances.
‘‘(B) 
ALLOWANCES
OBTAINED
UNDER 
OTHER
PROGRAMS.—The regulations promul-
gated under subsection (a)(1) shall— 
‘‘(i) allow covered units to comply 
with subsection (f)(1) by purchasing and 
using carbon dioxide allowances that are 
traded under any other United States or 
internationally recognized carbon dioxide 
reduction program that is specified under 
clause (ii); 
‘‘(ii) specify, for the purpose of clause 
(i), programs that meet the goals of this 
section; and 
‘‘(iii) apply such conditions to the use 
of carbon dioxide allowances traded under 
programs specified under clause (ii) as are 
necessary to achieve the goals of this sec-
tion. 
‘‘(2) INDEPENDENT REVIEW BOARD.— 
‘‘(A) IN GENERAL.— 
‘‘(i) ESTABLISHMENT.—The Adminis-
trator shall establish an independent re-
view board to assist the Administrator in 
certifying projects as eligible for carbon di-
oxide allowances made available under 
paragraph (1)(A). 
‘‘(ii) REVIEW AND APPROVAL.—Each 
certification by the independent review 
board of a project shall be subject to the 
review and approval of the Administrator. 
‘‘(iii) 
REQUIREMENTS.—Subject 
to 
this subsection, requirements relating to 
the creation, composition, duties, respon-
sibilities, and other aspects of the inde-
pendent review board shall be included in 
the regulations promulgated by the Admin-
istrator under subsection (a). 
‘‘(B) MEMBERSHIP.—The independent re-
view board shall be composed of 12 members, 
of whom— 
‘‘(i) 10 members shall be appointed by 
the Administrator, of whom— 
‘‘(I) 1 member shall represent 
the Environmental Protection Agency 
(who shall serve as chairperson of the 
independent review board); 
‘‘(II) 3 members shall represent 
State governments;
‘‘(III) 3 members shall represent 
the electric generating sector; and 
‘‘(IV) 3 members shall represent 
environmental organizations; 
‘‘(ii) 1 member shall be appointed by 
the Secretary of Energy to represent the 
Department of Energy; and 
‘‘(iii) 1 member shall be appointed by 
the Secretary of Agriculture to represent 
the Department of Agriculture. 
‘‘(C) STAFF
AND
OTHER
RESOURCES.— 
The Administrator shall provide such staff and 
other resources to the independent review board 
as the Administrator determines to be nec-
essary. 
‘‘(D) DEVELOPMENT OF GUIDELINES.— 
‘‘(i) IN GENERAL.—The independent 
review board shall develop guidelines for 
certifying projects in accordance with para-
graph (3), including— 
‘‘(I) criteria that address the va-
lidity of claims that projects result in 
the generation of carbon dioxide al-
lowances;
‘‘(II) guidelines for certifying in-
cremental carbon sequestration in ac-
cordance with clause (ii); and 
‘‘(III) guidelines for certifying 
geological sequestration of carbon di-
oxide in accordance with clause (iii). 
‘‘(ii) GUIDELINES
FOR
CERTIFYING 
INCREMENTAL CARBON SEQUESTRATION.— 
The guidelines for certifying incremental 
carbon sequestration in forests, agricul-
tural soil, rangeland, or grassland shall in-
clude development, reporting, monitoring, 
and verification guidelines, to be used in 
quantifying net carbon sequestration from 
land use projects, that are based on— 
‘‘(I) measurement of increases in 
carbon storage in excess of the carbon 
storage that would have occurred in 
the absence of such a project; 
‘‘(II) comprehensive carbon ac-
counting that— 
‘‘(aa) reflects net increases 
in carbon reservoirs; and 
‘‘(bb) takes into account any 
carbon emissions resulting from
disturbance of carbon reservoirs 
in existence as of the date of 
commencement of the project; 
‘‘(III) adjustments to account 
for— 
‘‘(aa) emissions of carbon 
that may result at other locations 
as a result of the impact of the 
project on timber supplies; or 
‘‘(bb) potential displacement 
of carbon emissions to other land 
owned by the entity that carries 
out the project; and 
‘‘(IV) adjustments to reflect the 
expected carbon storage over various 
time periods, taking into account the 
likely duration of the storage of the 
carbon stored in a carbon reservoir. 
‘‘(iii) GUIDELINES
FOR
CERTIFYING 
GEOLOGICAL SEQUESTRATION OF CARBON 
DIOXIDE.—The guidelines for certifying 
geological sequestration of carbon dioxide 
produced by a covered unit shall— 
‘‘(I) provide that a project shall 
be certified only to the extent that the
geological sequestration of carbon di-
oxide produced by a covered unit is in 
addition to any carbon dioxide used by 
the covered unit in 2010 for enhanced 
oil recovery; and 
‘‘(II) include requirements for de-
velopment, reporting, monitoring, and 
verification for quantifying net carbon 
sequestration— 
‘‘(aa) to ensure the perma-
nence of the sequestration; and 
‘‘(bb) to ensure that the se-
questration will not cause or con-
tribute to significant adverse ef-
fects on the environment. 
‘‘(iv) 
DEADLINES
FOR
DEVELOP-
MENT.—The guidelines under clause (i) 
shall be developed— 
‘‘(I) with respect to projects de-
scribed in paragraph (3)(A), not later 
than January 1, 2006; and 
‘‘(II) with respect to projects de-
scribed in paragraph (3)(B), not later 
than January 1, 2007.
