587 
‘‘(3) ALLOCATION OF LIMITATION.—One-fourth of 
each year’s annual strategic reserve auction limit 
under this subsection shall be made available for auc-
tion in each quarter. Any allowances from the stra-
tegic reserve account that are made available for sale 
in a quarterly auction and not sold shall be rolled 
over and added to the quantity available for sale in 
the following quarter, except that allowances not sold 
at auction in the fourth quarter of a year shall not 
be rolled over to the following calendar year’s auc-
tions, but shall be returned to the strategic reserve ac-
count. 
‘‘(e) PURCHASE LIMIT.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2) or (3), the annual number of emission al-
lowances that a covered entity may purchase at the 
strategic reserve auctions in each calendar year shall 
not exceed 20 percent of the covered entity’s emissions 
during the most recent year for which allowances or 
credits were retired under section 722. 
‘‘(2) 2012 LIMIT.—For calendar year 2012, the 
maximum aggregate number of emission allowances 
that a covered entity may purchase from that year’s 
strategic reserve auctions shall be 20 percent of the 
covered entity’s greenhouse gas emissions that the cov-
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ered entity reported to the registry established under 
section 713 for 2011 and that would be subject to sec-
tion 722(a) if occurring in later calendar years. 
‘‘(3) NEW ENTRANTS.—The Administrator shall, 
by regulation, establish a separate purchase limit ap-
plicable to entities that expect to become a covered en-
tity in the year of the auction, permitting them to 
purchase emission allowances at the strategic reserve 
auctions in their first calendar year of operation in 
an amount of at least 20 percent of their expected 
combined emissions and attributable greenhouse gas 
emissions for that year. 
‘‘(f) DELEGATION OR CONTRACT.—Pursuant to regula-
tions under this section, the Administrator may, by delega-
tion or contract, provide for the conduct of strategic reserve 
auctions under the Administrator’s supervision by other de-
partments or agencies of the Federal Government or by non-
governmental agencies, groups, or organizations. 
‘‘(g) USE OF AUCTION PROCEEDS.— 
‘‘(1) DEPOSIT IN STRATEGIC RESERVE FUND.— 
The proceeds from strategic reserve auctions shall be 
placed in the Strategic Reserve Fund established 
under section 793(1), and shall be available without 
further appropriation or fiscal year limitation for the 
purposes described in this subsection. 
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‘‘(2) INTERNATIONAL OFFSET CREDITS FOR RE-
DUCED
DEFORESTATION.—The Administrator shall 
use the proceeds from each strategic reserve auction to 
purchase international offset credits issued for re-
duced deforestation activities pursuant to section 
743(e). The Administrator shall retire those inter-
national offset credits and establish a number of emis-
sion allowances equal to 80 percent of the number of 
international offset credits so retired. Emission allow-
ances established under this paragraph shall be in ad-
dition to those established under section 721(a). 
‘‘(3) EMISSION
ALLOWANCES.—The Adminis-
trator shall deposit emission allowances established 
under paragraph (2) in the strategic reserve, except 
that, with respect to any such emission allowances in 
excess of the amount necessary to fill the strategic re-
serve to its original size, the Administrator shall— 
‘‘(A) except as provided in subparagraph 
(B), assign a vintage year to the emission allow-
ance, which shall be no earlier than the year in 
which the allowance is established under para-
graph (2) and shall treat such allowances as ones 
that are not designated for distribution or auc-
tion for purposes of section 782(q) and (r); and 
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‘‘(B) to the extent any such allowances can-
not be assigned a vintage year because of the 
limitation in paragraph (4), retire the allow-
ances. 
‘‘(4) LIMITATION.—In no case may the Adminis-
trator assign under paragraph (3)(A) more emission 
allowances to a vintage year than the number of 
emission allowances from that vintage year that were 
placed in the strategic reserve account under sub-
section (b)(1). 
‘‘(h) AVAILABILITY OF INTERNATIONAL OFFSET CRED-
ITS FOR AUCTION.— 
‘‘(1) IN GENERAL.—The regulations promulgated 
under section 721(h) shall allow any entity holding 
international offset credits from reduced deforestation 
issued under section 743(e) to request that the Admin-
istrator include such offset credits in an upcoming 
strategic reserve auction. The regulations shall pro-
vide that— 
‘‘(A) such international offset credits will be 
used to fill bid orders only after the supply of 
strategic reserve allowances available for sale at 
that auction has been depleted; 
‘‘(B) international offset credits may be sold 
at a strategic reserve auction under this sub-
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section only if the Administrator determines that 
it is highly likely that covered entities will, to 
cover emissions occurring in the year the auction 
is held, use offset credits to demonstrate compli-
ance under section 722 for emissions equal to or 
greater than 80 percent of 2 billion tons of car-
bon dioxide equivalent; 
‘‘(C) upon sale of such international offset 
credits, the Administrator shall retire those 
international offset credits, and establish and 
provide to the purchasers a number of emission 
allowances equal to 80 percent of the number of 
international offset credits so retired, which al-
lowances shall be in addition to those established 
under section 721(a); and 
‘‘(D) for international offset credits sold 
pursuant to this subsection, the proceeds for the 
entity that offered the international offset credits 
for sale shall be the lesser of— 
‘‘(i) the average daily closing price for 
international offset credits sold on registered 
exchanges (or if such price is unavailable, 
the average price as determined by the Ad-
ministrator) during the six months prior to 
the strategic reserve auction at which they 
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were auctioned, with the remaining funds 
collected upon the sale of the international 
offset credits deposited in the Treasury; and 
‘‘(ii) the amount received for the inter-
national offset credits at the auction. 
‘‘(2) PROCEEDS.—For international offset credits 
sold pursuant to this subsection, notwithstanding sec-
tion 3302 of title 31, United States Code, or any 
other provision of law, within 90 days of receipt, the 
United States shall transfer the proceeds from the 
auction, as defined in paragraph (1)(D), to the entity 
that offered the international offset credits for sale. No 
funds transferred from a purchaser to a seller of 
international offset credits under this paragraph shall 
be held by any officer or employee of the United 
States or treated for any purpose as public monies. 
‘‘(3) PRICING.—When the Administrator acts 
under this subsection as the agent of an entity in pos-
session of international offset credits, the Adminis-
trator is not obligated to obtain the highest price pos-
sible for the international offset credits, and instead 
shall auction such international offset credits in the 
same manner and pursuant to the same rules (except 
as modified in paragraph (1)) as set forth for auc-
tioning strategic reserve allowances. Entities request-
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ing that such international offset credits be offered for 
sale at a strategic reserve auction may not set a min-
imum reserve price for their international offset cred-
its that is different than the minimum strategic re-
serve auction price set pursuant to subsection (c). 
‘‘(i) INITIAL
REGULATIONS.—Not later than 24 
months after the date of enactment of this title, the Admin-
istrator shall promulgate regulations, in consultation with 
other appropriate agencies, governing the auction of allow-
ances under this section. Such regulations shall include 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, 2012. 
‘‘(2) AUCTION FORMAT.—Auctions shall follow a 
single-round, sealed-bid, uniform price format. 
‘‘(3) PARTICIPATION; FINANCIAL ASSURANCE.— 
Auctions shall be open to any covered entity eligible 
to purchase emission allowances at the auction under 
subsection (a)(2), except that the Administrator may 
establish financial assurance requirements to ensure 
that auction participants can and will perform on 
their bids. 
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‘‘(4) DISCLOSURE OF BENEFICIAL OWNERSHIP.— 
Each bidder in an auction shall be required to dis-
close 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, other than 
the bidder. 
‘‘(5) PURCHASE
LIMITS.—No person may, di-
rectly or in concert with another participant, pur-
chase more than 20 percent of the allowances offered 
for sale at any quarterly auction. 
‘‘(6) 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. 
‘‘(7) 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, con-
siders appropriate to promote effective, efficient, 
transparent, and fair administration of auctions 
under this section. 
‘‘(j) REVISION OF REGULATIONS.—The Administrator 
may, at any time, in consultation with other agencies as 
appropriate, revise the initial regulations promulgated 
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under subsection (i). Such revised regulations need not meet 
the requirements identified in subsection (i) if the Adminis-
trator determines that an alternative auction design would 
be more effective, taking into account factors including costs 
of administration, transparency, fairness, and risks of col-
lusion or manipulation. In determining whether and how 
to revise the initial regulations under this subsection, the 
Administrator shall not consider maximization of revenues 
to the Federal Government. 
‘‘SEC. 727. PERMITS. 
‘‘(a) PERMIT PROGRAM.—For stationary sources sub-
ject to title V of this Act, that are covered entities, the provi-
sions of this title shall be implemented by permits issued 
to such covered entities (and enforced) in accordance with 
the provisions of title V, as modified by this title. Any such 
permit issued by the Administrator, or by a State with an 
approved permit program, shall require the owner or oper-
ator of a covered entity to hold emission allowances or offset 
credits at least equal to the total annual amount of carbon 
dioxide equivalents for its combined emissions and attrib-
utable greenhouse gas emissions to which section 722 ap-
plies. No such permit shall be issued that is inconsistent 
with the requirements of this title, and title V as applicable. 
Nothing in this section regarding compliance plans or in 
title V shall be construed as affecting allowances or offset 
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credits. Submission of a statement by the owner or operator, 
or the designated representative of the owners and opera-
tors, of a covered entity that the owners and operators will 
hold emission allowances or offset credits for the entity’s 
combined emissions and attributable greenhouse gas emis-
sions to which section 722 applies shall be deemed to meet 
the proposed and approved planning requirements of title 
V. Recordation by the Administrator of transfers of emis-
sion allowances shall amend automatically all applicable 
proposed or approved permit applications, compliance 
plans, and permits. 
‘‘(b) MULTIPLE OWNERS.—No permit shall be issued 
under this section and no allowances or offset credits shall 
be disbursed under this title to a covered entity or any other 
person until the designated representative of the owners or 
operators has filed a certificate of representation with re-
gard to matters under this title, including the holding and 
distribution of emission allowances and the proceeds of 
transactions involving emission allowances. Where there are 
multiple holders of a legal or equitable title to, or a lease-
hold interest in, such a covered entity or other entity or 
where a utility or industrial customer purchases power 
under a long-term power purchase contract from an inde-
pendent power production facility that is a covered entity, 
the certificate shall state— 
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‘‘(1) that emission allowances and the proceeds of 
transactions involving emission allowances will be 
deemed to be held or distributed in proportion to each 
holder’s legal, equitable, leasehold, or contractual res-
ervation or entitlement; or 
‘‘(2) if such multiple holders have expressly pro-
vided for a different distribution of emission allow-
ances by contract, that emission allowances and the 
proceeds of transactions involving emission allow-
ances will be deemed to be held or distributed in ac-
cordance with the contract. 
A passive lessor, or a person who has an equitable interest 
through such lessor, whose rental payments are not based, 
either directly or indirectly, upon the revenues or income 
from the covered entity or other entity shall not be deemed 
to be a holder of a legal, equitable, leasehold, or contractual 
interest for the purpose of holding or distributing emission 
allowances as provided in this subsection, during either the 
term of such leasehold or thereafter, unless expressly pro-
vided for in the leasehold agreement. Except as otherwise 
provided in this subsection, where all legal or equitable title 
to or interest in a covered entity, or other entity, is held 
by a single person, the certificate shall state that all emis-
sion allowances received by the entity are deemed to be held 
for that person. 
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‘‘(c) PROHIBITION.—It shall be unlawful for any per-
son to operate any stationary source subject to the require-
ments of this section except in compliance with the terms 
and requirements of a permit issued by the Administrator 
or a State with an approved permit program in accordance 
with this section. For purposes of this subsection, compli-
ance, as provided in section 504(f), with a permit issued 
under title V which complies with this title for covered enti-
ties shall be deemed compliance with this subsection as well 
as section 502(a). 
‘‘(d) RELIABILITY.—Nothing in this section or title V 
shall be construed as requiring termination of operations 
of a stationary source that is a covered entity for failure 
to have an approved permit, or compliance plan, that is 
consistent with the requirements in the second and fifth sen-
tences of subsection (a) concerning the holding of emission 
allowances, compensatory allowances, international emis-
sion allowances, or offset allowances, except that any such 
covered entity may be subject to the applicable enforcement 
provision of section 113. 
‘‘(e) REGULATIONS.—The Administrator shall promul-
gate regulations to implement this section. To provide for 
permits required under this section, each State in which 
one or more stationary sources and that are covered entities 
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are located shall submit, in accordance with this section 
and title V, revised permit programs for approval. 
‘‘SEC. 728. INTERNATIONAL EMISSION ALLOWANCES. 
‘‘(a) QUALIFYING PROGRAMS.—The Administrator, in 
consultation with the Secretary of State, may by rule des-
ignate an international climate change program as a quali-
fying international program if— 
‘‘(1) the program is run by a national or supra-
national foreign government, and imposes a manda-
tory absolute tonnage limit on greenhouse gas emis-
sions from 1 or more foreign countries, or from 1 or 
more economic sectors in such a country or countries; 
and 
‘‘(2) the program is at least as stringent as the 
program established by this title, including provisions 
to ensure at least comparable monitoring, compliance, 
enforcement, quality of offsets, and restrictions on the 
use of offsets. 
‘‘(b) DISQUALIFIED ALLOWANCES.—An international 
emission allowance may not be held under section 722(d)(2) 
if it is in the nature of an offset instrument or allowance 
awarded based on the achievement of greenhouse gas emis-
sion reductions or avoidance, or greenhouse gas sequestra-
tion, that are not subject to the mandatory absolute tonnage 
limits referred to in subsection (a)(1). 
