619 
available to the public an analysis of relevant scientific and 
technical information related to this part and part E. The 
Advisory Board shall review approved and potential meth-
odologies, scientific studies, offset project monitoring, off-
set project verification reports, and audits related to this 
part and part E, and evaluate the net emissions effects 
of implemented 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 Adminis-
trator do not compromise the integrity of the annual emis-
sion reductions established under section 703, and to 
avoid or minimize adverse 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 
consultation with appropriate Federal agencies and taking 
into consideration the recommendations of the Advisory 
Board, shall promulgate regulations establishing a pro-
gram for the issuance of offset credits in accordance with 
the requirements of this part. The Administrator shall pe-
riodically revise these regulations as necessary to meet the 
requirements of this part. 
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‘‘(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 reductions or avoidance of greenhouse gas emis-
sions, 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 se-
questration offset projects are only issued for green-
house gas reductions that are permanent; 
‘‘(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, and reduc-
tions 
achieved 
through 
destruction 
of 
chlorofluorocarbons or other ozone depleting sub-
stances, if permitted by the Administrator under 
section 619(b)(9) and subject to the conditions spec-
ified in section 619(b)(9), based on the carbon diox-
ide equivalent value of the substance destroyed. 
‘‘(c) COORDINATION TO MINIMIZE NEGATIVE EF-
FECTS.—In promulgating and implementing regulations 
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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 
establish within the allowance tracking system established 
under section 724(d) an Offset Registry for qualifying off-
set 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 
Protection Agency of carrying out the activities under this 
part. Amounts collected for such fees shall be available 
to the Administrator for carrying out the activities under 
this part to the extent provided in advance in appropria-
tions 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 Adminis-
trator shall establish, and may periodically revise, a 
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list of types of projects eligible to generate offset 
credits, including international offset credits, under 
this part. 
‘‘(2) ADVISORY BOARD RECOMMENDATIONS.— 
In determining the eligibility of project types, the 
Administrator shall take into consideration the rec-
ommendations of the Advisory Board. If a list estab-
lished under this section differs from the rec-
ommendations of the Advisory Board, the regula-
tions promulgated under section 732(a) shall include 
a justification 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 
determining the initial list, the Administrator shall 
give priority to consideration of offset project types 
that 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 Administrator deems appropriate. In establishing 
methodologies pursuant to section 734, the Adminis-
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trator shall give priority to methodologies for offset 
project 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 
Federal agencies and taking into consideration the 
recommendations of the Advisory Board, determines 
that the project type can generate additional reduc-
tions or avoidance of greenhouse gas emissions, or 
sequestration of greenhouse gases, subject to the re-
quirements 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 the 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 
‘‘(3) shall consider adding to or removing from 
the list established under subsection (a), at a min-
imum, project types proposed to the Adminis-
trator— 
‘‘(A) by petition pursuant to subsection 
(c); or 
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‘‘(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 show-
ing by the petitioner that there is adequate data to estab-
lish that the project type does or does not meet the re-
quirements 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 expla-
nation of the reasons for the Administrator’s decision. The 
Administrator may not deny a petition under this sub-
section on the basis of inadequate Environmental Protec-
tion 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: 
‘‘(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 min-
imum, that any greenhouse gas emission reduction 
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or avoidance, or any greenhouse gas sequestration, is 
considered additional only to the extent that it re-
sults 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 Janu-
ary 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 re-
spect to which the Administrator has made 
an affirmative 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 
than January 1, 2001, where the Adminis-
trator determines that setting such an al-
ternative date may produce an environ-
mental benefit by removing an incentive to 
cease and then reinitiate activities that 
began prior to January 1, 2009; and 
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‘‘(C) exceed the activity baseline estab-
lished under paragraph (2). 
‘‘(2) ACTIVITY
BASELINES.—A standardized 
methodology for establishing activity baselines for 
offset projects of that type. The Administrator shall 
set activity baselines to reflect a conservative esti-
mate of business-as-usual performance or practices 
for the relevant type of activity such that the base-
line provides an adequate margin of safety to ensure 
the environmental 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 avoid-
ance, or greenhouse gas sequestration, achieved by 
an offset project of that type exceed a relevant activ-
ity 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 
uncertainty into account. 
‘‘(b) ACCOUNTING FOR REVERSALS.— 
‘‘(1) IN GENERAL.—For each type of sequestra-
tion project listed under section 733, the Adminis-
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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-
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 sequestra-
tion, with an adequate margin of safety. The Admin-
istrator shall prescribe at least one of the following 
mechanisms to meet the requirements of this para-
graph: 
‘‘(A) An offsets reserve, pursuant to para-
graph (3). 
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‘‘(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 car-
bon dioxide equivalents of greenhouse gas emis-
sions released due to reversal. 
‘‘(C) Another mechanism that the Admin-
istrator 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 sub-
tract and reserve from the quantity to be issued 
a quantity of offset credits based on the risk of 
reversal. The Administrator shall— 
‘‘(i) hold these reserved offset credits 
in the offsets reserve; and 
‘‘(ii) register the holding of the re-
served offset credits in the Offset Registry 
established under section 732(d). 
‘‘(B) PROJECT REVERSAL.— 
‘‘(i) IN GENERAL.—If a reversal has 
occurred with respect to an offset project 
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for which offset credits are reserved under 
this paragraph, the Administrator shall re-
tire offset credits or emission allowances 
from the offsets reserve to fully account 
for the tons of carbon dioxide equivalent 
that are no longer sequestered. 
‘‘(ii) INTENTIONAL
REVERSALS.—If 
the Administrator determines that a rever-
sal was intentional, the offset project devel-
oper for the relevant offset project shall 
place into the offsets reserve a quantity of 
offset credits, or combination of offset 
credits and emission allowances, equal in 
number to the number of reserve offset 
credits that were canceled due to the rever-
sal pursuant to clause (i). 
‘‘(iii) UNINTENTIONAL REVERSALS.— 
If the Administrator determines that a re-
versal was unintentional, the offset project 
developer for the relevant offset project 
shall place into the offsets reserve a quan-
tity of offset credits, or combination of off-
set credits and emission allowances, equal 
in number to half the number of offset 
credits that were reserved for that offset 
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project, or half the number of reserve off-
set 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 re-
serve 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 pe-
riod, and establish provisions for petitions for new 
crediting periods, in accordance with this subsection. 
‘‘(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 sequestra-
tion. 
‘‘(3) ELIGIBILITY.—An offset project shall be 
eligible to generate offset credits under this part 
only during the project’s crediting period. During 
such crediting period, the project shall remain eligi-
ble to generate offset credits, subject to the meth-
odologies and project type eligibility list that applied 
as of the date of project approval under section 735, 
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except as provided in paragraph (4) of this sub-
section. 
‘‘(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 
submitted under this paragraph more than 18 
months before the end of the pending crediting pe-
riod. The Administrator may limit the number of 
new crediting periods available for projects of par-
ticular project types. 
‘‘(d) ENVIRONMENTAL INTEGRITY.—In establishing 
the requirements under this section, the Administrator 
shall apply conservative assumptions or methods to maxi-
mize the certainty that the environmental integrity of the 
cap established 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 re-
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versals 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 devel-
oper shall submit an offset project approval petition pro-
viding such information as the Administrator requires to 
determine whether the offset project is eligible for issuance 
of offset credits under rules promulgated pursuant to this 
part. 