‘‘(v) UPDATING
OF
GUIDELINES.— 
The independent review board shall peri-
odically update the guidelines as the inde-
pendent review board determines to be ap-
propriate. 
‘‘(E) CERTIFICATION OF PROJECTS.— 
‘‘(i) IN GENERAL.—Subject to clause 
(ii), subparagraph (A)(ii), and paragraph 
(3), the independent review board shall 
certify projects as eligible for additional 
carbon dioxide allowances. 
‘‘(ii) LIMITATION.—The independent 
review board shall not certify a project 
under this subsection if the carbon dioxide 
emission reductions achieved by the project 
will be used to satisfy any requirement im-
posed on any foreign country or any indus-
trial sector to reduce the quantity of green-
house gases emitted by the foreign country 
or industrial sector. 
‘‘(3) PROJECTS
ELIGIBLE
FOR
ADDITIONAL 
CARBON DIOXIDE ALLOWANCES.— 
‘‘(A) PROJECTS
CARRIED
OUT
IN
CAL-
ENDAR YEARS 1990 THROUGH 2009.—
‘‘(i) IN GENERAL.—The independent 
review board may certify as eligible for 
carbon dioxide allowances a project that— 
‘‘(I) is carried out on or after 
January 1, 1990, and before January 
1, 2010; and 
‘‘(II) consists of— 
‘‘(aa) a carbon sequestration 
project carried out in the United 
States or a foreign country; 
‘‘(bb) a project reported 
under section 1605(b) of the En-
ergy Policy Act of 1992 (42 
U.S.C. 13385(b)); or 
‘‘(cc) any other project to 
reduce emissions of greenhouse 
gases that is carried out in the 
United States or a foreign coun-
try. 
‘‘(ii) MAXIMUM
QUANTITY
OF
ADDI-
TIONAL CARBON DIOXIDE ALLOWANCES.— 
The Administrator may make available to 
projects certified under clause (i) a quan-
tity of allowances that is not greater than 
10 percent of the tonnage limitation for
calendar year 2010 for emissions of carbon 
dioxide from affected units specified in sec-
tion 702(d)(1). 
‘‘(iii) USE OF ALLOWANCES.—Allow-
ances made available under clause (ii) may 
be used to comply with subsection (f)(1) in 
calendar year 2010 or any calendar year 
thereafter. 
‘‘(B) PROJECTS
CARRIED
OUT
IN
CAL-
ENDAR
YEAR
2010
AND
THEREAFTER.—The 
independent review board may certify as eligible 
for carbon dioxide allowances a project that— 
‘‘(i) is carried out on or after January 
1, 2010; and 
‘‘(ii) consists of— 
‘‘(I) 
a 
carbon 
sequestration 
project carried out in the United 
States or a foreign country; or 
‘‘(II) a project to reduce the 
greenhouse gas emissions (on a car-
bon dioxide equivalency basis deter-
mined by the independent review 
board) of a source of greenhouse 
gases that is not an affected unit.
‘‘(e) CARBON DIOXIDE ALLOWANCE TRANSFER SYS-
TEM.— 
‘‘(1) USE OF ALLOWANCES.—The regulations 
promulgated under subsection (a)(1) shall— 
‘‘(A) prohibit the use (but not the transfer 
in accordance with paragraph (3)) of any car-
bon dioxide allowance before the calendar year 
for which the carbon dioxide allowance is allo-
cated; 
‘‘(B) provide that unused carbon dioxide 
allowances may be carried forward and added 
to carbon dioxide allowances allocated for sub-
sequent years; 
‘‘(C) provide that unused carbon dioxide 
allowances may be transferred by— 
‘‘(i) the person to which the carbon 
dioxide allowances are allocated; or 
‘‘(ii) any person to which the carbon 
dioxide allowances are transferred; and 
‘‘(D) provide that carbon dioxide allow-
ances allocated and transferred under this sec-
tion may be transferred into any other market- 
based carbon dioxide emission trading program 
that is— 
‘‘(i) approved by the President; and
‘‘(ii) implemented in accordance with 
regulations developed by the Administrator 
or the head of any other Federal agency. 
‘‘(2) USE BY PERSONS TO WHICH CARBON DI-
OXIDE ALLOWANCES ARE TRANSFERRED.—Any per-
son to which carbon dioxide allowances are trans-
ferred under paragraph (1)(C)— 
‘‘(A) may use the carbon dioxide allow-
ances in the calendar year for which the carbon 
dioxide allowances were allocated, or in a subse-
quent calendar year, to demonstrate compliance 
with subsection (f)(1); or 
‘‘(B) may transfer the carbon dioxide al-
lowances to any other person for the purpose of 
demonstration of that compliance. 
‘‘(3) CERTIFICATION OF TRANSFER.—A trans-
fer of a carbon dioxide allowance shall not take ef-
fect until a written certification of the transfer, au-
thorized by a responsible official of the person mak-
ing the transfer, is received and recorded by the Ad-
ministrator. 
‘‘(4) PERMIT
REQUIREMENTS.—An allocation 
or transfer of carbon dioxide allowances to a covered 
unit, or for a project carried out on behalf of a cov-
ered unit, under subsection (c) or (d) shall, after re-