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‘‘(c) RETIREMENT.— 
‘‘(1) ENTITY CERTIFICATION.—The owner or op-
erator of an entity that holds an international emis-
sion allowance under section 722(d)(2) shall certify to 
the Administrator that such international emission 
allowance has not previously been used to comply 
with any foreign, international, or domestic green-
house gas regulatory program. 
‘‘(2) RETIREMENT.— 
‘‘(A) FOREIGN AND INTERNATIONAL REGU-
LATORY ENTITIES.—The Administrator, in con-
sultation with the Secretary of State, shall seek, 
by whatever means appropriate, including agree-
ments and technical cooperation on allowance 
tracking, to ensure that any relevant foreign, 
international, and domestic regulatory entities— 
‘‘(i) are notified of the use, for pur-
poses of compliance with this title, of any 
international emission allowance; and 
‘‘(ii) provide for the disqualification of 
such international emission allowance for 
any subsequent use under the relevant for-
eign, international, or domestic greenhouse 
gas 
regulatory 
program, 
regardless 
of 
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whether such use is a sale, exchange, or sub-
mission to satisfy a compliance obligation. 
‘‘(B) DISQUALIFICATION
FROM
FURTHER 
USE.—The Administrator shall ensure that, once 
an international emission allowance has been 
disqualified or otherwise used for purposes of 
compliance with this title, such allowance shall 
be disqualified from any further use under this 
title. 
‘‘(d) USE LIMITATIONS.—The Administrator may, by 
rule, modify the percentage applicable to international 
emission allowances under section 722(d)(2), consistent 
with the purposes of the Safe Climate Act. 
‘‘PART D—OFFSETS 
‘‘SEC. 731. OFFSETS INTEGRITY ADVISORY BOARD. 
‘‘(a) ESTABLISHMENT.—Not later than 30 days after 
the date of enactment of this title, the Administrator shall 
establish an independent Offsets Integrity Advisory Board. 
The Advisory Board shall make recommendations to the Ad-
ministrator for use in promulgating and revising regula-
tions under this part and part E, and for ensuring the over-
all environmental integrity of the programs established pur-
suant to those regulations. 
‘‘(b) MEMBERSHIP.—The Advisory Board shall be 
comprised of at least nine members. Each member shall be 
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qualified by education, training, and experience to evaluate 
scientific and technical information on matters referred to 
the Board under this section. The Administrator shall ap-
point Advisory Board members, including a chair and vice- 
chair of the Advisory Board. Terms shall be 3 years in 
length, except for initial terms, which may be up to 5 years 
in length to allow staggering. Members may be reappointed 
only once for an additional 3-year term, and such second 
term may follow directly after a first term. 
‘‘(c) ACTIVITIES.—The Advisory Board established 
pursuant to subsection (a) shall— 
‘‘(1) provide recommendations, not later than 90 
days after the Advisory Board’s establishment and pe-
riodically thereafter, to the Administrator regarding 
offset project types that should be considered for eligi-
bility under section 733, taking into consideration 
relevant scientific and other issues, including— 
‘‘(A) the availability of a representative 
data set for use in developing the activity base-
line; 
‘‘(B) the potential for accurate quantifica-
tion of greenhouse gas reduction, avoidance, or 
sequestration for an offset project type; 
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‘‘(C) the potential level of scientific and 
measurement uncertainty associated with an off-
set project type; and 
‘‘(D) any beneficial or adverse environ-
mental, public health, welfare, social, economic, 
or energy effects associated with an offset project 
type; 
‘‘(2) make available to the Administrator its ad-
vice and comments on offset methodologies that should 
be considered under regulations promulgated pursu-
ant to section 734(a) and (b), including methodologies 
to address the issues of additionality, activity base-
lines, measurement, leakage, uncertainty, permanence, 
and environmental integrity; 
‘‘(3) make available to the Administrator, and 
other relevant Federal agencies, its advice and com-
ments regarding scientific, technical, and methodo-
logical issues specific to the issuance of international 
offset credits under section 743; 
‘‘(4) make available to the Administrator, and 
other relevant Federal agencies, its advice and com-
ments regarding scientific, technical, and methodo-
logical issues associated with the implementation of 
part E; 
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‘‘(5) make available to the Administrator its ad-
vice and comments on areas in which further knowl-
edge is required to appraise the adequacy of existing, 
revised, or proposed methodologies for use under this 
part and part E, and describe the research efforts nec-
essary to provide the required information; and 
‘‘(6) make available to the Administrator its ad-
vice and comments on other ways to improve or safe-
guard the environmental integrity of programs estab-
lished under this part and part E. 
‘‘(d) SCIENTIFIC REVIEW OF OFFSET AND DEFOREST-
ATION REDUCTION PROGRAMS.—Not later than January 1, 
2017, and at five-year intervals thereafter, the Advisory 
Board shall submit to the Administrator and make avail-
able to the public an analysis of relevant scientific and tech-
nical information related to this part and part E. The Ad-
visory Board shall review approved and potential meth-
odologies, scientific studies, offset project monitoring, offset 
project verification reports, and audits related to this part 
and part E, and evaluate the net emissions effects of imple-
mented offset projects. The Advisory Board shall recommend 
changes to offset methodologies, protocols, or project types, 
or to the overall offset program under this part, to ensure 
that offset credits issued by the Administrator do not com-
promise the integrity of the annual emission reductions es-
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tablished under section 703, and to avoid or minimize ad-
verse effects to human health or the environment. 
‘‘SEC. 732. ESTABLISHMENT OF OFFSETS PROGRAM. 
‘‘(a) REGULATIONS.—Not later than 2 years after the 
date of enactment of this title, the Administrator, in con-
sultation with appropriate Federal agencies and taking 
into consideration the recommendations of the Advisory 
Board, shall promulgate regulations establishing a program 
for the issuance of offset credits in accordance with the re-
quirements of this part. The Administrator shall periodi-
cally revise these regulations as necessary to meet the re-
quirements of this part. 
‘‘(b) REQUIREMENTS.—The regulations described in 
subsection (a) shall— 
‘‘(1) authorize the issuance of offset credits with 
respect to qualifying offset projects that result in re-
ductions or avoidance of greenhouse gas emissions, or 
sequestration of greenhouse gases; 
‘‘(2) ensure that such offset credits represent 
verifiable and additional greenhouse gas emission re-
ductions or avoidance, or increases in sequestration; 
‘‘(3) ensure that offset credits issued for seques-
tration offset projects are only issued for greenhouse 
gas reductions that are permanent; 
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‘‘(4) provide for the implementation of the re-
quirements of this part; and 
‘‘(5) include as reductions in greenhouse gases 
reductions achieved through the destruction of meth-
ane and its conversion to carbon dioxide. 
‘‘(c) COORDINATION
TO MINIMIZE NEGATIVE EF-
FECTS.—In promulgating and implementing regulations 
under this part, the Administrator shall act (including by 
rejecting projects, if necessary) to avoid or minimize, to the 
maximum extent practicable, adverse effects on human 
health or the environment resulting from the implementa-
tion of offset projects under this part. 
‘‘(d) OFFSET REGISTRY.—The Administrator shall es-
tablish within the allowance tracking system established 
under section 724(d) an Offset Registry for qualifying offset 
projects and offset credits issued with respect thereto under 
this part. 
‘‘(e) LEGAL STATUS OF OFFSET CREDIT.—An offset 
credit does not constitute a property right. 
‘‘(f) FEES.—The Administrator shall assess fees pay-
able by offset project developers in an amount necessary to 
cover the administrative costs to the Environmental Protec-
tion Agency of carrying out the activities under this part. 
Amounts collected for such fees shall be available to the Ad-
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ministrator for carrying out the activities under this part 
to the extent provided in advance in appropriations Acts. 
‘‘SEC. 733. ELIGIBLE PROJECT TYPES. 
‘‘(a) LIST OF ELIGIBLE PROJECT TYPES.— 
‘‘(1) IN GENERAL.—As part of the regulations 
promulgated under section 732(a), the Administrator 
shall establish, and may periodically revise, a list of 
types of projects eligible to generate offset credits, in-
cluding international offset credits, under this part. 
‘‘(2) ADVISORY BOARD RECOMMENDATIONS.—In 
determining the eligibility of project types, the Ad-
ministrator shall take into consideration the rec-
ommendations of the Advisory Board. If a list estab-
lished under this section differs from the recommenda-
tions of the Advisory Board, the regulations promul-
gated under section 732(a) shall include a justifica-
tion for the discrepancy. 
‘‘(3) INITIAL
DETERMINATION.—The Adminis-
trator shall establish the initial eligibility list under 
paragraph (1) not later than one year after the date 
of enactment of this title. The Administrator shall 
add additional project types to the list not later than 
2 years after the date of enactment of this title. In de-
termining the initial list, the Administrator shall give 
priority to consideration of offset project types that 
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are recommended by the Advisory Board and for 
which there are well developed methodologies that the 
Administrator determines would meet the criteria of 
section 734, with such modifications as the Adminis-
trator deems appropriate. In issuing methodologies 
pursuant to section 734, the Administrator shall give 
priority to methodologies for offset types included on 
the initial eligibility list. 
‘‘(b) MODIFICATION OF LIST.—The Administrator— 
‘‘(1) may at any time, by rule, add a project 
type to the list established under subsection (a) if the 
Administrator, in consultation with appropriate Fed-
eral agencies and taking into consideration the rec-
ommendations of the Advisory Board, determines that 
the project type can generate additional reductions or 
avoidance of greenhouse gas emissions, or sequestra-
tion of greenhouse gases, subject to the requirements of 
this part; 
‘‘(2) may at any time, by rule, determine that 
a project type on the list does not meet the require-
ments of this part, and remove a project type from 
the list established under subsection (a), in consulta-
tion with appropriate Federal agencies and taking 
into consideration any recommendations of the Advi-
sory Board; and 
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‘‘(3) shall consider adding to or removing from 
the list established under subsection (a), at a min-
imum, project types proposed to the Administrator— 
‘‘(A) by petition pursuant to subsection (c); 
or 
‘‘(B) by the Advisory Board. 
‘‘(c) PETITION PROCESS.—Any person may petition 
the Administrator to modify the list established under sub-
section (a) by adding or removing a project type pursuant 
to subsection (b). Any such petition shall include a showing 
by the petitioner that there is adequate data to establish 
that the project type does or does not meet the requirements 
of this part. Not later than 12 months after receipt of such 
a petition, the Administrator shall either grant or deny the 
petition and publish a written explanation of the reasons 
for the Administrator’s decision. The Administrator may 
not deny a petition under this subsection on the basis of 
inadequate Environmental Protection Agency resources or 
time for review. 
‘‘SEC. 734. REQUIREMENTS FOR OFFSET PROJECTS. 
‘‘(a) METHODOLOGIES.—As part of the regulations 
promulgated under section 732(a), the Administrator shall 
establish, for each type of offset project listed as eligible 
under section 733, the following: 
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‘‘(1) ADDITIONALITY.—A standardized method-
ology for determining the additionality of greenhouse 
gas emission reductions or avoidance, or greenhouse 
gas sequestration, achieved by an offset project of that 
type. Such methodology shall ensure, at a minimum, 
that any greenhouse gas emission reduction or avoid-
ance, or any greenhouse gas sequestration, is consid-
ered additional only to the extent that it results from 
activities that— 
‘‘(A) are not required by or undertaken to 
comply with any law, including any regulation 
or consent order; 
‘‘(B) were not commenced prior to January 
1, 2009, except in the case of— 
‘‘(i) offset project activities that com-
menced after January 1, 2001, and were 
registered as of the date of enactment of this 
title under an offset program with respect to 
which the Administrator has made an af-
firmative 
determination 
under 
section 
740(a)(2); or 
‘‘(ii) activities that are readily revers-
ible, with respect to which the Adminis-
trator may set an alternative earlier date 
under this subparagraph that is not earlier 
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than January 1, 2001, where the Adminis-
trator determines that setting such an alter-
native date may produce an environmental 
benefit by removing an incentive to cease 
and then reinitiate activities that began 
prior to January 1, 2009; 
‘‘(C) are not receiving support under part 
E of this title or title IV, subtitle D of the Amer-
ican Clean Energy and Security Act of 2009; 
and 
‘‘(D) exceed the activity baseline established 
under paragraph (2). 
‘‘(2) 
ACTIVITY
BASELINES.—A 
standardized 
methodology for establishing activity baselines for off-
set projects of that type. The Administrator shall set 
activity baselines to reflect a conservative estimate of 
business-as-usual performance or practices for the rel-
evant type of activity such that the baseline provides 
an adequate margin of safety to ensure the environ-
mental integrity of offsets calculated in reference to 
such baseline. 
‘‘(3) QUANTIFICATION
METHODS.—A standard-
ized methodology for determining the extent to which 
greenhouse gas emission reductions or avoidance, or 
greenhouse gas sequestration, achieved by an offset 
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project of that type exceed a relevant activity baseline, 
including protocols for monitoring and accounting for 
uncertainty. 
‘‘(4) LEAKAGE.—A standardized methodology for 
accounting for and mitigating potential leakage, if 
any, from an offset project of that type, taking uncer-
tainty into account. 
‘‘(b) ACCOUNTING FOR REVERSALS.— 
‘‘(1) IN GENERAL.—For each type of sequestra-
tion project listed under section 733, the Adminis-
trator shall establish requirements to account for and 
address reversals, including— 
‘‘(A) a requirement to report any reversal 
with respect to an offset project for which offset 
credits have been issued under this part; 
‘‘(B) provisions to require emission allow-
ances to be held in amounts to fully compensate 
for greenhouse gas emissions attributable to re-
versals, and to assign responsibility for holding 
such emission allowances; and 
‘‘(C) any other provisions the Adminis-
trator determines necessary to account for and 
address reversals. 