‘‘(b) TIMING.—An approval petition shall be sub-
mitted 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, 
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 
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subsection (a), the Administrator shall make the approval 
petition publicly available, approve or deny the petition in 
writing and if the petition is denied, provide the reasons 
for denial, and make the Administrator’s written decision 
publicly available. 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 
period, except as provided in section 734(c)(4). 
‘‘(e) APPEAL.—The Administrator shall establish 
procedures 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 re-
view for an offset project. Findings of such reviews shall 
not be binding upon the Administrator. The voluntary 
preapproval review procedure— 
‘‘(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 re-
quest for review under this subsection. 
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‘‘SEC. 736. VERIFICATION OF OFFSET PROJECTS. 
‘‘(a) IN GENERAL.—As part of the regulations pro-
mulgated under section 732(a), the Administrator shall es-
tablish requirements, including protocols, for verification 
of the quantity of greenhouse gas emission reductions or 
avoidance, 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 determine the quantity of greenhouse gas emission re-
ductions or avoidance, or sequestration of greenhouse 
gases, 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 
verification report required under subsection (a), which 
shall include— 
‘‘(1) the name and contact information for a 
designated representative for the offset project devel-
oper; 
‘‘(2) the quantity of greenhouse gases reduced, 
avoided, or sequestered; 
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‘‘(3) the methodologies applicable to the project 
pursuant to section 734; 
‘‘(4) a certification that the project meets the 
applicable 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 Adminis-
trator shall establish a process and requirements for 
periodic accreditation of third-party verifiers to en-
sure that such verifiers are professionally qualified 
and have no conflicts of interest. 
‘‘(2) STANDARDS.— 
‘‘(A) AMERICAN NATIONAL STANDARDS IN-
STITUTE ACCREDITATION.—The Administrator 
may accredit, or accept for purposes of accredi-
tation under this subsection, verifiers accredited 
under the American National Standards Insti-
tute (ANSI) accreditation program in accord-
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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 accred-
itation standards for verifiers under this sub-
section, and may establish related training and 
testing programs and requirements. 
‘‘(3) PUBLIC
ACCESSIBILITY.—Each verifier 
meeting the requirements for accreditation in ac-
cordance with this subsection shall be listed in a 
publicly accessible database, which shall be main-
tained and updated by the Administrator. 
‘‘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 that have been reduced or 
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avoided, or greenhouse gases that have been seques-
tered, by the offset project; and 
‘‘(3) notify the offset project developer in writ-
ing of such determination and make such determina-
tion publicly available. 
‘‘(b) ISSUANCE OF OFFSET CREDITS.—The Adminis-
trator shall issue one offset credit to an offset project de-
veloper for each ton of carbon dioxide equivalent that the 
Administrator has determined has been reduced, avoided, 
or sequestered during the period covered by a verification 
report 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, avoid-
ance, or sequestration has— 
‘‘(A) already occurred, during the offset 
project’s crediting period; and 
‘‘(B) occurred after January 1, 2009. 
‘‘(c) APPEAL.—The Administrator shall establish 
procedures for appeal and review of determinations made 
under subsection (a). 
‘‘(d) TIMING.—Offset credits meeting the criteria es-
tablished in subsection (b) shall be issued not later than 
2 weeks following the verification determination made by 
the Administrator under subsection (a). 
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‘‘(e) REGISTRATION.—The Administrator shall as-
sign 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, 
offset credits, and practices of third-party verifiers. In 
each year, the Administrator shall conduct audits, at min-
imum, for a representative sample of project types and 
geographic areas. 
‘‘(b) DELEGATION.—The Administrator may delegate 
to a State or tribal government the responsibility for con-
ducting audits under this section if the Administrator 
finds that the program proposed by the State or tribal 
government provides assurances equivalent to those pro-
vided by the auditing program of the Administrator, and 
that the integrity of the offset program under this part 
will be maintained. Nothing in this subsection shall pre-
vent the Administrator from conducting any audit the Ad-
ministrator considers necessary and appropriate. 
‘‘SEC. 739. PROGRAM REVIEW AND REVISION. 
‘‘At least once every 5 years, the Administrator shall 
review and, based on new or updated information and tak-
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ing into consideration the recommendations of the Advi-
sory Board, update and revise— 
‘‘(1) the list of eligible project types established 
under section 733; 
‘‘(2) the methodologies established, including 
specific activity baselines, under section 734(a); 
‘‘(3) the reversal requirements and mechanisms 
established or prescribed under section 734(b); 
‘‘(4) measures to improve the accountability of 
the offsets program; and 
‘‘(5) any other requirements established under 
this part to ensure the environmental integrity and 
effective operation of this part. 
‘‘SEC. 740. EARLY OFFSET SUPPLY. 
‘‘(a) PROJECTS REGISTERED UNDER OTHER GOV-
ERNMENT-RECOGNIZED PROGRAMS.—Except as provided 
in subsection (b) or (c), the Administrator shall issue one 
offset credit for each ton of carbon dioxide equivalent 
emissions reduced, avoided, or sequestered— 
‘‘(1) under an offset project that was started 
after January 1, 2001; 
‘‘(2) for which a credit was issued under any 
regulatory or voluntary greenhouse gas emission off-
set program that the Administrator determines— 
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‘‘(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 
standards, 
methodologies, 
and 
protocols 
through a public consultation process or a peer 
review process; 
‘‘(C) has made available to the public 
standards, methodologies, and protocols that re-
quire that credited emission reductions, avoid-
ance, or sequestration are permanent, addi-
tional, verifiable, and enforceable; 
‘‘(D) requires that all emission reductions, 
avoidance, or sequestration be verified by a 
State or tribal regulatory agency or an accred-
ited third-party independent verification body; 
‘‘(E) requires that all credits issued are 
registered in a publicly accessible registry, with 
individual serial numbers assigned for each ton 
of carbon dioxide equivalent emission reduc-
tions, avoidance, or sequestration; and 
‘‘(F) ensures that no credits are issued for 
an activity if the entity administering the pro-
gram, or a program administrator or represent-
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ative, has funded, solicited, or served as a fund 
administrator for the development of the activ-
ity; and 
‘‘(3) for which the credit described in para-
graph (2) is transferred to the Administrator. 
‘‘(b) INELIGIBLE CREDITS.—Subsection (a) shall not 
apply to offset credits that have expired or have been re-
tired, canceled, or used for compliance under a program 
established under State or tribal law or regulation. 
‘‘(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, sequestration of greenhouse 
gases, or destruction of chlorofluorocarbons (subject 
to the conditions specified in section 619(b)(9) and 
based on the carbon dioxide equivalent value of the 
substance destroyed), that occur after January 1, 
2009; and 
‘‘(2) only until the date that is 3 years after the 
date of enactment of this title, or the date that regu-
lations promulgated under section 732(a) take ef-
fect, whichever occurs sooner. 
‘‘(d) RETIREMENT OF CREDITS.—The Administrator 
shall seek to ensure that offset credits described in sub-
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section (a)(2) are retired for purposes of use under a pro-
gram described in subsection (b). 
