SEC. 2. FINDINGS. 
The Congress finds the following: 
(1) All domestic and foreign industries should 
contribute to climate stabilization. 
(2) Domestic producers of certain energy-inten-
sive products subject to international competition 
present a unique challenge for United States climate 
policy because increased costs associated with com-
pliance may unintentionally cause domestic industry 
to divert new investments and production to facili-
ties located in countries without commensurate 
greenhouse gas regulation. 
(3) Without exempting any industries, the 
United States must move forward with economy- 
wide action on climate change while reducing incen-
tives for producers to relocate to unregulated coun-
tries, which could displace both jobs and emissions. 
(4) International agreements are the most ap-
propriate means to reduce emissions from energy-in-
tensive industries because unilateral domestic efforts 
to reduce greenhouse gas emissions could accelerate 
the relocation of energy-intensive manufacturing 
abroad. 
(5) Carbon leakage can be mitigated substan-
tially through the output-based distribution of emis-
sion allowances. 
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(6) Output-based emission allowance distribu-
tion is an appropriate temporary measure that 
should complement other targeted domestic and 
international policies and agreements meant to en-
courage United States trading partners to substan-
tially reduce global greenhouse gas emissions. 
SEC. 3. PURPOSES. 
The purposes of this Act are as follows: 
(1) To compensate certain facilities from a sub-
set of eligible domestic industrial sectors for carbon 
emission costs incurred under any cap-and-trade 
program. 
(2) To limit compensation to facilities in eligible 
industrial sectors to an amount of emission allow-
ances that will prevent carbon leakage while also re-
warding innovation and facility-level investments in 
performance improvements. 
(3) To provide compensation to the owners and 
operators of facilities for both the direct and indirect 
costs of purchasing emission allowances needed for 
compliance with a domestic cap-and-trade program, 
but not for costs associated with other related or un-
related market dynamics. 
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(4) To prevent carbon leakage resulting from 
direct and indirect compliance costs incurred under 
a domestic cap-and-trade program. 
SEC. 4. DEFINITIONS. 
In this Act: 
(1) The term ‘‘Administrator’’ means the Ad-
ministrator of the Environmental Protection Agency. 
(2) The term ‘‘cap-and-trade program’’ means 
an economy-wide program enacted by Congress that 
distributes or auctions emission allowances for the 
control of greenhouse gas emissions. 
(3) The term ‘‘carbon dioxide equivalent’’ 
means, for each greenhouse gas, the quantity of 
greenhouse gas that the Administrator determines 
makes the same contribution to global warming as 
1 metric ton of carbon dioxide. 
(4) The term ‘‘carbon leakage’’ means any sub-
stantial increase (as determined by the Adminis-
trator) in greenhouse gas emissions by manufac-
turing facilities located in countries without com-
mensurate greenhouse gas regulation caused by an 
incremental cost of production increase in the 
United States as a result of a domestic cap-and- 
trade program. 
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(5) The term ‘‘covered facility’’ means, for each 
calendar year, a facility that emits greenhouse gases 
in that year and that has an obligation to submit 
emission allowances for such greenhouse gas emis-
sions under any cap-and-trade program. 
(6) The term ‘‘emission allowance’’ means an 
authorization, under any cap-and-trade program, to 
emit 1 carbon dioxide equivalent of greenhouse gas. 
(7) The term ‘‘facility’’ means 1 or more build-
ings, structures, or installations of an entity on 1 or 
more contiguous or adjacent properties located in 
the United States. 
(8) The term ‘‘greenhouse gas’’ means any gas 
designated as a greenhouse gas under a cap-and- 
trade program. 
(9) The term ‘‘output’’ means the total tonnage 
or other standard unit of production (as determined 
by the Administrator) produced by a manufacturing 
facility. 
SEC. 5. DISTRIBUTION OF EMISSION ALLOWANCES TO CER-
TAIN ENERGY-INTENSIVE MANUFACTURING 
FACILITIES. 
(a) DISTRIBUTION OF EMISSION ALLOWANCES.— 
(1) IN GENERAL.—The Administrator shall an-
nually distribute emission allowances, in amounts 
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calculated under subsection (c), to the owners and 
operators of facilities in eligible industrial sectors 
and subsectors identified under subsection (b), sub-
ject to the maximum quantity limitation established 
under paragraph (2) of this subsection. 