‘‘(2) MECHANISMS.—The Administrator shall 
prescribe mechanisms to ensure that any sequestra-
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tion with respect to which an offset credit is issued 
under this part results in a permanent net increase 
in sequestration, and that full account is taken of any 
actual or potential reversal of such sequestration, with 
an adequate margin of safety. The Administrator 
shall prescribe at least one of the following mecha-
nisms to meet the requirements of this paragraph: 
‘‘(A) An offsets reserve, pursuant to para-
graph (3). 
‘‘(B) Insurance that provides for purchase 
and provision to the Administrator for retire-
ment of an amount of offset credits or emission 
allowances equal in number to the tons of carbon 
dioxide equivalents of greenhouse gas emissions 
released due to reversal. 
‘‘(C) Another mechanism that the Adminis-
trator determines satisfies the requirements of 
this part. 
‘‘(3) OFFSETS RESERVE.— 
‘‘(A) IN GENERAL.—An offsets reserve re-
ferred to in paragraph (2)(A) is a program 
under which, before issuance of offset credits 
under this part, the Administrator shall subtract 
and reserve from the quantity to be issued a 
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quantity of offset credits based on the risk of re-
versal. The Administrator shall— 
‘‘(i) hold these reserved offset credits in 
the offsets reserve; and 
‘‘(ii) register the holding of the reserved 
offset credits in the Offset Registry estab-
lished under section 732(d). 
‘‘(B) PROJECT REVERSAL.— 
‘‘(i) IN GENERAL.—If a reversal has 
occurred with respect an offset project for 
which offset credits are reserved under this 
paragraph, the Administrator shall remove 
offset credits from the offsets reserve and 
cancel them to fully account for the tons of 
carbon dioxide equivalent that are no longer 
sequestered. 
‘‘(ii) INTENTIONAL REVERSALS.—If the 
Administrator determines that a reversal 
was intentional, the offset project developer 
for the relevant offset project shall place into 
the offsets reserve a quantity of offset cred-
its, or combination of offset credits and 
emission allowances, equal in number to the 
number of reserve offset credits that were 
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canceled due to the reversal pursuant to 
clause (i). 
‘‘(iii) UNINTENTIONAL REVERSALS.—If 
the Administrator determines that a rever-
sal was unintentional, the offset project de-
veloper for the relevant offset project shall 
place into the offsets reserve a quantity of 
offset credits, or combination of offset cred-
its and emission allowances, equal in num-
ber to half the number of offset credits that 
were reserved for that offset project, or half 
the number of reserve offset credits that were 
canceled due to the reversal pursuant to 
clause (i), whichever is less. 
‘‘(C) USE
OF
RESERVED
OFFSET
CRED-
ITS.—Offset credits placed into the offsets reserve 
under this paragraph may not be used to comply 
with section 722. 
‘‘(c) CREDITING PERIODS.— 
‘‘(1) IN GENERAL.—For each offset project type, 
the Administrator shall specify a crediting period, 
and establish provisions for petitions for new cred-
iting periods, in accordance with this subsection. 
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‘‘(2) DURATION.—The crediting period shall be 
no less than 5 and no greater than 10 years for any 
project type other than those involving sequestration. 
‘‘(3) ELIGIBILITY.—An offset project shall be eli-
gible to generate offset credits under this part only 
during the project’s crediting period. During such 
crediting period, the project shall remain eligible to 
generate offset credits, subject to the methodologies 
and project type eligibility list that applied as of the 
date of project approval under section 735, except as 
provided in paragraph (4) of this subsection. 
‘‘(4) PETITION FOR NEW CREDITING PERIOD.— 
An offset project developer may petition for a new 
crediting period to commence after termination of a 
crediting period, subject to the methodologies and 
project type eligibility list in effect at the time when 
such petition is submitted. A petition may not be sub-
mitted under this paragraph more than 18 months 
before the end of the pending crediting period. The 
Administrator may limit the number of new crediting 
periods available for projects of particular project 
types. 
‘‘(d) ENVIRONMENTAL INTEGRITY.—In establishing the 
requirements under this section, the Administrator shall 
apply conservative assumptions or methods to maximize the 
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certainty that the environmental integrity of the cap estab-
lished under section 703 is not compromised. 
‘‘(e) PRE-EXISTING METHODOLOGIES.—In promul-
gating requirements under this section, the Administrator 
shall give due consideration to methodologies for offset 
projects existing as of the date of enactment of this title. 
‘‘(f) ADDED PROJECT TYPES.—The Administrator 
shall establish methodologies described in subsection (a), 
and, as applicable, requirements and mechanisms for rever-
sals as described in subsection (b), for any project type that 
is added to the list pursuant to section 733. 
‘‘SEC. 735. APPROVAL OF OFFSET PROJECTS. 
‘‘(a) APPROVAL PETITION.—An offset project developer 
shall submit an offset project approval petition providing 
such information as the Administrator requires to deter-
mine whether the offset project is eligible for issuance of off-
set credits under rules promulgated pursuant to this part. 
‘‘(b) TIMING.—An approval petition shall be submitted 
to the Administrator under subsection (a) no later than the 
time at which an offset project’s first verification report is 
submitted under section 736. 
‘‘(c) APPROVAL PETITION REQUIREMENTS.—As part 
of the regulations promulgated under section 732, the Ad-
ministrator shall include provisions for, and shall specify, 
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the required components of an offset project approval peti-
tion required under subsection (a), which shall include— 
‘‘(1) designation of an offset project developer; 
and 
‘‘(2) any other information that the Adminis-
trator considers to be necessary to achieve the pur-
poses of this part. 
‘‘(d) APPROVAL AND NOTIFICATION.—Not later than 
90 days after receiving a complete approval petition under 
subsection (a), the Administrator shall approve or deny the 
petition in writing and, if the petition is denied, provide 
the reasons for denial. After an offset project is approved, 
the offset project developer shall not be required to resubmit 
an approval petition during the offset project’s crediting pe-
riod, except as provided in section 734(c)(4). 
‘‘(e) APPEAL.—The Administrator shall establish pro-
cedures for appeal and review of determinations made 
under subsection (d). 
‘‘(f) VOLUNTARY PREAPPROVAL REVIEW.—The Ad-
ministrator may establish a voluntary preapproval review 
procedure, to allow an offset project developer to request the 
Administrator to conduct a preliminary eligibility review 
for an offset project. Findings of such reviews shall not be 
binding 
upon 
the 
Administrator. 
The 
voluntary 
preapproval review procedure— 
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‘‘(1) shall require the offset project developer to 
submit such basic project information as the Admin-
istrator requires to provide a meaningful review; and 
‘‘(2) shall require a response from the Adminis-
trator not later than 6 weeks after receiving a request 
for review under this subsection. 
‘‘SEC. 736. VERIFICATION OF OFFSET PROJECTS. 
‘‘(a) IN GENERAL.—As part of the regulations promul-
gated under section 732(a), the Administrator shall estab-
lish requirements, including protocols, for verification of the 
quantity of greenhouse gas emission reductions or avoid-
ance, or sequestration of greenhouse gases, resulting from 
an offset project. The regulations shall require that an offset 
project developer shall submit a report, prepared by a third- 
party verifier accredited under subsection (d), providing 
such information as the Administrator requires to deter-
mine the quantity of greenhouse gas emission reductions or 
avoidance, or sequestration of greenhouse gas, resulting 
from the offset project. 
‘‘(b) SCHEDULE.—The Administrator shall prescribe a 
schedule for the submission of verification reports under 
subsection (a). 
‘‘(c) VERIFICATION REPORT REQUIREMENTS.—The 
Administrator shall specify the required components of a 
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verification report required under subsection (a), which 
shall include— 
‘‘(1) the name and contact information for a des-
ignated representative for the offset project developer; 
‘‘(2) the quantity of greenhouse gas reduced, 
avoided, or sequestered; 
‘‘(3) the methodologies applicable to the project 
pursuant to section 734; 
‘‘(4) a certification that the project meets the ap-
plicable requirements; 
‘‘(5) a certification establishing that the conflict 
of interest requirements in the regulations promul-
gated under subsection (d)(1) have been complied 
with; and 
‘‘(6) any other information that the Adminis-
trator considers to be necessary to achieve the pur-
poses of this part. 
‘‘(d) VERIFIER ACCREDITATION.— 
‘‘(1) IN GENERAL.—As part of the regulations 
promulgated under section 732(a), the Administrator 
shall establish a process and requirements for periodic 
accreditation of third-party verifiers to ensure that 
such verifiers are professionally qualified and have no 
conflicts of interest. 
‘‘(2) STANDARDS.— 
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‘‘(A) AMERICAN NATIONAL STANDARDS IN-
STITUTE
ACCREDITATION.—The Administrator 
may accredit, or accept for purposes of accredita-
tion under this subsection, verifiers accredited 
under the American National Standards Insti-
tute (ANSI) accreditation program in accord-
ance with ISO 14065. The Administrator shall 
accredit, or accept for accreditation, verifiers 
under this subparagraph only if the Adminis-
trator finds that the American National Stand-
ards Institute accreditation program provides 
sufficient assurance that the requirements of this 
part will be met. 
‘‘(B) EPA ACCREDITATION.—As part of the 
regulations promulgated under section 732(a), 
the Administrator may establish accreditation 
standards for verifiers under this subsection, and 
may establish related training and testing pro-
grams and requirements. 
‘‘(3) 
PUBLIC
ACCESSIBILITY.—Each 
verifier 
meeting the requirements for accreditation in accord-
ance with this subsection shall be listed in a publicly 
accessible database, which shall be maintained and 
updated by the Administrator. 
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‘‘SEC. 737. ISSUANCE OF OFFSET CREDITS. 
‘‘(a) DETERMINATION AND NOTIFICATION.—Not later 
than 90 days after receiving a complete verification report 
under section 736, the Administrator shall— 
‘‘(1) make the report publicly available; 
‘‘(2) make a determination of the quantity of 
greenhouse gas emissions reduced or avoided, or 
greenhouse gases sequestered, resulting from an offset 
project approved under section 735; and 
‘‘(3) notify the offset project developer in writing 
of such determination. 
‘‘(b) ISSUANCE OF OFFSET CREDITS.—The Adminis-
trator shall issue one offset credit to an offset project devel-
oper for each ton of carbon dioxide equivalent that the Ad-
ministrator has determined has been reduced, avoided, or 
sequestered during the period covered by a verification re-
port submitted in accordance with section 736, only if— 
‘‘(1) the Administrator has approved the offset 
project pursuant to section 735; and 
‘‘(2) the relevant emissions reduction, avoidance, 
or sequestration has— 
‘‘(A) already occurred, during the offset 
project’s crediting period; and 
‘‘(B) occurred after January 1, 2009. 
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‘‘(c) APPEAL.—The Administrator shall establish pro-
cedures for appeal and review of determinations made 
under subsection (a). 
‘‘(d) TIMING.—Offset credits meeting the criteria estab-
lished in subsection (b) shall be issued not later than 2 
weeks following the verification determination made by the 
Administrator under subsection (a). 
‘‘(e) REGISTRATION.—The Administrator shall assign 
a unique serial number to and register each offset credit 
to be issued in the Offset Registry established under section 
732(d). 
‘‘SEC. 738. AUDITS. 
‘‘(a) IN GENERAL.—The Administrator shall, on an 
ongoing basis, conduct random audits of offset projects, off-
set credits, and practices of third-party verifiers. In each 
year, the Administrator shall conduct audits, at minimum, 
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 govern-
ment provides assurances equivalent to those provided by 
the auditing program of the Administrator, and that the 
integrity of the offset program under this part will be main-
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tained. Nothing in this subsection shall prevent the Admin-
istrator from conducting any audit the Administrator con-
siders 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 Advisory 
Board, update and revise— 
‘‘(1) the list of eligible project types established 
under section 733; 
‘‘(2) the methodologies established, including spe-
cific activity baselines, under section 734(a); 
‘‘(3) the reversal requirements and mechanisms 
established or prescribed under section 734(b); 
‘‘(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 GOVERN-
MENT-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— 
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‘‘(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 offset 
program that the Administrator determines— 
‘‘(A) was established under State or tribal 
law or regulation prior to January 1, 2009, or 
has been approved by the Administrator pursu-
ant to subsection (e); 
‘‘(B) has developed offset project type stand-
ards, 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-
ance, or sequestration are permanent, additional, 
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 reg-
istered in a publicly accessible registry, with in-
dividual serial numbers assigned for each ton of 
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carbon dioxide equivalent emission reductions, 
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 paragraph 
(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. 
‘‘(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 regula-
tions promulgated under section 732(a) take effect, 
whichever occurs sooner. 
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‘‘(d) RETIREMENT OF CREDITS.—The Administrator 
shall seek to ensure that offset credits described in subsection 
(a)(2) are retired for purposes of use under a program de-
scribed in subsection (b). 
‘‘(e) OTHER PROGRAMS.—(1) Offset programs that ei-
ther— 
‘‘(A) were not established under State or tribal 
law; or 
‘‘(B) were not established prior to January 1, 
2009, 
but that otherwise meet all of the criteria of sub-
section (a)(2) may apply to the Administrator to be 
approved under this subsection as an eligible program 
for early offset credits under this section. 
‘‘(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 the cri-
teria 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 trib-
al law that the Administrator determines meet the criteria 
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of subsection (a)(2). The Administrator shall make a deter-
mination on any application received under this subsection 
by no later than 180 days from the date of receipt of the 
application. 
‘‘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 species 
in forestry and other relevant land management-related off-
set 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. 