‘‘(e) OTHER PROGRAMS.—(1) Offset programs that 
either— 
‘‘(A) were not established under State or tribal 
law or regulation; or 
‘‘(B) were not established prior to January 1, 
2009, 
but that otherwise meet all of the criteria of subsection 
(a)(2) may apply to the Administrator to be approved 
under this subsection as an eligible program for early off-
set 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 or regulation that the Administrator 
determines meet the criteria of subsection (a)(2). The Ad-
ministrator 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 estab-
lished under State or tribal law or regulation that the Ad-
ministrator determines meet the criteria of subsection 
(a)(2). The Administrator shall make a determination on 
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any application received under this section by no later 
than 180 days from the date of receipt of the application. 
‘‘SEC. 741. ENVIRONMENTAL CONSIDERATIONS. 
‘‘If the Administrator lists forestry or other relevant 
land management-related offset projects as eligible offset 
project types under section 733, the Administrator, in con-
sultation with appropriate Federal agencies, shall promul-
gate regulations for the selection and use of species in 
such offset projects— 
‘‘(1) to ensure that native species are given pri-
mary consideration in such projects; 
‘‘(2) to enhance biological diversity in such 
projects; 
‘‘(3) to prohibit the use of federally designated 
or State-designated noxious weeds; 
‘‘(4) to prohibit the use of a species listed by 
a regional or State invasive plant authority within 
the applicable region or State; and 
‘‘(5) in the case of forestry offset projects, in 
accordance with widely accepted, environmentally 
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 Develop-
ment, may issue, in accordance with this section, inter-
national offset credits based on activities that reduce or 
avoid greenhouse gas emissions, or increase sequestration 
of greenhouse gases, in a developing country. Such credits 
may be issued for projects eligible under section 733 or 
as provided in subsection (c), (d), or (e) of this section. 
‘‘(b) ISSUANCE.— 
‘‘(1) REGULATIONS.—Not later than 2 years 
after the date of enactment of this title, the Admin-
istrator, in consultation with the Secretary of State, 
the Administrator of the United States Agency for 
International Development, and any other appro-
priate Federal agency, and taking into consideration 
the recommendations of the Advisory Board, shall 
promulgate regulations for implementing this sec-
tion. Except as otherwise provided in this section, 
the issuance of international offset credits under this 
section shall be subject to the requirements of this 
part. 
‘‘(2) 
REQUIREMENTS
FOR
INTERNATIONAL 
OFFSET
CREDITS.—The Administrator may issue 
international offset credits only if— 
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‘‘(A) the United States is a party to a bi-
lateral or multilateral agreement or arrange-
ment that includes the country in which the 
project or measure achieving the relevant green-
house gas emission reduction or avoidance, or 
greenhouse gas sequestration, has occurred; 
‘‘(B) such country is a developing country; 
and 
‘‘(C) such agreement or arrangement— 
‘‘(i) ensures that the requirements of 
this part apply to the issuance of inter-
national offset credits under this section; 
and 
‘‘(ii) provides for the appropriate dis-
tribution of international offset credits 
issued. 
‘‘(c) SECTOR-BASED CREDITS.— 
‘‘(1) IN GENERAL.—In order to minimize the 
potential for leakage and to encourage countries to 
take nationally appropriate mitigation actions to re-
duce or avoid greenhouse gas emissions, or sequester 
greenhouse gases, the Administrator, in consultation 
with the Secretary of State and the Administrator of 
the United States Agency for International Develop-
ment, 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 
development; and 
‘‘(ii) that, if located in the United 
States, would be within a sector subject to 
the compliance obligation under section 
722. 
‘‘(B) FACTORS.—In determining the sec-
tors and countries for which international offset 
credits should be awarded only on a sectoral 
basis, the Administrator, in consultation with 
the Secretary of State and the Administrator of 
the United States Agency for International De-
velopment, shall consider the following factors: 
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‘‘(i) The country’s gross domestic 
product. 
‘‘(ii) The country’s total greenhouse 
gas emissions. 
‘‘(iii) Whether the comparable sector 
of the United States economy is covered by 
the compliance obligation under section 
722. 
‘‘(iv) The heterogeneity or homo-
geneity of sources within the relevant sec-
tor. 
‘‘(v) Whether the relevant sector pro-
vides products or services that are sold in 
internationally competitive markets. 
‘‘(vi) The risk of leakage if inter-
national offset credits were issued on a 
project-level basis, instead of on a sectoral 
basis, for activities within the relevant sec-
tor. 
‘‘(vii) The capability of accurately 
measuring, 
monitoring, 
reporting, 
and 
verifying the performance of sources across 
the relevant sector. 
‘‘(viii) Such other factors as the Ad-
ministrator, in consultation with the Sec-
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retary of State and the Administrator of 
the United States Agency for International 
Development, determines are appropriate 
to— 
‘‘(I) ensure the integrity of the 
United States greenhouse gas emis-
sions cap established under section 
703; and 
‘‘(II) encourage countries to take 
nationally appropriate mitigation ac-
tions to reduce or avoid greenhouse 
gas emissions, or sequester green-
house gases. 
‘‘(3) SECTORAL BASIS.— 
‘‘(A) DEFINITION.—In this subsection, the 
term ‘sectoral basis’ means the issuance of 
international offset credits only for the quantity 
of sector-wide reductions or avoidance of green-
house gas emissions, or sector-wide increases in 
sequestration of greenhouse gases, achieved 
across the relevant sector of the economy rel-
ative to a domestically enforceable baseline level 
of absolute emissions established in an agree-
ment or arrangement described in subsection 
(b)(2)(A) for the sector. 
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‘‘(B) BASELINE.—The baseline for a sec-
tor shall be established on an absolute basis 
and at levels of greenhouse gas emissions con-
sistent with the thresholds identified in section 
705(e)(2) and lower than would occur under a 
business-as-usual scenario taking into account 
relevant domestic or international policies or in-
centives to reduce greenhouse gas emissions, 
among other factors, and additionality and per-
formance shall be determined on the basis of 
such baseline. 
‘‘(d) CREDITS
ISSUED
BY
AN
INTERNATIONAL 
BODY.— 
‘‘(1) IN GENERAL.—The Administrator, in con-
sultation with the Secretary of State, may issue 
international offset credits in exchange for instru-
ments in the nature of offset credits that are issued 
by an international body established pursuant to the 
United Nations Framework Convention on Climate 
Change, to a protocol to such Convention, or to a 
treaty that succeeds such Convention. The Adminis-
trator may issue international offset credits under 
this subsection only if, in addition to the require-
ments of subsection (b), the Administrator has de-
termined that the international body that issued the 
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instruments has implemented substantive and proce-
dural 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. Starting January 1, 2016, the Adminis-
trator shall issue no offset credit pursuant to this 
subsection if the activity generating the greenhouse 
gas emissions reductions or avoidance, or greenhouse 
gas sequestration, occurs in a country and sector 
identified by the Administrator under subsection (c). 