(2) MAXIMUM.—The maximum quantity of 
emission allowances distributed under paragraph (1) 
each year shall equal 15 percent of the total quan-
tity of allowances distributed or auctioned under a 
cap-and-trade program for emissions occurring dur-
ing the first year for which allowances are required 
to be submitted under such program. If the total al-
lowances calculated under subsection (c) exceed such 
maximum, the Administrator shall reduce the 
amount distributed to owners and operators under 
paragraph (1) on a pro rata basis. 
(b) ELIGIBLE INDUSTRIAL SECTORS AND SUBSEC-
TORS.— 
(1) IN GENERAL.—Not later than January 1, 
2011, the Administrator shall promulgate a rule 
identifying, based on the criteria under paragraph 
(2), the industrial sectors and subsectors eligible to 
receive emission allowances under this Act. The Ad-
ministrator shall consider, among others, the iron, 
steel, pulp, paper, cement, rubber, basic chemicals, 
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glass, industrial ceramics, and aluminum and other 
non-ferrous metals industrial sectors and subsectors. 
(2) CRITERIA.—To minimize the potential for 
carbon leakage, in identifying eligible sectors and 
subsectors under paragraph (1), the Administrator 
shall take into account each of the following: 
(A) The greenhouse gas intensity of the 
domestic production, including direct emissions 
from the combustion of fuels and process emis-
sions at the facility and the indirect emissions 
by electric power providers. 
(B) The potential for greater foreign 
sourcing of production or services and the effect 
of international competition on domestic pro-
duction. 
(C) The effect of international markets on 
product pricing. 
(D) The potential for net imports to in-
crease or exports to decrease (resulting in a loss 
of market share held by domestic manufactur-
ers to manufacturers located in other countries) 
caused by the direct and indirect compliance 
costs under a domestic cap-and-trade program. 
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(E) The state of international negotiations, 
agreements, and activities to reduce global 
greenhouse gas emissions. 
(c) CALCULATION OF ALLOWANCES.— 
(1) COVERED FACILITIES.—Except as provided 
in subsection (a)(2), the quantity of emission allow-
ances distributed by the Administrator under this 
Act for a calendar year to the owner or operator of 
a covered facility shall be equal to the sum of the 
facility’s direct compliance allowance factor and the 
facility’s indirect carbon allowance factor. Calcula-
tions under this paragraph shall be based on data 
from 2 calendar years prior to the calendar year of 
distribution. For purposes of determining such 
amounts: 
(A) DIRECT
COMPLIANCE
ALLOWANCE 
FACTOR.—The direct compliance allowance fac-
tor for a facility for a calendar year is the 
amount obtained by multiplying the output of 
the facility by 85 percent of the average ton-
nage of greenhouse gas emissions per unit of 
output for all facilities in the sector or sub-
sector, as determined by the Administrator 
based on reports provided under subparagraph 
(C). 
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(B) INDIRECT CARBON ALLOWANCE FAC-
TOR.—The indirect carbon allowance factor for 
a facility for a calendar year is the product ob-
tained by multiplying the total output of the fa-
cility by the fraction set forth in clause (i) (the 
emissions intensity factor) and the fraction set 
forth in clause (ii) (the electricity efficiency fac-
tor) for the year concerned. 
(i) EMISSIONS INTENSITY FACTOR.— 
(I) 
REGULATED
ELECTRICITY 
MARKETS.—In a regulated electricity 
market, the emissions intensity factor 
is the average tonnage of greenhouse 
gas emissions per kilowatt hour of the 
electricity purchased by the facility, as 
determined by the facility owner or 
operator based on reports provided 
under subparagraph (D). 
(II) WHOLESALE
COMPETITIVE 
ELECTRICITY MARKETS.—In a whole-
sale competitive electricity market, the 
emissions intensity factor is the aver-
age tonnage of greenhouse gas emis-
sions per kilowatt hour of the mar-
ginal source of supply of electricity 
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purchased by the facility, as deter-
mined by the facility owner or oper-
ator based on reports provided under 
subparagraph (D). 
(ii) ELECTRICITY
EFFICIENCY
FAC-
TOR.—The electricity efficiency factor is 
85 percent of the average amount of elec-
tricity (in kilowatt hours) used per ton of 
production for all facilities in the sector or 
subsector concerned, as determined by the 
Administrator based on reports provided 
under subparagraph (C). 
(C) REPORT
TO
ADMINISTRATOR.—Each 
owner or operator of a facility in any sector or 
subsector identified under subsection (b) and 
each department, agency, or instrumentality of 
the United States shall provide the Adminis-
trator with such information as the Adminis-
trator finds necessary to determine the direct 
compliance allowance factor and the indirect 
carbon allowance factor for each facility subject 
to this Act. 