‘‘SEC. 742. TRADING. 
‘‘Section 724 shall apply to the trading of offset cred-
its. 
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‘‘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 Development, 
may issue, in accordance with this section, international 
offset credits based on activities that reduce or avoid green-
house 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 Adminis-
trator, in consultation with the Secretary of State, the 
Administrator of the United States Agency for Inter-
national Development, and any other appropriate 
Federal agency, and taking into consideration the rec-
ommendations of the Advisory Board, shall promul-
gate regulations for implementing this section. 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. 
‘‘(2) REQUIREMENTS FOR INTERNATIONAL OFF-
SET CREDITS.—The Administrator may issue inter-
national offset credits only if— 
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‘‘(A) the United States is a party to a bilat-
eral or multilateral agreement or arrangement 
that includes the country in which the project or 
measure achieving the relevant greenhouse 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 po-
tential for leakage and to encourage countries to take 
nationally appropriate mitigation actions to reduce 
or avoid greenhouse gas emissions, or sequester green-
house gases, the Administrator, in consultation with 
the Secretary of State and the Administrator of the 
United States Agency for International Development, 
shall— 
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‘‘(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 de-
velopment; 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 sectors 
and countries for which international offset cred-
its should be awarded only on a sectoral basis, 
the Administrator, in consultation with the Sec-
retary of State and the Administrator of the 
United States Agency for International Develop-
ment, shall consider the following factors: 
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‘‘(i) The country’s gross domestic prod-
uct. 
‘‘(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 homogeneity 
of sources within the relevant sector. 
‘‘(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. 
‘‘(viii) Such other factors as the Ad-
ministrator, in consultation with the Sec-
retary of State and the Administrator of the 
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United States Agency for International De-
velopment, determines are appropriate to— 
‘‘(I) ensure the integrity of the 
United States greenhouse gas emissions 
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 
greenhouse 
gases. 
‘‘(3) SECTORAL BASIS.— 
‘‘(A) DEFINITION.—In this subsection, the 
term ‘sectoral basis’ means the issuance of inter-
national offset credits only for the quantity of 
sector-wide reductions or avoidance of greenhouse 
gas emissions, or sector-wide increases in seques-
tration of greenhouse gases, achieved across the 
relevant sector of the economy relative to a base-
line level of performance established in an agree-
ment or arrangement described in subsection 
(b)(2)(A) for the sector. 
‘‘(B) BASELINE.—The baseline for a sector 
shall be established at levels of greenhouse gas 
emissions lower than would occur under a busi-
ness-as-usual scenario taking into account rel-
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evant domestic or international policies or incen-
tives to reduce greenhouse gas emissions, among 
other factors, and additionality and performance 
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 inter-
national offset credits in exchange for instruments in 
the nature of offset credits that are issued by an inter-
national body established pursuant to the United Na-
tions Framework Convention on Climate Change, to 
a protocol to such Convention, or to a treaty that suc-
ceeds such Convention. The Administrator may issue 
international offset credits under this subsection only 
if, in addition to the requirements of subsection (b), 
the Administrator has determined that the inter-
national body that issued the instruments has imple-
mented substantive and procedural requirements for 
the relevant project type that 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 con-
sultation with the Secretary of State, shall seek, by 
whatever means appropriate, including agreements, 
arrangements, or technical cooperation with the inter-
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national issuing body described in paragraph (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 submission 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-
national offset credits for greenhouse gas emission re-
ductions achieved through activities to reduce deforest-
ation only if, in addition to the requirements of sub-
section (b)— 
‘‘(A) the activity occurs in— 
‘‘(i) a country listed by the Adminis-
trator pursuant to paragraph (2); 
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‘‘(ii) a state or province listed by the 
Administrator pursuant to paragraph (5); 
or 
‘‘(iii) a country listed by the Adminis-
trator pursuant to paragraph (6); 
‘‘(B) except as provided in paragraph (5) or 
(6), the quantity of the international offset cred-
its is determined by comparing the national 
emissions from deforestation relative to a na-
tional deforestation baseline for that country es-
tablished, in accordance with an agreement or 
arrangement described in subsection (b)(2)(A), 
pursuant to paragraph (4); 
‘‘(C) the reduction in emissions from defor-
estation has occurred before the issuance of the 
international offset credit and, taking into con-
sideration relevant international standards, has 
been demonstrated using ground-based inven-
tories, 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 
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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 man-
agement practices; 
‘‘(ii) to promote or restore native forest 
species and ecosystems where practicable, 
and to avoid the introduction of invasive 
nonnative species; 
‘‘(iii) in a manner that gives due re-
gard to the rights and interests of local com-
munities, indigenous peoples, forest-depend-
ent communities, and vulnerable social 
groups; 
‘‘(iv) with consultations with, and full 
participation of, local communities, indige-
nous peoples, and forest-dependent commu-
nities, in affected areas, as partners and 
primary stakeholders, 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 
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local communities, indigenous peoples, and 
forest-dependent communities; and 
‘‘(F) the reduction otherwise satisfies and is 
consistent with any relevant requirements estab-
lished by an agreement reached under the aus-
pices of the United Nations Framework Conven-
tion on Climate Change. 
‘‘(2) ELIGIBLE COUNTRIES.—The Administrator, 
in consultation with the Secretary of State and the 
Administrator of the United States Agency for Inter-
national Development, and in accordance with an 
agreement or arrangement described in subsection 
(b)(2)(A), shall establish, and periodically review and 
update, a list of the developing countries that have the 
capacity to participate in deforestation reduction ac-
tivities 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 emis-
sions from deforestation with an acceptable level 
of uncertainty, as determined taking into ac-
count relevant internationally accepted meth-
odologies, such as those established by the Inter-
governmental Panel on Climate Change; 
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‘‘(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. 
‘‘(3) PROTECTION OF INTERESTS.—With respect 
to an agreement or arrangement described in sub-
section (b)(2)(A) with a country that addresses inter-
national offset credits under this subsection, the Ad-
ministrator, in consultation with the Secretary of 
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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, processes, standards, and 
safeguards that— 
‘‘(A) give due regard to the rights and in-
terests of local communities, indigenous peoples, 
forest-dependent communities, and vulnerable so-
cial 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) encourage equitable sharing of profits 
and benefits derived from international offset 
credits with local communities, indigenous peo-
ples, and forest-dependent communities. 
‘‘(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 
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respect to deforestation, taking into consideration 
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 result 
in zero net deforestation by not later than 20 
years after the national deforestation baseline 
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 de-
forestation 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 ACTIVI-
TIES.— 
‘‘(A) ELIGIBLE
STATES
OR
PROVINCES.— 
The Administrator, in consultation with the Sec-
retary of State and the Administrator of the 
United States Agency for International Develop-
ment, shall establish, and periodically review 
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and update, a list of states or provinces in devel-
oping 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 commensu-
rate 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-
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-
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section (b)(2)(A), pursuant to subparagraph (C) 
of this paragraph. 
‘‘(C) STATE-LEVEL OR PROVINCE-LEVEL DE-
FORESTATION BASELINE.—A state-level or prov-
ince-level deforestation baseline shall— 
‘‘(i) be consistent with any existing na-
tionally appropriate mitigation commit-
ments or actions for the country in which 
the activity is occurring, taking into consid-
eration the average annual historical defor-
estation rates of the state or province dur-
ing a period of at least 5 years, relevant 
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 es-
tablished; and 
‘‘(iii) be designed to account for all sig-
nificant sources of greenhouse gas emissions 
from deforestation in the state or province 
and adjusted to fully account for emissions 
leakage outside the state or province. 
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‘‘(D) PHASE OUT.—Beginning 5 years after 
the first calendar year for which a covered entity 
must 
demonstrate 
compliance 
with 
section 
722(a), the Administrator shall issue no further 
international offset credits for eligible state-level 
or province-level activities to reduce deforestation 
pursuant to this paragraph. 
‘‘(6) PROJECTS AND PROGRAMS TO REDUCE DE-
FORESTATION.— 
‘‘(A) ELIGIBLE COUNTRIES.—The Adminis-
trator, in consultation with the Secretary of 
State and the Administrator of the United States 
Agency for International Development, shall es-
tablish, and periodically review and update, a 
list of developing countries that— 
‘‘(i) the Administrator determines, 
based on recent, credible, and reliable emis-
sions data, account for less than 1 percent 
of global greenhouse gas emissions and less 
than 3 percent of global forest-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 sector 
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strategic plan that meets the criteria de-
scribed 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 deforestation 
in countries listed under subparagraph (A) that 
meet the requirements of this section. The quan-
tity of international offset credits shall be deter-
mined by comparing the project-level or pro-
gram-level emissions from deforestation to a de-
forestation baseline for such project or program 
established pursuant to subparagraph (C). 
‘‘(C) PROJECT-LEVEL
OR
PROGRAM-LEVEL 
BASELINE.—A project-level or program-level de-
forestation baseline shall— 
‘‘(i) be consistent with any existing na-
tionally appropriate mitigation commit-
ments or actions for the country in which 
the project or program is occurring, taking 
into consideration the average annual his-
torical deforestation rates in the project or 
program boundary during a period of at 
least 5 years, applicable drivers of deforest-
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ation, 
and 
other 
factors 
to 
ensure 
additionality; 
‘‘(ii) be designed to account for all sig-
nificant sources of greenhouse gas emissions 
from deforestation in the project or program 
boundary; and 
‘‘(iii) be adjusted to fully account for 
emissions leakage outside the project or pro-
gram boundary. 
‘‘(D) PHASE OUT.—(i) Beginning 5 years 
after the first calendar year for which a covered 
entity must demonstrate compliance with section 
722(a), the Administrator shall issue no further 
international offset credits for project-level or 
program-level activities as described in this 
paragraph, 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 by up to 
8 years with respect to eligible activities taking 
place in a least developed nation, which is a for-
eign country that the United Nations has identi-
fied as among the least developed of developing 
countries at the time that the Administrator de-
termines to provide an extension, provided that 
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the Administrator, in consultation with the Sec-
retary of State and the Administrator of the 
United States Agency for International Develop-
ment, determines the nation— 
‘‘(I) lacks sufficient capacity to adopt 
and implement effective programs to achieve 
reductions 
in 
deforestation 
measured 
against national baselines; 
‘‘(II) is receiving support under part E 
to develop such capacity; and 
‘‘(III) has developed and is working to 
implement a credible national strategy or 
plan to reduce deforestation. 
‘‘(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 
associated with forested wetlands or peatlands, within 
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 subsection 
(c), (d), or (e), the Administrator, in consultation with the 
Secretary of State and the Administrator of the United 
States Agency for International Development, may modify 
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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 such subsection is 
not feasible. In modifying or omitting such a requirement 
on the basis of infeasibility, the Administrator, in consulta-
tion with the Secretary of State and the Administrator of 
the United States Agency for International Development, 
shall ensure, with an adequate margin of safety, the integ-
rity of international offset credits issued under this section 
and of the greenhouse gas emissions cap established pursu-
ant to section 703. 
‘‘(g) AVOIDING DOUBLE COUNTING.—The Adminis-
trator, in consultation with the Secretary of State, shall 
seek, by whatever means appropriate, including agreements, 
arrangements, or technical cooperation, to ensure that ac-
tivities on the basis of which international offset credits are 
issued under this section are not used for compliance with 
an obligation to reduce or avoid greenhouse gas emissions, 
or increase greenhouse gas sequestration, under a foreign 
or international regulatory system. In addition, no inter-
national offset credits shall be issued for emission reductions 
from activities with respect to which emission allowances 
were allocated under section 781 for distribution under part 
E. 
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‘‘(h) LIMITATION.—The Administrator shall not issue 
international offset credits generated by projects 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 preserving 
existing forest carbon stocks, including forested wet-
lands and peatlands, that might, absent such activi-
ties, be lost through leakage. 
‘‘(2) NATIONAL DEFORESTATION REDUCTION AC-
TIVITIES.—The term ‘national deforestation reduction 
activities’ means activities in developing countries 
that reduce a quantity of greenhouse gas emissions 
from deforestation that is calculated by measuring ac-
tual emissions against a national deforestation base-
line established pursuant to section 754(d)(1) and (2). 
‘‘(3) SUBNATIONAL DEFORESTATION REDUCTION 
ACTIVITIES.—The term ‘subnational deforestation re-
duction activities’ means activities in developing 
countries that reduce a quantity of greenhouse gas 
emissions from deforestation that are calculated by 
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measuring actual emissions using an appropriate 
baseline established by the Administrator that is less 
than national in scope. 
‘‘(4) SUPPLEMENTAL EMISSIONS REDUCTIONS.— 
The term ‘supplemental emissions reductions’ means 
greenhouse gas emissions reductions achieved from re-
duced or avoided deforestation under this part. 
‘‘(5) USAID.—The term ‘USAID’ means the 
United States Agency for International Development. 
‘‘SEC. 752. FINDINGS. 
‘‘Congress finds that— 
‘‘(1) as part of a global effort to mitigate climate 
change, it is in the national interest of the United 
States to assist developing countries to reduce and ul-
timately halt emissions from deforestation; 
‘‘(2) deforestation is one of the largest sources of 
greenhouse gas emissions in developing countries, 
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 centigrade 
above preindustrial levels without reducing and ulti-
mately halting net emissions from deforestation; 
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‘‘(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-
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 con-
sultation with the Administrator of USAID and any other 
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appropriate agencies, shall promulgate regulations estab-
lishing 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 requirements 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 equiva-
lent 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 de-
veloping countries experiencing deforestation, includ-
ing 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 vulnerable 
to international leakage, particularly in developing 
countries with largely intact native forests. 