‘‘(2) RETIREMENT.—The Administrator, in 
consultation with the Secretary of State, shall seek, 
by whatever means appropriate, including agree-
ments, arrangements, or technical cooperation with 
the international issuing body described in para-
graph (1), to ensure that such body— 
‘‘(A) is notified of the Administrator’s 
issuance, under this subsection, of an inter-
national offset credit in exchange for an instru-
ment issued by such international body; and 
‘‘(B) provides, to the extent feasible, for 
the disqualification of the instrument issued by 
such international body for subsequent use 
under any relevant foreign or international 
greenhouse gas regulatory program, regardless 
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of whether such use is a sale, exchange, or sub-
mission to satisfy a compliance obligation. 
‘‘(e) OFFSETS FROM REDUCED DEFORESTATION.— 
‘‘(1) REQUIREMENTS.—The Administrator, in 
accordance with the regulations promulgated under 
subsection (b)(1) and an agreement or arrangement 
described in subsection (b)(2)(A), shall issue inter-
national offset credits for greenhouse gas emission 
reductions achieved through activities to reduce de-
forestation only if, in addition to the requirements of 
subsection (b)— 
‘‘(A) the activity occurs in— 
‘‘(i) a country listed by the Adminis-
trator pursuant to paragraph (2); 
‘‘(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 
credits 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 
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arrangement described in subsection (b)(2)(A), 
pursuant to paragraph (4); 
‘‘(C) the reduction in emissions from de-
forestation has occurred before the issuance of 
the international offset credit and, taking into 
consideration relevant international standards, 
has been demonstrated using ground-based in-
ventories, remote sensing technology, and other 
methodologies to ensure that all relevant carbon 
stocks are accounted; 
‘‘(D) the Administrator has made appro-
priate adjustments, such as discounting for any 
additional uncertainty, to account for cir-
cumstances specific to the country, including its 
technical capacity described in paragraph 
(2)(A); 
‘‘(E) the activity is designed, carried out, 
and managed— 
‘‘(i) in accordance with widely accept-
ed, 
environmentally 
sustainable 
forest 
management practices; 
‘‘(ii) to promote or restore native for-
est species and ecosystems where prac-
ticable, and to avoid the introduction of 
invasive nonnative species; 
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‘‘(iii) in a manner that gives due re-
gard to the rights and interests of local 
communities, indigenous peoples, forest-de-
pendent communities, and vulnerable social 
groups; 
‘‘(iv) with consultations with, and full 
participation of, local communities, indige-
nous peoples, and forest-dependent com-
munities, in affected areas, as partners 
and primary stakeholders, prior to and 
during the design, planning, implementa-
tion, and monitoring and evaluation of ac-
tivities; and 
‘‘(v) with equitable sharing of profits 
and benefits derived from offset credits 
with local communities, indigenous peoples, 
and forest-dependent communities; and 
‘‘(F) the reduction otherwise satisfies and 
is consistent with any relevant requirements es-
tablished by an agreement reached under the 
auspices of the United Nations Framework 
Convention on Climate Change. 
‘‘(2) ELIGIBLE
COUNTRIES.—The Adminis-
trator, in consultation with the Secretary of State 
and the Administrator of the United States Agency 
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for International Development, and in accordance 
with an agreement or arrangement described in sub-
section (b)(2)(A), shall establish, and periodically re-
view and update, a list of the developing countries 
that have the capacity to participate in deforestation 
reduction activities at a national level, including— 
‘‘(A) the technical capacity to monitor, 
measure, report, and verify forest carbon fluxes 
for all significant sources of greenhouse gas 
emissions from deforestation with an acceptable 
level of uncertainty, as determined taking into 
account relevant internationally accepted meth-
odologies, such as those established by the 
Intergovernmental Panel on Climate Change; 
‘‘(B) the institutional capacity to reduce 
emissions from deforestation, including strong 
forest governance and mechanisms to equitably 
distribute deforestation resources for local ac-
tions; and 
‘‘(C) a land use or forest sector strategic 
plan that— 
‘‘(i) assesses national and local drivers 
of deforestation and forest degradation and 
identifies reforms to national policies need-
ed to address them; 
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‘‘(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 with respect to 
emissions from forest and land use activi-
ties. 
‘‘(3) PROTECTION
OF
INTERESTS.—With re-
spect to an agreement or arrangement described in 
subsection (b)(2)(A) that addresses international off-
set credits under this subsection, the Administrator, 
in consultation with the Secretary of State and the 
Administrator of the United States Agency for 
International Development, shall seek to ensure the 
establishment and enforcement by such country of 
legal regimes, 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 
social groups; 
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‘‘(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 
respect to deforestation, taking into consider-
ation the average annual historical deforestation 
rates of the country during a period of at least 
5 years, the applicable drivers of deforestation, 
and other factors to ensure additionality; 
‘‘(C) establish a trajectory that would re-
sult in zero net deforestation by not later than 
20 years after the national deforestation base-
line has been established; 
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‘‘(D) be adjusted over time to take account 
of changing national circumstances; 
‘‘(E) be designed to account for all signifi-
cant sources of greenhouse gas emissions from 
deforestation in the country; and 
‘‘(F) be consistent with the national defor-
estation baseline, if any, established for such 
country under section 754(d)(1) and (2). 
‘‘(5) STATE-LEVEL
OR
PROVINCE-LEVEL
AC-
TIVITIES.— 
‘‘(A) ELIGIBLE STATES OR PROVINCES.— 
The Administrator, in consultation with the 
Secretary of State and the Administrator of the 
United States Agency for International Devel-
opment, shall establish within 2 years after the 
date of enactment of this title, and periodically 
review and update, a list of states or provinces 
in developing countries where— 
‘‘(i) the developing country is not in-
cluded on the list of countries established 
pursuant to paragraph (6)(A); 
‘‘(ii) the state or province by itself is 
a major emitter of greenhouse gases from 
tropical deforestation on a scale commen-
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surate to the emissions of other countries; 
and 
‘‘(iii) the state or province meets the 
eligibility criteria in paragraphs (2) and 
(3) for the geographic area under its juris-
diction. 
‘‘(B) ACTIVITIES.—The Administrator may 
issue international offset credits for greenhouse 
gas emission reductions achieved through activi-
ties to reduce deforestation at a state or provin-
cial level that meet the requirements of this sec-
tion. Such credits shall be determined by com-
paring the emissions from deforestation within 
that state or province relative to the state or 
province deforestation baseline for that state or 
province established, in accordance with an 
agreement or arrangement described in sub-
section (b)(2)(A), pursuant to subparagraph 
(C) of this paragraph. 
‘‘(C) STATE
OR
PROVINCE
DEFOREST-
ATION BASELINE.—A state or province deforest-
ation baseline shall— 
‘‘(i) be consistent with any existing 
nationally appropriate mitigation commit-
ments or actions for the country in which 
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the activity is occurring, taking into con-
sideration the average annual historical de-
forestation rates of the state or province 
during a period of at least 5 years, rel-
evant drivers of deforestation, and other 
factors to ensure additionality; 
‘‘(ii) establish a trajectory that would 
result in zero net deforestation by not later 
than 20 years after the state or province 
deforestation baseline has been established; 
and 
‘‘(iii) be designed to account for all 
significant sources of greenhouse gas emis-
sions from deforestation in the state or 
province and adjusted to fully account for 
emissions leakage outside the state or 
province. 
‘‘(D) PHASE
OUT.—Beginning 5 years 
after the first calendar year for which a covered 
entity must demonstrate compliance with sec-
tion 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. 