(D) GREENHOUSE
GASES
FROM
ELEC-
TRICITY.—Each person selling electricity to the 
owner or operator of a facility in any sector or 
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subsector identified under subsection (b) shall 
provide the owner or operator of the facility and 
the Administrator, on a quarterly basis, such 
information as is required to determine the 
emissions intensity factor under subparagraph 
(B)(i). 
(E) EMISSIONS
INTENSITY
FACTOR
RE-
DUCTION.—The numerator of the emissions in-
tensity factor under subparagraph (B)(i) shall 
be reduced by the tonnage of allowances the 
Administrator determines are distributed at no 
cost under any cap-and-trade program to the 
person making the sale of electricity and are 
used by such person to prevent electricity rate 
increases to the owner or operator of the facil-
ity. 
(F) IRON AND STEEL SECTOR OR SUBSEC-
TORS.—For the purposes of determining the 
quantity of emission allowances to be distrib-
uted under this section to the owner or operator 
of any iron and steel manufacturing facility in 
a sector or subsector identified under subsection 
(b), the Administrator shall differentiate be-
tween facilities using integrated iron and 
steelmaking technologies (including coke ovens, 
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blast furnaces, and other iron-making tech-
nologies) and facilities using electric arc furnace 
technologies when calculating sector or sub-
sector averages under subparagraphs (A) and 
(B)(ii). 
(2) OTHER ELIGIBLE ENTITIES.—The quantity 
of emission allowances distributed by the Adminis-
trator for a calendar year to an owner or operator 
of a facility in an eligible industrial sector or sub-
sector that is not a covered facility shall be equal to 
the indirect carbon allowance factor for the facility, 
as determined under paragraph (1)(B). Calculations 
under this paragraph shall be based on data from 2 
calendar years prior to the calendar year of distribu-
tion. 
(3) NEW FACILITIES.— 
(A) FIRST AND SECOND YEAR OF OPER-
ATION.—In the first and second year of oper-
ation of a facility in any sector or subsector 
identified under subsection (b), the owner or 
operator of such facility shall receive a quantity 
of emission allowances under this Act equal to 
emission allowances distributed under this Act 
to the owner or operator of a comparable facil-
ity in the same sector or subsector that pro-
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duces equivalent output using a substantially 
similar production process, as determined by 
the Administrator. 
(B) 
SUBSEQUENT
YEARS
OF
OPER-
ATION.—In the third year of operation of a fa-
cility in any sector or subsector identified under 
subsection (b), the Administrator shall adjust 
the quantity of emission allowances to be dis-
tributed to the owner or operator of such facil-
ity in such year to reconcile the total quantity 
of allowances received during the first and sec-
ond years of operation to the quantity the facil-
ity would have received during the first and sec-
ond years of operation had the appropriate data 
been available for such years. 
SEC. 6. REPORTS TO CONGRESS. 
Not later than one year after the first year in which 
allowances are distributed pursuant to this Act, and at 
least every two years thereafter, the Administrator, in con-
sultation with the Secretary of Commerce, the Secretary 
of Energy, the Secretary of State, and the United States 
Trade Representative, shall submit to Congress a report 
on the carbon leakage of domestic energy-intensive indus-
trial manufacturers and the effectiveness of the distribu-
tion of emission allowances under section 5 in achieving 
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the purposes of this Act. Such reports shall include rec-
ommendations on how to better achieve the purposes of 
this Act. 
SEC. 7. MODIFICATION OR ELIMINATION OF DISTRIBUTION 
OF 
ALLOWANCES 
TO 
ENERGY-INTENSIVE 
MANUFACTURING FACILITIES. 
(a) PRESIDENTIAL DETERMINATION AND MODIFICA-
TION.—If the President finds that international govern-
mental activities to reduce global greenhouse gas emis-
sions have substantially mitigated— 
(1) the disadvantage to domestic manufacturers 
of energy-intensive products subject to competition 
from facilities in countries without commensurate 
greenhouse gas regulation; and 
(2) the carbon leakage and related diversion of 
production of such products to facilities located in 
countries without commensurate greenhouse gas reg-
ulation; 
then the Administrator shall, pursuant to a rule, reduce 
the amount of emission allowances distributed under this 
Act in an amount reasonably calculated to achieve the pur-
poses of this Act. 
(b) TERMINATION.—If the President determines that 
the competitive disadvantage to domestic manufacturers 
described in subsection (a) has been rendered insignifi-
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cant, the Administrator shall terminate the distribution of 
emission allowances under this Act. 
Æ 
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