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‘‘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 es-
tablishing the conditions of its participation in the 
program established under this part, which shall in-
clude an agreement to meet the standards established 
under subsection (d) for the activities to which those 
standards apply. 
‘‘(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 activi-
ties; 
‘‘(B) subnational deforestation reduction ac-
tivities, including pilot activities that reduce 
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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; 
‘‘(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.— 
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‘‘(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 ob-
jectives listed in section 753(b)(1). 
‘‘(B) With respect to the activities listed in 
subparagraphs (D) through (J) of paragraph (1), 
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 Admin-
istrator and the Administrator of USAID shall joint-
ly develop and biennially update a strategic plan for 
meeting the objectives listed in section 753(b) and 
shall execute a memorandum of understanding delin-
eating the agencies’ respective roles in implementing 
this part. 
‘‘(c) MECHANISMS.— 
‘‘(1) IN GENERAL.—The Administrator may sup-
port activities to achieve the objectives identified in 
section 753(b) by— 
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‘‘(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 activi-
ties selected and implemented by the Administrator of 
USAID pursuant to (b)(2), the Administrator shall 
distribute emission allowances as provided in sub-
paragraph (1) based upon the direction of the Admin-
istrator of USAID, subject to the availability of al-
lowances for such activities. 
‘‘(3) 
IMPLEMENTATION
THROUGH
INTER-
NATIONAL ORGANIZATIONS.—If support is distributed 
through an international organization, the agency re-
sponsible for selecting activities in accordance with 
subparagraph (b)(1) or (2), in consultation with the 
Secretary of State, shall ensure the establishment and 
implementation of adequate mechanisms to apply and 
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enforce the eligibility requirements and other require-
ments of this section. 
‘‘(4) ROLE OF THE SECRETARY OF STATE.—The 
Administrator may not distribute emission allow-
ances to the government of another country or to an 
international organization or international fund un-
less 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 reductions 
achieved through supported activities are additional, meas-
urable, 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 de-
forestation reduction activities that is used to account 
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 consideration 
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the average annual historical deforestation rates 
of the country during a period of at least 5 years 
and other factors to ensure additionality; 
‘‘(C) establish a trajectory that would result 
in zero net deforestation by not later than 20 
years from the date the baseline is 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 de-
forestation in the country; and 
‘‘(F) be consistent with the national defor-
estation baseline, if any, established for such 
country under section 743(e)(4); 
‘‘(3) with respect to support provided pursuant 
to subsection (b)(1)(A) or (B), 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 tech-
niques needed for a full accounting of changes in 
emissions or baselines, or are subject to other sources 
of uncertainty, apply a conservative discount factor 
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to reflect the uncertainty regarding the levels of reduc-
tions 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; 
‘‘(B) to promote native species and con-
servation or restoration of native forests, if prac-
ticable, and to avoid the introduction of invasive 
nonnative species; 
‘‘(C) in a manner that gives due regard to 
the rights and interests of local communities, in-
digenous peoples, forest-dependent communities, 
and vulnerable social groups; 
‘‘(D) with consultations with, and full par-
ticipation of, local communities, indigenous peo-
ples, and forest-dependent communities in af-
fected areas, as partners and primary stake-
holders, prior to and during the design, plan-
ning, implementation, and monitoring and eval-
uation of activities; and 
‘‘(E) with equitable sharing of profits and 
benefits derived from the activities with local 
communities, indigenous peoples, and forest-de-
pendent communities; and 
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‘‘(6) with respect to support for all activities 
under this part, seek to ensure the establishment and 
enforcement by the recipient country of legal regimes, 
standards, processes, and safeguards that— 
‘‘(A) give due regard to the rights and in-
terests of local communities, indigenous peoples, 
forest-dependent communities, and vulnerable so-
cial groups; 
‘‘(B) promote consultations with local com-
munities and indigenous peoples and forest-de-
pendent communities in affected areas, as part-
ners and primary stakeholders, prior to and dur-
ing the design, planning, implementation, moni-
toring, and evaluation of activities under this 
part; and 
‘‘(C) encourage equitable sharing of profits 
and benefits from incentives for emissions reduc-
tions or leakage prevention with local commu-
nities, indigenous peoples, and forest-dependent 
communities. 
‘‘(e) EXPANSION OF SCOPE.—The Administrator, in 
consultation with the Administrator of USAID, may decide, 
taking into account any advice from the Advisory Board, 
to expand, where appropriate, the scope of activities under 
this part to include— 
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‘‘(1) reduced emissions from forest degradation; 
or 
‘‘(2) reduced soil carbon-derived emissions asso-
ciated with deforestation and degradation of forested 
wetlands and peatlands. 
‘‘(f) ACCOUNTING.—The Administrator shall establish 
a publicly accessible registry of the supplemental emissions 
reductions achieved through support provided under this 
part each year, after appropriately discounting for uncer-
tainty and other relevant factors as required by the stand-
ards established under subsection (d). 
‘‘(g) TRANSITION TO NATIONAL REDUCTIONS.—Begin-
ning 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 compensation 
through emission allowances to that country under this part 
for any subnational deforestation reduction activities, ex-
cept that the Administrator may extend this period by an 
additional 5 years if the Administrator, in consultation 
with the Administrator of USAID, determines that— 
‘‘(1) the country is making substantial progress 
towards adopting and implementing a program to 
achieve reductions in deforestation measured against 
a national baseline; 
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‘‘(2) the greenhouse gas emissions reductions 
achieved are not resulting in significant leakage; and 
‘‘(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 sup-
port for activities to further the objectives listed in section 
753(b)(2) or (3). 
‘‘(h) COORDINATION WITH U.S. FOREIGN ASSIST-
ANCE.—Subject to the direction of the President, the Admin-
istrator and the Administrator of USAID shall, to the ex-
tent practicable and consistent with the objectives of this 
program, seek to align activities under this section with 
broader development, poverty alleviation, or natural re-
source management objectives and initiatives in the recipi-
ent 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 activi-
ties under this part. 
‘‘SEC. 755. REPORTS AND REVIEWS. 
‘‘(a) REPORTS.—Not later than January 1, 2014, and 
annually thereafter, the Administrator and the Adminis-
trator of USAID shall submit to the Committee on Energy 
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and Commerce and the Committee on Foreign Affairs of 
the House of Representatives, and the Committee on Envi-
ronment 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 include— 
‘‘(1) a statement of the quantity of supplemental 
emissions reductions for which compensation in the 
form of emission allowances was provided under this 
part during the prior fiscal year, as registered by the 
Administrator under section 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 fiscal 
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 recommendations 
from the Advisory Board established under section 731, 
shall conduct a review of the activities undertaken pursuant 
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to this part and make any appropriate changes in the pro-
gram established under this part based on the findings of 
the review. The review shall include the effects of the activi-
ties 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 section 
754(d)(1); 
‘‘(2) the number of countries with the capacity 
to generate for sale instruments in the nature of offset 
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 peoples and forest-dependent 
communities residing in areas affected by such activi-
ties; 
‘‘(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 For-
eign 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 green-
house gas emissions, or to sequestration of greenhouse 
gases, means reductions, avoidance, or sequestration 
that result in a lower level of net greenhouse gas emis-
sions or atmospheric concentrations than would occur 
in the absence of an offset project. 
‘‘(2) ADDITIONALITY.—The term ‘additionality’ 
means the extent to which reductions or avoidance of 
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greenhouse gas emissions, or sequestration of green-
house gases, are additional. 
‘‘(3) ADVISORY
BOARD.—The term ‘Advisory 
Board’ means the Offsets Integrity Advisory Board es-
tablished under section 731. 
‘‘(4) AFFILIATED.—The term ‘affiliated’— 
‘‘(A) when used in relation to an entity 
means owned or controlled by, or under common 
ownership or control with, another entity, as de-
termined by the Administrator; and 
‘‘(B) when used in relation to a natural gas 
local distribution company, means owned or con-
trolled by, or under common ownership or con-
trol with, another natural gas local distribution 
company, as determined by the Administrator. 
‘‘(5) ALLOWANCE.—The term ‘allowance’ means 
a limited authorization to emit, or have attributable 
greenhouse gas emissions in an amount of, 1 ton of 
carbon dioxide equivalent of a greenhouse gas in ac-
cordance with this title; it includes an emission al-
lowance, a compensatory allowance, or an inter-
national emission allowance. 
‘‘(6) ATTRIBUTABLE
GREENHOUSE
GAS
EMIS-
SIONS.—The term ‘attributable greenhouse gas emis-
sions’ means— 
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‘‘(A) for a covered entity that is a fuel pro-
ducer or importer described in paragraph 
(13)(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 com-
merce, 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 para-
graph (13)(C), the tons of carbon dioxide equiva-
lent of fossil fuel-based carbon dioxide, nitrous 
oxide, any fluorinated gas, other than nitrogen 
trifluoride, that is a greenhouse gas, or any com-
bination thereof— 
‘‘(i) produced or imported by such cov-
ered 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 
‘‘(C) for a natural gas local distribution 
company described in paragraph (13)(J), green-
house gases that would be emitted from the com-
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bustion 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 calendar 
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 se-
questration’ and ‘biologically sequestered’ mean the 
removal of greenhouse gases from the atmosphere 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(b)(2) or (8) applies. 
‘‘(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 meas-
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ure, 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 biologi-
cal reservoir or system which has the capacity to ac-
cumulate or release carbon. 
‘‘(12) COMPENSATORY
ALLOWANCE.—The term 
‘compensatory allowance’ means an allowance issued 
under section 721(f). 
‘‘(13) COVERED ENTITY.—The term ‘covered enti-
ty’ 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, petro-
leum-based or coal-based liquid fuel, petroleum 
coke, or natural gas liquid, the combustion of 
which would emit more than 25,000 tons of car-
bon dioxide equivalent, as determined by the Ad-
ministrator. 
‘‘(C) Any stationary source that produces, 
and any entity that (or any group of two or 
more affiliated entities that, in the aggregate) 
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imports, for sale or distribution in interstate 
commerce, in bulk, or in products designated by 
the Administrator, in 2008 or any subsequent 
year more than 25,000 tons of carbon dioxide 
equivalent 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 greenhouse 
gas, as designated by the Administrator 
under section 711(b) or (c); or 
‘‘(vi) any combination of greenhouse 
gases described in clauses (i) through (vi). 
‘‘(D) Any stationary source that has emit-
ted 25,000 or more tons of carbon dioxide equiv-
alent of nitrogen trifluoride in 2008 or any sub-
sequent year. 
‘‘(E) Any geologic sequestration site. 
‘‘(F) Any stationary source in the following 
industrial sectors: 
‘‘(i) Adipic acid production. 
‘‘(ii) Primary aluminum production. 
‘‘(iii) Ammonia manufacturing. 
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‘‘(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. 
‘‘(G) Any stationary source in the chemical 
or petrochemical sector that, in 2008 or any sub-
sequent year— 
‘‘(i) produces acrylonitrile, carbon 
black, ethylene, ethylene dichloride, ethylene 
oxide, or methanol; or 
‘‘(ii) produces a chemical or petro-
chemical product if producing that product 
results in annual combustion plus process 
emissions of 25,000 or more tons of carbon 
dioxide equivalent. 
‘‘(H) Any stationary source that— 
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‘‘(i) is in one of the following indus-
trial sectors: ethanol production; ferroalloy 
production; fluorinated gas production; food 
processing; glass production; hydrogen pro-
duction; iron and steel production; lead pro-
duction; 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. 
‘‘(I) Any fossil fuel-fired combustion device 
(such as a boiler) or grouping of such devices 
that— 
‘‘(i) is all or part of an industrial 
source not specified in subparagraph (D), 
(F), (G), or (H); and 
‘‘(ii) has emitted 25,000 or more tons 
of carbon dioxide equivalent in 2008 or any 
subsequent year. 
‘‘(J) Any natural gas local distribution 
company that (or any group of 2 or more affili-
ated natural gas local distribution companies 
that, in the aggregate) in 2008 or any subsequent 
year, delivers 460,000,000 cubic feet or more of 
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natural gas to customers that are not covered en-
tities. 
‘‘(14) CREDITING PERIOD.—The term ‘crediting 
period’ means the period with respect to which an off-
set 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 de-
veloper, or any other entity receiving or holding al-
lowances or offset credits under this title, an indi-
vidual authorized, through a certificate of representa-
tion submitted to the Administrator by the owners 
and operators or similar entity official, to represent 
the owners and operators or similar entity official in 
all matters pertaining to this title (including the 
holding, transfer, or disposition of allowances or offset 
credits), and to make all submissions to the Adminis-
trator under this title. 
‘‘(16) DEVELOPING COUNTRY.—The term ‘devel-
oping country’ means a country eligible to receive of-
ficial development assistance according to the income 
guidelines of the Development Assistance Committee 
of the Organization for Economic Cooperation and 
Development. 
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‘‘(17) DOMESTIC
OFFSET
CREDIT.—The term 
‘domestic offset credit’ means an offset credit issued 
under part D, other than an international offset cred-
it. 
‘‘(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 se-
questered, except to the extent that they are later re-
leased into the atmosphere, in which case compliance 
must be demonstrated pursuant to section 722(b)(5). 
‘‘(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 
on registered exchanges or, if such a price is unavail-
able, the average price as determined by the Adminis-
trator, 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. 
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‘‘(23) FOSSIL
FUEL.—The term ‘fossil fuel’ 
means natural gas, petroleum, or coal, or any form 
of solid, liquid, or gaseous fuel derived from such ma-
terial, 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, regard-
less of the percentage of fossil fuel consumed. 