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‘‘(6) PROJECTS
AND
PROGRAMS
TO
REDUCE 
DEFORESTATION.— 
‘‘(A) ELIGIBLE COUNTRIES.—The Admin-
istrator, in consultation with the Secretary of 
State and the Administrator of the United 
States Agency for International Development, 
shall establish within 2 years after the date of 
enactment of this title, and periodically review 
and update, a list of developing countries each 
of which— 
‘‘(i) the Administrator determines, 
based on recent, credible, and reliable 
emissions data, accounts 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) has, or in the determination of 
the Administrator is making a good faith 
effort to develop, a land use or forest sec-
tor strategic plan that meets the criteria 
described in paragraph (2)(C). 
‘‘(B) ACTIVITIES.—The Administrator may 
issue international offset credits for greenhouse 
gas emission reductions achieved through 
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project or program level activities to reduce de-
forestation in countries listed under subpara-
graph (A) that meet the requirements of this 
section. The quantity of international offset 
credits shall be determined by comparing the 
project-level or program-level emissions from 
deforestation to a deforestation baseline for 
such project or program established pursuant to 
subparagraph (C). 
‘‘(C) PROJECT-LEVEL OR PROGRAM-LEVEL 
BASELINE.—A project-level or program-level de-
forestation baseline shall— 
‘‘(i) be consistent with any existing 
nationally 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 relevant to the 
specific project or program during a period 
of at least 5 years, applicable drivers of de-
forestation, and other factors to ensure 
additionality; 
‘‘(ii) be designed to account for all 
significant sources of greenhouse gas emis-
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sions from deforestation in the project or 
program boundary; and 
‘‘(iii) be adjusted to fully account for 
emissions leakage outside the project or 
program boundary. 
‘‘(D) PHASE OUT.—(i) Beginning 5 years 
after the first calendar year for which a covered 
entity must demonstrate compliance with sec-
tion 722(a), the Administrator shall issue no 
further international offset credits for project- 
level or program-level activities pursuant to 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 paragraph by 
up to 8 years with respect to eligible activities 
taking place in a least developed country, which 
for purposes of this paragraph is defined as a 
foreign country that the United Nations has 
identified as among the least developed of devel-
oping countries at the time that the Adminis-
trator determines to provide an extension, if the 
Administrator, in consultation with the Sec-
retary of State and the Administrator of the 
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United States Agency for International Devel-
opment, determines the country— 
‘‘(I) lacks sufficient capacity to adopt 
and implement effective programs to 
achieve reductions in deforestation meas-
ured against national baselines; 
‘‘(II) is receiving support under part 
E to develop such capacity; and 
‘‘(III) has developed and is working 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, with-
in the meaning of deforestation. 
‘‘(8) CONSULTATION.—In implementing this 
subsection, the Administrator shall consult with the 
Secretary of Agriculture on relevant matters within 
such Secretary’s area of expertise. 
‘‘(f) MODIFICATION OF REQUIREMENTS.—In promul-
gating regulations under subsection (b)(1) with respect to 
the issuance of international offset credits under sub-
section (c), (d), or (e), the Administrator, in consultation 
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with the Secretary of State and the Administrator of the 
United States Agency for International Development, may 
modify or omit a requirement of this part (excluding the 
requirements of this section) if the Administrator deter-
mines 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 Adminis-
trator, in consultation with the Secretary of State and the 
Administrator of the United States Agency for Inter-
national Development, shall ensure, with an adequate 
margin of safety, the integrity of international offset cred-
its issued under this section and of the greenhouse gas 
emissions cap established pursuant to section 703. 
‘‘(g) AVOIDING DOUBLE COUNTING.—The Adminis-
trator, in consultation with the Secretary of State, shall 
seek, by whatever means appropriate, including agree-
ments, arrangements, or technical cooperation, to ensure 
that activities on the basis of which international offset 
credits are issued under this section are not used for com-
pliance with an obligation to reduce or avoid greenhouse 
gas emissions, or increase greenhouse gas sequestration, 
under a foreign or international regulatory system. In ad-
dition, no international offset credits shall be issued for 
emission reductions from activities with respect to which 
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emission allowances were allocated under section 781 for 
distribution under part E. 
‘‘(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 pre-
serving existing forest carbon stocks, including for-
ested wetlands and peatlands, that might, absent 
such activities, be lost through leakage. 
‘‘(2) NATIONAL
DEFORESTATION
REDUCTION 
ACTIVITIES.—The term ‘national deforestation re-
duction activities’ means activities in developing 
countries that reduce a quantity of greenhouse gas 
emissions from deforestation that is calculated by 
measuring actual emissions against a national defor-
estation baseline established pursuant to section 
754(d)(1) and (2). 
‘‘(3) SUBNATIONAL
DEFORESTATION
REDUC-
TION ACTIVITIES.—The term ‘subnational deforest-
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ation reduction activities’ means activities in devel-
oping countries that reduce a quantity of greenhouse 
gas emissions from deforestation that are calculated 
by measuring actual emissions using an appropriate 
baseline established by the Administrator that is less 
than national in scope. 
‘‘(4) 
SUPPLEMENTAL
EMISSIONS
REDUC-
TIONS.—The term ‘supplemental emissions reduc-
tions’ means greenhouse gas emissions reductions 
achieved from reduced or avoided deforestation 
under this part. 
‘‘(5) USAID.—The term ‘USAID’ means the 
United States Agency for International Develop-
ment. 
‘‘SEC. 752. FINDINGS. 
‘‘Congress finds that— 
‘‘(1) as part of a global effort to mitigate cli-
mate change, it is in the national interest of the 
United States to assist developing countries to re-
duce and ultimately halt emissions from deforest-
ation; 
‘‘(2) deforestation is one of the largest sources 
of greenhouse gas emissions in developing countries, 
amounting to roughly 20 percent of overall emissions 
globally; 
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‘‘(3) recent scientific analysis shows that it will 
be substantially more difficult to limit the increase 
in global temperatures to less than 2 degrees centi-
grade above preindustrial levels without reducing 
and ultimately halting net emissions from deforest-
ation; 
‘‘(4) reducing emissions from deforestation is 
highly cost-effective, compared to many other 
sources of emissions reductions; 
‘‘(5) in addition to contributing significantly to 
worldwide efforts to address global warming, assist-
ance under this part will generate significant envi-
ronmental 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-
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tional resources, including official and concessional 
funding for developing country parties’ . 
‘‘SEC. 
753. 
SUPPLEMENTAL 
EMISSIONS 
REDUCTIONS 
THROUGH REDUCED DEFORESTATION. 
‘‘(a) REGULATIONS.—Not later than 2 years after 
the date of enactment of this title, the Administrator, in 
consultation with the Administrator of USAID and any 
other appropriate agencies, shall promulgate regulations 
establishing a program to use emission allowances set 
aside for this purpose under section 781 to reduce green-
house 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 equiv-
alent in 2020, a cumulative amount of at least 
6,000,000,000 tons of carbon dioxide equivalent by 
December 31, 2025, and additional supplemental 
emissions reductions in subsequent years; 
‘‘(2) build capacity to reduce deforestation in 
developing countries experiencing deforestation, in-
cluding preparing developing countries to participate 
in international markets for international offset 
credits for reduced emissions from deforestation; and 
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‘‘(3) preserve existing forest carbon stocks in 
countries where such forest carbon may be vulner-
able to international leakage, particularly in devel-
oping countries with largely intact native forests. 
‘‘SEC. 754. REQUIREMENTS FOR INTERNATIONAL DEFOR-
ESTATION REDUCTION PROGRAM. 
‘‘(a) ELIGIBLE
COUNTRIES.—The Administrator 
may support activities under this part only with respect 
to a developing country that— 
‘‘(1) the Administrator, in consultation with the 
Administrator of USAID, determines is experiencing 
deforestation or forest degradation or has standing 
forest carbon stocks that may be at risk of deforest-
ation or degradation; and 
‘‘(2) has entered into a bilateral or multilateral 
agreement or arrangement with the United States 
establishing the conditions of its participation in the 
program established under this part, which shall in-
clude an agreement to meet the standards estab-
lished under subsection (d) for the activities to 
which those standards apply. 
‘‘(b) ACTIVITIES.— 
‘‘(1) AUTHORIZED ACTIVITIES.—Subject to the 
requirements of this part, the Administrator, in con-
sultation with the Administrator of USAID, may 
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support activities to achieve the objectives identified 
in section 753(b), including— 
‘‘(A) national deforestation reduction ac-
tivities; 
‘‘(B) subnational deforestation reduction 
activities, including pilot activities that reduce 
greenhouse gas emissions but are subject to sig-
nificant uncertainty; 
‘‘(C) activities to measure, monitor, and 
verify deforestation, avoided deforestation, and 
deforestation rates; 
‘‘(D) leakage prevention activities; 
‘‘(E) development of measurement, moni-
toring, and verification capacities to enable a 
country to quantify supplemental emissions re-
ductions and to generate for sale offset credits 
from reduced or avoided deforestation; 
‘‘(F) development of governance structures 
to reduce deforestation and illegal logging; 
‘‘(G) enforcement of requirements for re-
duced deforestation or forest conservation; 
‘‘(H) efforts to combat illegal logging and 
increase enforcement cooperation; 
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‘‘(I) providing incentives for policy reforms 
to achieve the objectives identified in section 
753(b); and 
‘‘(J) monitoring and evaluation of the re-
sults of the activities conducted under this sec-
tion. 
‘‘(2) ACTIVITIES SELECTED BY USAID.— 
‘‘(A) The Administrator of USAID, in con-
sultation with the Administrator, may select for 
support and implementation pursuant to sub-
section (c) any of the activities described in 
paragraph (1), consistent with this part and the 
regulations promulgated under subsection (d), 
and subject to the requirement to achieve the 
objectives listed in section 753(b)(1). 
‘‘(B) With respect to the activities listed in 
subparagraphs (D) through (J) of paragraph 
(1), the Administrator of USAID, in consulta-
tion with the Administrator, shall have primary 
but not exclusive responsibility for selecting the 
activities to be supported and implemented. 
‘‘(3) INTERAGENCY COORDINATION.—The Ad-
ministrator and the Administrator of USAID shall 
jointly develop and biennially update a strategic plan 
for meeting the objectives listed in section 753(b) 
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and shall execute a memorandum of understanding 
delineating the agencies’ respective roles in imple-
menting this part. 
‘‘(c) MECHANISMS.— 
‘‘(1) IN
GENERAL.—The Administrator may 
support activities to achieve the objectives identified 
in section 753(b) by— 
‘‘(A) developing and implementing pro-
grams and projects that achieve such objectives; 
and 
‘‘(B) distributing emission allowances to a 
country that is eligible under subsection (a), to 
a private or public group (including inter-
national organizations), or to an international 
fund established by an international agreement 
to which the United States is a party, to carry 
out activities to achieve such objectives. 
‘‘(2) USAID ACTIVITIES.—With respect to ac-
tivities selected and implemented by the Adminis-
trator of USAID pursuant to subsection (b)(2), the 
Administrator shall distribute emission allowances as 
provided in paragraph (1) of this subsection based 
upon the direction of the Administrator of USAID, 
subject to the availability of allowances for such ac-
tivities. 
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‘‘(3) 
IMPLEMENTATION
THROUGH
INTER-
NATIONAL
ORGANIZATIONS.—If support is distrib-
uted through an international organization, the 
agency responsible for selecting activities in accord-
ance with subsection (b)(1) or (2), in consultation 
with the Secretary of State, shall ensure the estab-
lishment and implementation of adequate mecha-
nisms to apply and enforce the eligibility require-
ments and other requirements of this section. 
‘‘(4) ROLE OF THE SECRETARY OF STATE.— 
The Administrator may not distribute emission al-
lowances under this part to the government of an-
other country or to an international organization or 
international fund unless the Secretary of State has 
concurred with such distribution. 
‘‘(d) STANDARDS.—The Administrator, in consulta-
tion with the Administrator of USAID, shall promulgate 
regulations establishing standards to ensure that supple-
mental emissions reductions achieved through supported 
activities are additional, measurable, verifiable, perma-
nent, and monitored, and account for leakage and uncer-
tainty. In addition, such standards shall— 
‘‘(1) require the establishment of a national de-
forestation baseline for each country with national 
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deforestation reduction activities that is used to ac-
count for reductions achieved from such activities; 
‘‘(2) provide that a national deforestation base-
line established under paragraph (1) shall— 
‘‘(A) be national in scope; 
‘‘(B) be consistent with nationally appro-
priate mitigation commitments or actions with 
respect to deforestation, taking into consider-
ation the average annual historical deforestation 
rates of the country during a period of at least 
5 years, the applicable drivers of deforestation, 
and other factors to ensure additionality; 
‘‘(C) establish a trajectory that would re-
sult in zero net deforestation by not later than 
20 years from the date the baseline is estab-
lished; 
‘‘(D) be adjusted over time to take account 
of changing national circumstances; 
‘‘(E) be designed to account for all signifi-
cant sources of greenhouse gas emissions from 
deforestation in the country; and 
‘‘(F) be consistent with the national defor-
estation baseline, if any, established for such 
country under section 743(e)(4); 
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‘‘(3) with respect to support provided pursuant 
to subsection (b)(1)(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 
techniques needed for a full accounting of changes 
in emissions or baselines, or are subject to other 
sources of uncertainty, apply a conservative discount 
factor to reflect the uncertainty regarding the levels 
of reductions achieved; 
‘‘(5) ensure that activities under this part shall 
be designed, carried out, and managed— 
‘‘(A) in accordance with widely accepted, 
environmentally sustainable forest management 
practices; 
‘‘(B) to promote or restore native forest 
species and ecosystems where practicable, 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, 
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indigenous peoples, forest-dependent commu-
nities, 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 
‘‘(6) with respect to support for all activities 
under this part, seek to ensure the establishment 
and enforcement, by the country in which the activi-
ties occur, 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 
social groups; 
‘‘(B) promote consultations with local com-
munities and indigenous peoples and forest-de-
pendent communities in affected areas, as part-
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ners and primary stakeholders, prior to and 
during the design, planning, implementation, 
monitoring, and evaluation of activities under 
this part; and 
‘‘(C) encourage equitable sharing of profits 
and benefits from incentives for emissions re-
ductions or leakage prevention with local com-
munities, indigenous peoples, and forest-de-
pendent communities. 