‘‘(25) FUGITIVE EMISSIONS.—The term ‘fugitive 
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 sequestra-
tion’ and ‘geologically sequestered’ mean the seques-
tration of greenhouse gases in subsurface geologic for-
mations 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 ‘greenhouse 
gas’ means any gas described in section 711(a) or des-
ignated under section 711(b), (c), or (e), except to the 
extent that it is regulated under title VI. 
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‘‘(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 jurisdic-
tion 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. 
‘‘(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 nat-
ural gas pipeline transportation sector (as 
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defined in North American Industrial Clas-
sification System codes 211112 or 486210). 
‘‘(32) INTERNATIONAL EMISSION ALLOWANCE.— 
The term ‘international emission allowance’ means a 
tradable authorization to emit 1 ton of carbon dioxide 
equivalent of greenhouse gas that is issued by a na-
tional or supranational foreign government pursuant 
to a qualifying international program designated by 
the Administrator pursuant to section 728(a). 
‘‘(33) INTERNATIONAL
OFFSET
CREDIT.—The 
term ‘international offset credit’ means an offset cred-
it issued by the Administrator under section 743. 
‘‘(34) 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 boundaries 
of the offset project. 
‘‘(35) MINERAL
SEQUESTRATION.—The term 
‘mineral sequestration’ means sequestration of carbon 
dioxide from the atmosphere by capturing carbon di-
oxide into a permanent mineral, such as the aqueous 
precipitation of carbonate minerals that results in the 
storage of carbon dioxide in a mineral form. 
‘‘(36) NATURAL GAS LIQUID.—The term ‘natural 
gas liquid’ means ethane, butane, isobutane, natural 
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gasoline, and propane which is ready for commercial 
sale or use. 
‘‘(37) NATURAL GAS LOCAL DISTRIBUTION COM-
PANY.—The term ‘natural gas local distribution com-
pany’ has the meaning given the term ‘local distribu-
tion company’ in section 2(17) of the Natural Gas 
Policy Act of 1978 (15 U.S.C. 3301(17)). 
‘‘(38) OFFSET CREDIT.—The term ‘offset credit’ 
means a credit issued under part D. 
‘‘(39) 
OFFSET
PROJECT.—The 
term 
‘offset 
project’ means a project or activity that reduces or 
avoids greenhouse gas emissions, or sequesters green-
house gases, and for which offset credits are issued 
under part D. 
‘‘(40) OFFSET PROJECT DEVELOPER.—The term 
‘offset project developer’ means the individual or enti-
ty designated as the offset project developer in an off-
set project approval petition under section 735(c)(1). 
‘‘(41) PETROLEUM.—The term ‘petroleum’ in-
cludes crude oil, tar sands, oil shale, and heavy oils. 
‘‘(42) RENEWABLE BIOMASS.—The term ‘renew-
able 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, 
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cleared, or fallow and nonforested on January 1, 
2009. 
‘‘(B) Plant material, including waste mate-
rial, harvested or collected from pastureland that 
was nonforested on January 1, 2009. 
‘‘(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 des-
ignated for evacuation by a public official with 
responsibility for emergency preparedness, 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. 
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‘‘(H) Any of the following removed from for-
ested land that is not Federal and is not high 
conservation priority land: 
‘‘(i) Trees, brush, slash, residues, inter-
planted energy crops, or any other vegeta-
tive matter removed from an actively man-
aged tree plantation established— 
‘‘(I) prior to January 1, 2009; or 
‘‘(II) on land that, as of January 
1, 2009, was cultivated 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 pre-
ventative treatment for reducing or con-
taining insect or disease infestation. 
‘‘(iii) Logging residue, thinnings, cull 
trees, pulpwood, brush and species that are 
non-native and noxious, from stands that 
were planted and managed after January 1, 
2009, to restore or maintain native forest 
types. 
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‘‘(iv) Dead or severely damaged trees 
removed within 5 years of fire, blowdown, 
or other natural disaster, and badly infested 
trees. 
‘‘(I) Materials, pre-commercial thinnings, 
or removed invasive species from National Forest 
System land and public lands (as defined in sec-
tion 103 of the Federal Land Policy and Man-
agement Act of 1976 (43 U.S.C. 1702)), includ-
ing those that are byproducts of preventive treat-
ments (such as trees, wood, brush, thinnings, 
chips, and slash), that are removed as part of a 
federally recognized timber sale, or that are re-
moved to reduce hazardous fuels, to reduce or 
contain disease or insect infestation, or to restore 
ecosystem health, and that are— 
‘‘(i) not from components of the Na-
tional Wilderness Preservation System, Wil-
derness Study Areas, Inventoried Roadless 
Areas, old growth or mature forest stands, 
components of the National Landscape Con-
servation System, National Monuments, Na-
tional 
Conservation 
Areas, 
Designated 
Primitive Areas; or Wild and Scenic Rivers 
corridors; 
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‘‘(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. 
‘‘(43) 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, exchange, or 
submission of the allowance or offset credit to satisfy 
a compliance obligation. 
‘‘(44) REVERSAL.—The term ‘reversal’ means an 
intentional or unintentional loss of sequestered green-
house gases to the atmosphere. 
‘‘(45) SEQUESTERED AND SEQUESTRATION.—The 
terms ‘sequestered’ and ‘sequestration’ mean the sepa-
ration, isolation, or removal of greenhouse gases from 
the atmosphere, as determined by the Administrator. 
The terms include biological, geologic, and mineral se-
questration, but do not include ocean fertilization 
techniques. 
‘‘(46) STATIONARY
SOURCE.—The term ‘sta-
tionary source’ means any integrated operation com-
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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. 
‘‘(47) 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. 
‘‘(48) UNCAPPED
EMISSIONS.—The term ‘un-
capped emissions’ means emissions of greenhouse 
gases emitted after December 31, 2011, that are not 
capped emissions. 
‘‘(49) UNITED STATES GREENHOUSE GAS EMIS-
SIONS.—The term ‘United States greenhouse gas emis-
sions’ means the total quantity of annual greenhouse 
gas emissions from the United States, as calculated by 
the Administrator and reported to the United Nations 
Framework Convention on Climate Change Secre-
tariat. 
‘‘(50) 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 
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such combustion device, during the 12-month period 
starting the later of January 1, 2009, or the com-
mencement of commercial operation and each cal-
endar 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. 
‘‘(51) VINTAGE YEAR.—The term ‘vintage year’ 
means the calendar year for which an emission allow-
ance 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 stra-
tegic reserve allowance shall be the year in which such 
allowance is purchased at auction.’’. 
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Subtitle B—Disposition of 
Allowances 
SEC. 321. DISPOSITION OF ALLOWANCES FOR GLOBAL 
WARMING POLLUTION REDUCTION PROGRAM. 
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. 
‘‘(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). 
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‘‘(c) CARRYOVER.—If the Administrator has not dis-
tributed all of the allowances allocated pursuant to this sec-
tion 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-
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). 
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‘‘(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 Administrator 
shall allocate emission allowances for the benefit of 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). 
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‘‘(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 allow-
ances for the benefit of home heating oil and propane con-
sumers 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). 
‘‘(2) For vintage years 2014 and 2015, 1.67 per-
cent 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). 
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‘‘(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 pur-
suant to section 791 15 percent of the emission allowances 
established for each year under section 721(a), with the pro-
ceeds 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. 
‘‘(e) TRADE-VULNERABLE INDUSTRIES.—The Admin-
istrator shall allocate emission allowances to energy-inten-
sive, trade-exposed entities, to be distributed in accordance 
with section 765, 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). 
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‘‘(2) For vintage year 2014, up to 15 percent of 
the emission allowances established for that year 
under section 721(a). 
‘‘(3) For vintage year 2015, up to the product of 
the amount specified in paragraph (2), multiplied by 
the quantity of emission allowances established for 
2015 under section 721(a) divided by the quantity of 
emission allowances established for 2014 under section 
721(a). 
‘‘(4) For vintage year 2016, up to the product of 
the amount specified in paragraph (3), multiplied by 
the quantity of emission allowances established for 
2015 under section 721(a) divided by the quantity of 
emission allowances established for 2014 under section 
721(a). 
‘‘(5) For vintage years 2017 through 2025, up to 
the product of the amount specified in paragraph (4), 
multiplied by the quantity of emission allowances es-
tablished for that year under section 721(a) divided 
by the quantity of emission allowances established for 
2016 under section 721(a). 
‘‘(6) For vintage years 2026 through 2050, up to 
the product of the amount specified in paragraph 
(4)— 
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‘‘(A) multiplied by the quantity of emission 
allowances established for the applicable year 
during 2026 through 2050 under section 721(a) 
divided by the quantity of emission allowances 
established for 2016 under section 721(a); and 
‘‘(B) multiplied by a factor, not exceeding 
100 percent, that shall equal 90 percent for 2026 
and decline 10 percent for each year thereafter 
until reaching zero, 
except that, if the President sets one or more factors 
for a year under section 767(c)(3)(A), the highest fac-
tor set (not exceeding 100 percent) shall be used for 
that year instead of the factor specified in subpara-
graph (B). 
‘‘(f) DEPLOYMENT OF CARBON CAPTURE AND SEQUES-
TRATION TECHNOLOGY.— 
‘‘(1) ANNUAL ALLOCATION.—The Administrator 
shall allocate emission allowances for the deployment 
of carbon capture and sequestration technology to be 
distributed in accordance with section 786 in the fol-
lowing amounts: 
‘‘(A) For vintage years 2014 through 2017, 
1.75 percent of the emission allowances estab-
lished for each year under section 721(a). 
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‘‘(B) For vintage years 2018 and 2019, 4.75 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(C) For vintage years 2020 through 2050, 
5 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(2) CARRYOVER.—If the Administrator has not 
distributed all of the allowances allocated pursuant to 
this subsection 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 
‘‘(B) increase the allocation under this sub-
section for the vintage year after the vintage year 
for which emission allowances were undisbursed 
by the amount of undisbursed emission allow-
ances, but only to the extent that allowances for 
that later year are to be auctioned. 
‘‘(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: 
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‘‘(1) To be distributed in accordance with section 
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 established 
for each year under section 721(a). 
‘‘(B) For vintage years 2016 through 2017, 
6.5 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(C) For vintage years 2018 through 2021, 
5.5 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(D) For vintage years 2022 through 2025, 
1.0 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(E) For vintage years 2026 through 2050, 
4.5 percent of the emission allowances established 
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)). 
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‘‘(2) To be distributed in accordance with section 
201 of the American Clean Energy and Security Act 
of 2009, for each vintage year from 2012 through 
2050, 0.5 percent of emission allowances established 
under section 721(a). 
‘‘(h) CLEAN ENERGY INNOVATION CENTERS.—For 
each vintage year from 2012 through 2050, the Adminis-
trator shall allocate for Clean Energy Innovation Centers, 
1.5 percent of emission allowances established under section 
721(a), to be distributed in accordance with section 171 of 
the American Clean Energy and Security Act of 2009. 
‘‘(i) INVESTMENT IN CLEAN VEHICLE TECHNOLOGY.— 
The Administrator shall allocate emission allowances to in-
vest in the development and deployment of clean vehicles, 
to be distributed in accordance with section 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 
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2.0 percent of the emission allowances established under sec-
tion 721(a) to domestic refiners, to be distributed in accord-
ance with section 787. 
‘‘(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). 
‘‘(l) DOMESTIC
ADAPTATION.—The Administrator 
shall allocate emission allowances for domestic adaptation 
as follows: 
‘‘(1) To be distributed in accordance with section 
453 of the American Clean Energy and Security Act 
of 2009 in the following amounts: 
‘‘(A) For vintage years 2012 through 2021, 
0.9 percent of the emission allowances established 
for each year under section 721(a). 
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‘‘(B) For vintage years 2022 through 2026, 
1.9 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(C) For vintage years 2027 through 2050, 
3.9 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(2) For vintage year 2012 and thereafter, the 
Administrator shall auction, pursuant to section 791, 
0.1 percent of the emission allowances established for 
each year under section 721(a), and shall deposit the 
proceeds in the Climate Change Health Protection 
and Promotion Fund established by section 467 of the 
American Clean Energy and Security Act of 2009. 
‘‘(m) WILDLIFE AND NATURAL RESOURCE ADAPTA-
TION.—The Administrator shall allocate emission allow-
ances for wildlife and natural resource adaptation as fol-
lows: 
‘‘(1) To be distributed to State agencies in ac-
cordance with section 480(c)(1) of the American 
Clean Energy and Security Act of 2009 in the fol-
lowing amounts: 
‘‘(A) For vintage years 2012 through 2021, 
0.385 percent of the emission allowances estab-
lished for each year under section 721(a). 
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‘‘(B) For vintage years 2022 through 2026, 
0.77 percent of the emission allowances estab-
lished for each year under section 721(a). 
‘‘(C) For vintage years 2027 through 2050, 
1.54 percent of the emission allowances estab-
lished for each year under section 721(a). 
‘‘(2) To be auctioned pursuant to section 791, 
with the proceeds to be deposited in the Natural Re-
sources Climate Change Adaptation Fund established 
pursuant to section 480(a), in the following amounts: 
‘‘(A) For vintage years 2012 through 2021, 
0.615 percent of the emission allowances estab-
lished for each year under section 721(a). 
‘‘(B) For vintage years 2022 through 2026, 
1.23 percent of the emission allowances estab-
lished for each year under section 721(a). 
‘‘(C) For vintage years 2027 through 2050, 
2.46 percent of the emission allowances estab-
lished 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 of 2009 in the following amounts: 
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‘‘(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). 
‘‘(o) INTERNATIONAL CLEAN TECHNOLOGY DEPLOY-
MENT.—The Administrator shall allocate emission allow-
ances for international clean technology deployment for dis-
tribution in accordance with subtitle D of title IV of the 
American Clean Energy and Security Act of 2009 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). 