‘‘(e) SCOPE.—(1) The Administrator shall include 
within the scope of activities under this part reduced emis-
sions from forest degradation. 
‘‘(2) The Administrator, in consultation with the Ad-
ministrator of USAID, may decide, taking into account 
any advice from the Advisory Board, to expand, where ap-
propriate, the scope of activities under this part to include 
reduced soil carbon-derived emissions associated with de-
forestation and degradation of forested wetlands and 
peatlands. 
‘‘(f) ACCOUNTING.—The Administrator shall estab-
lish a publicly accessible registry of the supplemental emis-
sions reductions achieved through support provided under 
this part each year, after appropriately discounting for un-
certainty and other relevant factors as required by the 
standards established under subsection (d). 
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‘‘(g) TRANSITION TO NATIONAL REDUCTIONS.—Be-
ginning 5 years after the date that a country entered into 
the agreement or arrangement required under subsection 
(a)(2), the Administrator shall provide no further com-
pensation through emission allowances to that country 
under this part for any subnational deforestation reduc-
tion activities, except that the Administrator may extend 
this period by an additional 5 years if the Administrator, 
in consultation with the Administrator of USAID, deter-
mines that— 
‘‘(1) the country is making substantial progress 
towards adopting and implementing a program to 
achieve reductions in deforestation measured against 
a national baseline; 
‘‘(2) the greenhouse gas emissions reductions 
achieved are not resulting in significant leakage; and 
‘‘(3) the greenhouse gas emissions reductions 
achieved are being appropriately discounted to ac-
count for any leakage that is occurring. 
The limitation under this subsection shall not apply to 
support for activities to further the objectives listed in sec-
tion 753(b)(2) or (3). 
‘‘(h) COORDINATION WITH U.S. FOREIGN ASSIST-
ANCE.—Subject to the direction of the President, the Ad-
ministrator and the Administrator of USAID shall, to the 
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extent practicable and consistent with the objectives of 
this program, seek to align activities under this section 
with broader development, poverty alleviation, or natural 
resource management objectives and initiatives in the re-
cipient country. 
‘‘(i) SUPPORT AS SUPPLEMENT.—The provision of 
support for activities under this part shall be used to sup-
plement, and not to supplant, any other Federal, State, 
or local support available to carry out such qualifying ac-
tivities under this part. 
‘‘(j) NOT ELIGIBLE FOR OFFSET CREDIT.—Activities 
that receive support under this part shall not be issued 
offset credits for the greenhouse gas emissions reductions 
or avoidance, or greenhouse gas sequestration, produced 
by such activities. 
‘‘SEC. 755. REPORTS AND REVIEWS. 
‘‘(a) REPORTS.—Not later than January 1, 2014, 
and annually thereafter, the Administrator and the Ad-
ministrator of USAID shall submit to the Committee on 
Energy and Commerce and the Committee on Foreign Af-
fairs of the House of Representatives, and the Committee 
on Environment and Public Works and the Committee on 
Foreign Relations of the Senate, and make available to 
the public, a report on the support provided under this 
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part during the prior fiscal year. The report shall in-
clude— 
‘‘(1) a statement of the quantity of supple-
mental emissions reductions for which compensation 
in the form of emission allowances was provided 
under this part during the prior fiscal year, as reg-
istered 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 fis-
cal year, and a description of what was accomplished 
through each of the activities. 
‘‘(b) REVIEWS.—Not later than 4 years after the date 
of enactment of this title and every 5 years thereafter, 
the Administrator and the Administrator of USAID, tak-
ing into consideration any evaluation by or recommenda-
tions from the Advisory Board established under section 
731, shall conduct a review of the activities undertaken 
pursuant to this part and make any appropriate changes 
in the program established under this part, consistent with 
the requirements of this part, based on the findings of the 
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review. The review shall include the effects of the activities 
on— 
‘‘(1) total documented carbon stocks of each 
country that directly or indirectly received support 
under this part compared with such country’s na-
tional deforestation baseline established under sec-
tion 754(d)(1) and (2); 
‘‘(2) the number of countries with the capacity 
to generate for sale instruments in the nature of off-
set credits from forest-related activities, and the 
amount of such activities; 
‘‘(3) forest governance in each country that di-
rectly or indirectly received support under this part; 
‘‘(4) indigenous peoples and forest-dependent 
communities residing in areas affected by such ac-
tivities; 
‘‘(5) biodiversity and ecosystem services within 
forested areas associated with the activities; 
‘‘(6) subnational and international leakage; and 
‘‘(7) any program or mechanism established 
under the United Nations Framework Convention on 
Climate Change related to greenhouse gas emissions 
from deforestation. 
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‘‘SEC. 756. LEGAL EFFECT OF PART. 
‘‘(1) IN GENERAL.—Nothing in this part super-
sedes, limits, or otherwise affects any restriction im-
posed by Federal law (including regulations) on any 
interaction between an entity located in the United 
States and an entity located in a foreign country. 
‘‘(2) ROLE OF THE SECRETARY OF STATE.— 
Nothing in this part shall be construed as affecting 
the role of the Secretary of State or the responsibil-
ities of the Secretary under section 622(c) of the 
Foreign Assistance Act of 1961.’’. 
SEC. 312. DEFINITIONS. 
Title VII of the Clean Air Act, as added by section 
311 of this Act, is amended by inserting before part A 
the following new section: 
‘‘SEC. 700. DEFINITIONS. 
‘‘In this title: 
‘‘(1) 
ADDITIONAL.—The 
term 
‘additional’, 
when used with respect to reductions or avoidance of 
greenhouse gas emissions, or to sequestration of 
greenhouse gases, means reductions, avoidance, or 
sequestration that result in a lower level of net 
greenhouse gas emissions or atmospheric concentra-
tions than would occur in the absence of an offset 
project. 
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‘‘(2) ADDITIONALITY.—The term ‘additionality’ 
means the extent to which reductions or avoidance 
of greenhouse gas emissions, or sequestration of 
greenhouse gases, are additional. 
‘‘(3) ADVISORY
BOARD.—The term ‘Advisory 
Board’ means the Offsets Integrity Advisory Board 
established under section 731. 
‘‘(4) AFFILIATED.—The term ‘affiliated’— 
‘‘(A) when used in relation to an entity 
means owned or controlled by, or under com-
mon ownership or control with, another entity, 
as determined by the Administrator; and 
‘‘(B) when used in relation to a natural 
gas local distribution company, means owned or 
controlled by, or under common ownership or 
control with, another natural gas local distribu-
tion company, as determined by the Adminis-
trator. 
‘‘(5) 
ALLOWANCE.—The 
term 
‘allowance’ 
means a limited authorization to emit, or have at-
tributable greenhouse gas emissions in an amount 
of, 1 ton of carbon dioxide equivalent of a green-
house gas in accordance with this title. Such term 
includes an emission allowance, a compensatory al-
lowance, and an international emission allowance, 
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but does not include an international reserve allow-
ance established under section 766. 