‘‘(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). 
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‘‘(p) RELEASE OF FUTURE ALLOWANCES.—The Ad-
ministrator shall make future year allowances available by 
auctioning allowances, pursuant to section 791, in the fol-
lowing amounts: 
‘‘(1) In each of calendar years 2014 through 
2019, a string of 0.70 billion allowances with vintage 
years 12 to 17 years after the year of the auction, 
with an equal number of allowances from each vin-
tage year in the string. 
‘‘(2) In each of calendar years 2020 through 
2025, a string of 0.50 billion allowances with vintage 
years 12 to 17 years after the year of the auction, 
with an equal number of allowances from each vin-
tage year in the string. 
‘‘(3) In each of calendar years 2026 through 
2030, a string of 0.3 billion allowances with vintage 
years 12 to 17 years after the year of the auction, 
with an equal number of allowances from each vin-
tage year in the string. 
‘‘(q) DEFICIT REDUCTION.— 
‘‘(1) For each of vintage years 2012 through 
2025, any allowances not designated for distribution 
or auction pursuant to section 781, subsections (a) 
through (o) of this section, or section 790 shall be auc-
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tioned by the Administrator pursuant to section 791 
and the proceeds shall be deposited into the Treasury. 
‘‘(2) Unless otherwise specified, any allowances 
allocated pursuant to subsections (a) through (o) and 
not distributed by March 31 of the calendar year fol-
lowing the allowance’s vintage year, shall be auc-
tioned by the Administrator and the proceeds shall be 
deposited into the Treasury. 
‘‘(3) For auctions conducted through calendar 
year 2020 pursuant to subsection (p), the auction 
proceeds shall be deposited into the Treasury. 
‘‘(r) CLIMATE CHANGE CONSUMER REFUND.— 
‘‘(1) For each of vintage years 2026 through 
2050, the Administrator shall auction the following 
allowances established under section 721(a) and de-
posit the proceeds into the Climate Change Consumer 
Refund Account: 
‘‘(A) Any allowances not designated for dis-
tribution or auction pursuant to section 781, 
subsections (a) through (p) of this section, or sec-
tion 790. 
‘‘(B) Unless otherwise specified, any allow-
ances allocated pursuant to subsections (a) 
through (o) and not distributed by March 31 of 
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the calendar year following the allowance’s vin-
tage year. 
‘‘(2) For auctions conducted pursuant to sub-
section (p) in calendar years 2021 and thereafter, the 
Administrator shall place the proceeds from the sales 
of the these allowances into the Climate Change Con-
sumer Refund Account. Funds deposited into the Cli-
mate Change Consumer Refund Account shall be used 
as specified in section 789 and shall be available for 
expenditure, without further appropriation 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— 
‘‘(A) that has a legal, regulatory, or con-
tractual obligation to deliver electricity directly 
to retail consumers in the United States, regard-
less of whether that entity or another entity 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 regu-
lated by a State regulatory authority, regulatory 
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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 facili-
ty’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 executed 
before January 1, 2007, that governs the facili-
ty’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 limitation on 
greenhouse gas emissions under this title; and 
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‘‘(D) not a merchant coal generator. 
‘‘(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 others, 
provided that such sales are not subject to— 
‘‘(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 Regu-
latory 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, 
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the Administrator shall distribute to electricity local 
distribution companies for the benefit of retail rate-
payers the quantity of emission allowances allocated 
for the electricity sector for the following vintage year 
pursuant to section 782(a), provided that the Admin-
istrator shall first subtract from such quantity and 
distribute or reserve for distribution the quantity of 
emission allowances for the relevant vintage year that 
are required for distribution under subsections (c) 
and (d) of this section. 
‘‘(2) DISTRIBUTION OF ALLOWANCES BASED ON 
EMISSIONS.— 
‘‘(A) IN GENERAL.—For each vintage year, 
50 percent of the emission allowances available 
for distribution under paragraph (1) shall be 
distributed by the Administrator among indi-
vidual electricity local distribution companies 
ratably based on the annual average carbon di-
oxide emissions attributable to generation of elec-
tricity delivered at retail by each such company 
during the base period determined under sub-
paragraph (B). 
‘‘(B) BASE PERIOD.— 
‘‘(i) VINTAGE YEARS 2012 AND 2013.— 
For vintage years 2012 and 2013, an elec-
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tricity local distribution company’s base pe-
riod shall be— 
‘‘(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) VINTAGE YEARS 2014 AND THERE-
AFTER.—For vintage years 2014 and there-
after, the base period shall be— 
‘‘(I) the base period selected under 
clause (i); or 
‘‘(II) any 3 consecutive calendar 
years between 2009 through 2012, in-
clusive, or, for local distribution com-
panies with new units that are not 
fully operational before 2012, solely 
calendar year 2012, provided that such 
company selects a period from among 
these options and timely informs the 
Administrator of such selection. 
‘‘(C) DETERMINATION
OF
EMISSIONS.—As 
part of the regulations promulgated pursuant to 
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subsection (e), the Administrator, after consulta-
tion with the Energy Information Administra-
tion, shall determine the average amount of car-
bon dioxide emissions attributable to generation 
of electricity delivered at retail by each elec-
tricity local distribution company for each of the 
years 1999 through 2009 or the most recent cal-
endar year for which appropriate data are avail-
able, taking into account entities’ electricity gen-
eration, electricity purchases, and electricity 
sales. Not later than March 31, 2013, the Admin-
istrator, after consultation with the Energy In-
formation Administration, shall update such de-
termination to include emissions for any addi-
tional calendar years through 2012. Such deter-
minations shall be as precise as practicable, tak-
ing into account the nature of data currently 
available and the nature of markets and regula-
tion in effect in various regions of the country. 
The following requirements shall apply to such 
determinations: 
‘‘(i) The Administrator shall determine 
the amount of fossil fuel-based electricity de-
livered at retail by each electricity local dis-
tribution company, and shall use appro-
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priate emission factors to calculate carbon 
dioxide emissions associated with the gen-
eration of such electricity. 
‘‘(ii) Where it is not practical to deter-
mine the precise fuel mix for the electricity 
delivered at retail by an individual elec-
tricity local distribution company, the Ad-
ministrator may use the best available data, 
including average data on a regional basis 
with reference to Regional Transmission 
Organizations 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. Dif-
ferent methodologies may be applied in dif-
ferent regions if appropriate to obtain the 
most accurate estimate. 
‘‘(3) DISTRIBUTION OF ALLOWANCES BASED ON 
DELIVERIES.— 
‘‘(A) INITIAL ALLOCATION FORMULA.—Ex-
cept as provided in subparagraph (B), for each 
vintage year, the Administrator shall distribute 
50 percent of the emission allowances allocated 
under paragraph (1) of this subsection among 
individual electricity local distribution compa-
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nies ratably based on each electricity local dis-
tribution company’s annual average retail elec-
tricity 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. 
‘‘(B) UPDATING.—Prior to distributing 
2015 vintage emission allowances under this sub-
paragraph and at 3-year intervals thereafter, the 
Administrator shall update the distribution for-
mula under this subparagraph to reflect changes 
in each electricity local distribution company’s 
service territory since the most recent formula 
was established. For each successive 3-year pe-
riod, the Administrator shall distribute allow-
ances ratably among individual electricity local 
distribution companies based on the product of— 
‘‘(i) each electricity local distribution 
company’s average annual deliveries per 
customer 
during 
calendar 
years 
2006 
through 2008, or during the 3 alternative 
consecutive years selected by such company 
under subparagraph (A); and 
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‘‘(ii) the number of customers of such 
electricity local distribution company in the 
most recent year in which the formula is 
updated under this clause. 
‘‘(4) 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 and may not be used to support electricity 
sales or deliveries to entities or persons other 
than such ratepayers. 
‘‘(B) RATEPAYER CLASSES.—In using emis-
sion allowances distributed under this section for 
the benefit of ratepayers, an electricity local dis-
tribution 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-
ing entities that receive emission allowances 
pursuant to part F. 
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‘‘(C) LIMITATION.—An electricity local dis-
tribution company shall not use the value of 
emission allowances distributed under this sub-
section to provide to any ratepayer a rebate that 
is based solely on the quantity of electricity de-
livered 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 or as a fixed credit or rebate on 
electricity 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. 
‘‘(5) REGULATORY PROCEEDINGS.— 
‘‘(A) REQUIREMENT.—No electricity local 
distribution company shall be eligible to receive 
emission allowances under this subsection unless 
the State regulatory authority with authority 
over such company, or the entity with authority 
to regulate retail electricity rates of an electricity 
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local distribution company not regulated 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 pro-
vides for the full implementation of the re-
quirements of paragraph (4) 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 (4) will be im-
plemented. 
‘‘(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 fre-
quently than every 5 years. 
‘‘(6) PLANS AND REPORTING.— 
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‘‘(A) REGULATIONS.—As part of the regula-
tions promulgated under subsection (e), the Ad-
ministrator shall prescribe requirements gov-
erning plans and reports to be submitted 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 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, describing such company’s plans for 
the disposition of the value of emission allow-
ances to be received pursuant to this subsection, 
in accordance with the requirements of this sub-
section. 
‘‘(C) REPORTS.—Not later than June 30 of 
2013 and each calendar year thereafter through 
2031, each electricity local distribution company 
shall submit a report to the Administrator, and 
to the relevant State regulatory authority or 
other entity charged with regulating the retail 
electricity rates of such company, describing the 
disposition of the value of any emission allow-
ances received by such company in the prior cal-
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endar year pursuant to this subsection, includ-
ing— 
‘‘(i) a description of sales, transfer, ex-
change, or use by the company for compli-
ance 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 subsection; 
‘‘(iii) the manner in which the com-
pany’s disposition of emission allowances 
received under this subsection complies with 
the requirements of this subsection, includ-
ing each of the requirements of paragraph 
(4); and 
‘‘(iv) such other information as the Ad-
ministrator may require pursuant to sub-
paragraph (A). 
‘‘(D) 
PUBLICATION.—The 
Administrator 
shall make available to the public all plans and 
reports submitted under this subsection, includ-
ing by publishing such plans and reports on the 
Internet. 
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‘‘(7) AUDITS.—Each year, the Administrator 
shall audit a representative sample of electricity local 
distribution companies to ensure that emission allow-
ances distributed under this subsection have been used 
exclusively for the benefit of retail ratepayers and 
that such companies are complying with the require-
ments of this subsection. In selecting companies for 
audit, the Administrator shall take into account any 
credible evidence of noncompliance with such require-
ments. 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. 
‘‘(8) 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.— 
‘‘(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 gener-
ator in such calendar year and the average carbon di-
oxide emissions per megawatt hour generated by such 
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generator during calendar years 2006 through 2008, 
provided that the number of megawatt hours in a 
given calendar year for purposes of such calculation 
shall be reduced in proportion to the portion of such 
generator’s carbon dioxide emissions that are either— 
‘‘(A) captured and sequestered in such cal-
endar year; or 
‘‘(B) attributable to the combustion or gas-
ification of renewable biomass, such that the gen-
erator is not required to hold emission allow-
ances for such emissions. 
‘‘(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 vintage years 2012 through 2029, that 
corresponds to the overall decline in the amount of 
emission allowances to be allocated to the electricity 
sector in such years pursuant to section 782(a). Such 
factor shall— 
‘‘(A) for vintage year 2012, be equal to 1.0; 
‘‘(B) for each of vintage years 2013 through 
2029, correspond to the quotient of— 
‘‘(i) the quantity of emission allow-
ances allocated to the electricity sector 
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under section 782(a) for such vintage year; 
divided by 
‘‘(ii) the quantity of emission allow-
ances allocated to the electricity sector 
under section 782(a) for vintage 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 the owner or operator of each merchant 
coal generator equal to the product of— 
‘‘(A) 0.5; 
‘‘(B) the qualifying emissions for such mer-
chant coal generator for the preceding year, as 
determined under paragraph (1); and 
‘‘(C) the phase-down factor for the preceding 
calendar year, as identified under paragraph 
(2). 
‘‘(4) ADJUSTMENT.— 
‘‘(A) STUDY.—Not later than July 1, 2014, 
the Administrator, in consultation with the Fed-
eral Energy Regulatory Commission, shall com-
plete a study to determine whether the allocation 
formula under paragraph (3) is resulting in, or 
is likely to result in, windfall profits to mer-
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chant coal generators or substantially disparate 
treatment of merchant coal generators 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 comple-
tion of the study described in subparagraph (A), 
promulgate regulations providing for the adjust-
ment of the allocation formula under paragraph 
(3) to mitigate, to the extent practicable, 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 quantity 
of emission allowances available for such vintage year 
for distribution to the electricity sector under section 
782(a). If the quantity of emission allowances 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 
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the total emission allowances available for distribu-
tion under section 782(a) for such vintage year rat-
ably among merchant coal generators based on the 
applicable formula under paragraph (3) or (4). 
‘‘(d) GENERATORS WITH LONG-TERM POWER PUR-
CHASE AGREEMENTS.— 
‘‘(1) RESERVED ALLOWANCES.—Notwithstanding 
subsections (b) and (c) of this section, the Adminis-
trator shall withhold from distribution to electricity 
local distribution companies a number of emission al-
lowances equal to 105 percent of the emission allow-
ances the Administrator anticipates will be distrib-
uted to long-term contract generators under this sub-
section. If not required to distribute all of these re-
served allowances under this subsection, the Adminis-
trator shall distribute any remaining emission allow-
ances to the electricity local distribution companies in 
accordance with subsection (b). 
‘‘(2) DISTRIBUTION.—Not later than March 1 of 
2013 and each calendar year through 2030, the Ad-
ministrator shall distribute to the owner or operator 
of each long-term contract generator the number 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 
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purchase 
agreement 
referred 
to 
in 
subsection 
(a)(2)(C). 
‘‘(3) DURATION.—A long-term contract generator 
shall cease to be eligible to receive allocations under 
this subsection upon the earliest of the following 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, ex-
cept 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-
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 formula) for 
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electricity sold under such agreement, the 
quantity of electricity sold under the agree-
ment, or the expiration or termination date 
of the agreement. 
‘‘(4) ELIGIBILITY.—To be eligible to receive al-
lowance distributions under this subsection, the owner 
or operator of a long-term contract generator shall 
submit each of the following in writing to the Admin-
istrator 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 re-
ceive emission allowances: 
‘‘(A) A certificate of representation de-
scribed in section 700(15). 
‘‘(B) An identification of each owner and 
each operator of the facility. 
‘‘(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). 
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‘‘(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 representa-
tive of such facility shall notify the Administrator in 
writing when, and on what basis, the facility 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 Commission, 
shall promulgate regulations to implement the requirements 
of this section. 
‘‘SEC. 784. NATURAL GAS CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) NATURAL GAS LOCAL DISTRIBUTION COM-
PANY.—The term ‘natural gas local distribution com-
pany’ means a natural gas local distribution com-
pany that is a covered entity. 
‘‘(2) COST-EFFECTIVE.—The term ‘cost-effective’, 
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, including avoid-
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ed supply and delivery costs and deferred or avoided 
investments, is greater than the net present value of 
the economic costs over the life of the program, in-
cluding program costs and incremental costs borne by 
the energy consumer. 
‘‘(b) ALLOCATION.—Not later than June 30 of 2015 
and each calendar year thereafter through 2028, the Admin-
istrator shall distribute to natural gas local distribution 
companies for the benefit of retail ratepayers the quantity 
of emission allowances allocated 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 
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 vin-
tage emission allowances and at 3-year intervals 
thereafter, the Administrator shall update the dis-
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tribution formula under this subsection to reflect 
changes in each natural gas local distribution com-
pany’s service territory since the most recent formula 
was established. For each successive 3-year period, the 
Administrator shall distribute allowances ratably 
among natural gas local distribution companies 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 
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 and may not be used to 
support natural gas sales or deliveries to entities or 
persons other than such ratepayers. 
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‘‘(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 dis-
tributed— 
‘‘(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.—A natural gas local distribu-
tion company shall not use the value of emission al-
lowances distributed under this section to 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 distribution com-
pany uses the value of emission allowances distributed 
under this section to provide rebates, it shall, to the 
maximum extent practicable, provide such rebates 
with regard to the fixed portion of ratepayers’ bills or 
as a fixed creditor rebate on natural gas 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 
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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 implementa-
tion of the requirements of this subsection. 
‘‘(d) REGULATORY PROCEEDINGS.— 
‘‘(1) REQUIREMENT.—No natural gas local dis-
tribution company shall be eligible to receive emission 
allowances under this section unless the State regu-
latory authority with authority over such company, 
or the entity with authority to regulate retail rates of 
a natural gas local distribution company not regu-
lated by a State regulatory authority, has— 
‘‘(A) promulgated a regulation or completed 
a rate proceeding (or the equivalent, in the case 
of a ratemaking entity other than a State regu-
latory authority) that provides for the full imple-
mentation of the requirements of subsection (c); 
and 
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‘‘(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, that a new regulation 
be promulgated 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. 
‘‘(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 in accordance with this sub-
section. 
‘‘(2) PLANS.—Not later than April 30 of 2015 
and every 5 years thereafter through 2025, each nat-
ural gas local distribution company shall submit to 
the Administrator a plan, approved by the State reg-
ulatory authority or other entity charged with regu-
lating the retail rates of such company, describing 
such company’s plans for the disposition of the value 
of emission allowances to be received pursuant to this 
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section, in accordance 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 shall submit 
a report to the Administrator, approved by the rel-
evant State regulatory authority or other entity 
charged with regulating the retail natural gas rates 
of such company, describing the disposition of the 
value of any emission allowances received by such 
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 requirements of 
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this section, including each of the requirements 
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). 
‘‘(4) PUBLICATION.—The Administrator shall 
make available to the public all plans and reports 
submitted by natural gas local distribution companies 
under this subsection, including by publishing such 
plans and reports on the Internet. 
‘‘(f) AUDITS.—Each year, the Administrator shall 
audit a representative sample of natural gas local distribu-
tion companies to ensure that emission allowances distrib-
uted under this section have been used exclusively for the 
benefit of retail ratepayers and that such companies are 
complying with the requirements of this section. In selecting 
companies for audit, the Administrator shall take into ac-
count any credible evidence of noncompliance with such re-
quirements. 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 requirement 
of this section shall be a violation of this Act. Each emission 
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allowance the value of which is used in violation of the re-
quirements of this section shall be a separate violation. 
‘‘(h) REGULATIONS.—Not later than January 1, 2014, 
the Administrator, in consultation with the Federal Energy 
Regulatory Commission, shall promulgate regulations to 
implement the requirements of this section. 
‘‘SEC. 785. HOME HEATING OIL AND PROPANE CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) CARBON CONTENT.—The term ‘carbon con-
tent’ means the amount of carbon dioxide that would 
be emitted as a result of the combustion of a fuel. 
‘‘(2) COST-EFFECTIVE.—The term ‘cost-effective’ 
has the meaning given that term in section 784(a)(2). 
‘‘(b) ALLOCATION.—Not later than September 30 of 
each of calendar years 2012 through 2029, the Adminis-
trator shall distribute among the States, in accordance with 
this section, the quantity of emission allowances allocated 
pursuant to section 782(c). 
‘‘(c) DISTRIBUTION AMONG STATES.—The Adminis-
trator shall distribute emission allowances among the States 
under this section each year ratably based on the ratio of— 
‘‘(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 
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‘‘(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 al-
lowances distributed under this section exclusively for 
the benefit of consumers of home heating oil or pro-
pane 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 purposes; 
or 
‘‘(B) rebates or other direct financial assist-
ance programs for consumers of home heating oil 
or propane used for residential or commercial 
purposes. 
‘‘(2) ADMINISTRATION
AND
DELIVERY
MECHA-
NISMS.—In administering programs supported by 
this section, States shall— 
‘‘(A) use no less than 50 percent of the value 
of emission allowances received under this sec-
tion for cost-effective energy efficiency programs 
to reduce consumers’ overall fuel costs; 
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‘‘(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 supported 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 allowances, 
a report, in accordance with such requirements as the Ad-
ministrator may prescribe, that— 
‘‘(1) describes the State’s use of emission allow-
ances distributed under this section, including a de-
scription of the energy efficiency and consumer assist-
ance programs supported with such allowances; 
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‘‘(2) demonstrates the cost-effectiveness of, and 
the energy savings achieved by, energy efficiency pro-
grams 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 determines 
that a State is not in compliance with this section, the Ad-
ministrator may withhold a portion of the emission allow-
ances, the quantity of which is equal to up to twice the 
quantity 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 sec-
tion in later years. Allowances withheld pursuant to this 
subsection shall be distributed among the remaining States 
ratably in accordance with the formula in subsection (c). 
‘‘SEC. 787. ALLOCATIONS TO REFINERIES. 
‘‘(a) PURPOSE.—To provide emission allowance re-
bates to petroleum refiners in the United States in a man-
ner that promotes energy efficiency and a reduction in 
greenhouse gas emissions at such facilities. 
‘‘(b) DEFINITIONS.—In this section: 
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‘‘(1) EMISSIONS.—The term ‘emissions’ means 
the greenhouse gas emissions in the calendar year pre-
ceding the calendar year in which emission allow-
ances are being distributed. The term includes direct 
emissions from fuel combustion, process emissions, 
and indirect emissions from the generation of elec-
tricity used to produce the output of the petroleum re-
finery or sector. 
‘‘(2) INTENSITY.—The term ‘intensity’ means 
tons of carbon dioxide equivalent emissions per unit 
of output in a given year. 
‘‘(3) INTENSITY
FACTOR.—The term ‘intensity 
factor’ means the intensity of the petroleum refining 
sector divided by the intensity for an individual pe-
troleum refinery. 
‘‘(4) OUTPUT.—The term ‘output’ means the av-
erage annual number of gallons of refined fuel pro-
duced in the three calendar years preceding the cal-
endar year in which emission allowances are being 
distributed. 
‘‘(5) PETROLEUM REFINERY.—The term ‘petro-
leum refinery’ means a facility classified under 
324110 of the North American Industrial Classifica-
tion System of 2002. 
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‘‘(6) PRODUCTION FACTOR.—The term ‘produc-
tion factor’ means the output of an individual petro-
leum refinery divided by the output of the petroleum 
refining sector. 
‘‘(c) IN GENERAL.—For each vintage year between 
2014 and 2026, the Administrator shall distribute allow-
ances pursuant to this section to owners and operators of 
petroleum refineries in the United States. 
‘‘(d) DISTRIBUTION SCHEDULE.—The Administrator 
shall distribute emission allowances of each vintage year 
no later than October 31 of the preceding calendar year. 
‘‘(e) CALCULATION
OF EMISSION ALLOWANCE RE-
BATES.— 
‘‘(1) For each petroleum refinery, the Adminis-
trator shall calculate an individual allocation factor 
for each vintage year, based upon the product of the 
intensity factor for such refinery multiplied by the 
production factor for such refinery. 
‘‘(2) The Administrator shall also calculate a 
total allocation factor for each vintage year, based 
upon the sum of all of the individual allocation fac-
tors. 
‘‘(3) The Administrator shall calculate the num-
ber of emission allowances to be provided to each pe-
troleum refinery in each vintage year by dividing the 
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individual allocation factor for such refinery by the 
total allocation factor, then multiplying the result by 
the number of emission allowances allocated to the 
program under this section for that vintage year. 
‘‘(f) DATA SOURCES.— 
‘‘(1) The Administrator shall use data from the 
greenhouse gas registry, established under section 713, 
where it is available. 
‘‘(2) The Administrator shall determine, by rule, 
the methodology by which to calculate indirect emis-
sions for a refinery. The Administrator shall also de-
termine, by rule, the methodology by which to take 
into account the value of allowances provided at no 
cost to local distribution companies that is passed 
through to a refinery. Each person selling electricity 
to the owner or operator of a petroleum refinery shall 
provide the owner or operator and the Administrator, 
on an annual basis, such data as the Administrator 
determines is necessary to implement this section. 
‘‘SEC. 788. ƒSECTION RESERVED≈. 
‘‘SEC. 789. CLIMATE CHANGE CONSUMER REFUNDS. 
‘‘(a) REFUND.—In each year after deposits are made 
to the Climate Change Consumer Refund Account, the Sec-
retary of the Treasury shall provide tax refunds on a per 
capita basis to each household in the United States that 
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shall collectively equal the amount deposited into the Cli-
mate Change Consumer Refund Account. 
‘‘(b) LIMITATIONS.—The Secretary of the Treasury 
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 distributing 
refunds 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 ex-
change greenhouse gas emission allowances issued before De-
cember 31, 2011, by the State of California or for the Re-
gional Greenhouse Gas Initiative, or the Western Climate 
Initiative (in this section referred to as ‘State allowances’) 
for emission allowances established by the Administrator 
under section 721(a). 
‘‘(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 
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that is sufficient to compensate for the cost of obtain-
ing 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 allow-
ance shall be the average auction price, for emission allow-
ances issued in the year in which the State allowance was 
issued, under the program under which the State allowance 
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. 
‘‘(b) INITIAL
REGULATIONS.—Not later than 12 
months after the date of enactment of this title, the Admin-
istrator, 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: 
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‘‘(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 sentence 
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. Be-
ginning with the first auction and at each quarterly 
auction held thereafter, the Administrator may offer 
for sale allowances with vintage years of up to four 
years after the year in which the auction is being con-
ducted, except as provided in section 782(p). 
‘‘(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 re-
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quirements to ensure that auction participants can 
and will perform on their bids. 
‘‘(5) DISCLOSURE OF BENEFICIAL OWNERSHIP.— 
Each bidder in the auction shall be required to dis-
close 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, 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. 
‘‘(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, con-
siders appropriate to promote effective, efficient, 
transparent, and fair administration of auctions 
under this section. 
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‘‘(c) REVISION OF REGULATIONS.—The Administrator 
may, in consultation with other agencies, as appropriate, 
at any time, revise the initial regulations promulgated 
under subsection (b). Such revised regulations need not meet 
the requirements identified in subsection (b) if the Adminis-
trator determines that an alternative auction design would 
be more effective, taking into account factors including costs 
of administration, transparency, fairness, and risks of col-
lusion or manipulation. In determining whether and how 
to revise the initial regulations under this subsection, the 
Administrator shall not consider maximization of revenues 
to the Federal Government. 
‘‘(d) RESERVE AUCTION PRICE.—The minimum re-
serve auction price shall be $10 (in constant 2009 dollars) 
for auctions occurring in 2012. The minimum reserve price 
for auctions occurring in years after 2012 shall be the min-
imum reserve auction price for the previous year increased 
by 5 percent plus the rate of inflation (as measured by the 
Consumer Price Index for all urban consumers). 
‘‘(e) DELEGATION OR CONTRACT.—Pursuant to regula-
tions under this section, the Administrator may by delega-
tion or contract provide for the conduct of auctions under 
the Administrator’s supervision by other departments or 
agencies of the Federal Government or by nongovernmental 
agencies, groups, or organizations. 
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