‘‘(6) ATTRIBUTABLE GREENHOUSE GAS EMIS-
SIONS.—The term ‘attributable greenhouse gas emis-
sions’, for a given calendar year, means— 
‘‘(A) for a covered entity that is a fuel pro-
ducer or importer described in paragraph 
(13)(B), greenhouse gases that would be emit-
ted 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 during that calendar year 
for sale or distribution in interstate commerce, 
assuming no capture and sequestration of any 
greenhouse gas emissions; 
‘‘(B) for a covered entity that is an indus-
trial gas producer or importer described in 
paragraph (13)(C), the tons of carbon dioxide 
equivalent of any gas described in clauses (i) 
through (vi) of paragraph (13)(C)— 
‘‘(i) produced or imported by such 
covered entity during that calendar year 
for sale or distribution in interstate com-
merce; or 
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‘‘(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 
combustion of the natural gas, and any other 
gas meeting the specifications for commingling 
with natural gas for purposes of delivery, that 
such entity delivered during that calendar year 
to customers that are not covered entities, as-
suming no capture and sequestration of that 
greenhouse gas. 
‘‘(7) 
BIOLOGICAL
SEQUESTRATION; 
BIO-
LOGICALLY
SEQUESTERED.—The terms ‘biological 
sequestration’ and ‘biologically sequestered’ mean 
the removal of greenhouse gases from the atmos-
phere by terrestrial biological means, such as by 
growing plants, and the storage of those greenhouse 
gases in plants or soils. 
‘‘(8) CAPPED
EMISSIONS.—The term ‘capped 
emissions’ means greenhouse gas emissions to which 
section 722 applies, including emissions from the 
combustion of natural gas, petroleum-based or coal- 
based liquid fuel, petroleum coke, or natural gas liq-
uid to which section 722(b)(2) or (8) applies. 
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‘‘(9) CAPPED
SOURCE.—The term ‘capped 
source’ means a source that directly emits capped 
emissions. 
‘‘(10) CARBON
DIOXIDE
EQUIVALENT.—The 
term ‘carbon dioxide equivalent’ means the unit of 
measure, expressed in metric tons, of greenhouse 
gases as provided under section 711 or 712. 
‘‘(11) CARBON
STOCK.—The term ‘carbon 
stock’ means the quantity of carbon contained in a 
biological reservoir or system which has the capacity 
to accumulate or release carbon. 
‘‘(12) COMPENSATORY ALLOWANCE.—The term 
‘compensatory allowance’ means an allowance issued 
under section 721(f). 
‘‘(13) COVERED
ENTITY.—The term ‘covered 
entity’ means each of the following: 
‘‘(A) Any electricity source. 
‘‘(B) Any stationary source that produces, 
and any entity that (or any group of two or 
more affiliated entities that, in the aggregate) 
imports, for sale or distribution in interstate 
commerce in 2008 or any subsequent year, pe-
troleum-based or coal-based liquid fuel, petro-
leum coke, or natural gas liquid, the combus-
tion of which would emit 25,000 or more tons 
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of carbon dioxide equivalent, as determined by 
the Administrator. 
‘‘(C) Any stationary source that produces, 
and any entity that (or any group of two or 
more affiliated entities that, in the aggregate) 
imports, for sale or distribution in interstate 
commerce, in bulk, or in products designated by 
the Administrator, in 2008 or any subsequent 
year 25,000 or more 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 green-
house gas, as designated by the Adminis-
trator under section 711; or 
‘‘(vi) any combination of greenhouse 
gases described in clauses (i) through (v). 
‘‘(D) Any stationary source that has emit-
ted 25,000 or more tons of carbon dioxide 
equivalent of nitrogen trifluoride in 2008 or any 
subsequent year. 
‘‘(E) Any geologic sequestration site. 
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‘‘(F) Any stationary source in the following 
industrial sectors: 
‘‘(i) Adipic acid production. 
‘‘(ii) Primary aluminum production. 
‘‘(iii) Ammonia manufacturing. 
‘‘(iv) Cement production, excluding 
grinding-only operations. 
‘‘(v) Hydrochlorofluorocarbon produc-
tion. 
‘‘(vi) Lime manufacturing. 
‘‘(vii) Nitric acid production. 
‘‘(viii) Petroleum refining. 
‘‘(ix) Phosphoric acid production. 
‘‘(x) Silicon carbide production. 
‘‘(xi) Soda ash production. 
‘‘(xii) Titanium dioxide production. 
‘‘(xiii) Coal-based liquid or gaseous 
fuel production. 
‘‘(G) Any stationary source in the chemical 
or petrochemical sector that, in 2008 or any 
subsequent year— 
‘‘(i) produces acrylonitrile, carbon 
black, ethylene, ethylene dichloride, ethyl-
ene oxide, or methanol; or 
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‘‘(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— 
‘‘(i) is in one of the following indus-
trial sectors: ethanol production; ferroalloy 
production; fluorinated gas production; 
food processing; glass production; hydrogen 
production; iron and steel production; lead 
production; pulp and paper manufacturing; 
and zinc production; and 
‘‘(ii) has emitted 25,000 or more tons 
of carbon dioxide equivalent in 2008 or 
any subsequent year. 
‘‘(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. 
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‘‘(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 subse-
quent year, delivers 460,000,000 cubic feet or 
more of natural gas, and any other gas meeting 
the specifications for commingling with natural 
gas for purposes of delivery, to customers that 
are not covered entities. 
‘‘(14) CREDITING PERIOD.—The term ‘crediting 
period’ means the period with respect to which an 
offset project is eligible to earn offset credits under 
part D, as determined under section 734(c). 
‘‘(15) DESIGNATED
REPRESENTATIVE.—The 
term ‘designated representative’ means, with respect 
to a covered entity, a reporting entity (as defined in 
section 713), an offset project developer, or any 
other entity receiving or holding allowances or offset 
credits under this title, an individual authorized, 
through a certificate of representation submitted to 
the Administrator by the owners and operators or 
similar entity official, to represent the owners and 
operators or similar entity official in all matters per-
taining to this title (including the holding, transfer, 
or disposition of allowances or offset credits), and to 
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make all submissions to the Administrator under 
this title. 
‘‘(16) DEVELOPING COUNTRY.—The term ‘de-
veloping country’ means a country eligible to receive 
official development assistance according to the in-
come guidelines of the Development Assistance Com-
mittee of the Organization for Economic Coopera-
tion and Development. 
‘‘(17) DOMESTIC OFFSET CREDIT.—The term 
‘domestic offset credit’ means an offset credit issued 
under part D, other than an international offset 
credit. 
‘‘(18) ELECTRICITY SOURCE.—The term ‘elec-
tricity source’ means a stationary source that in-
cludes one or more utility units. 
‘‘(19) EMISSION.—The term ‘emission’ means 
the release of a greenhouse gas into the ambient air. 
Such term does not include gases that are captured 
and geologically sequestered, except to the extent 
that they are later released into the atmosphere, in 
which case compliance must be demonstrated pursu-
ant to section 722(b)(5). 
‘‘(20) EMISSION ALLOWANCE.—The term ‘emis-
sion allowance’ means an allowance established 
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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 un-
available, the average price as determined by the Ad-
ministrator, during a specified time period, of an 
emission allowance. 
‘‘(22) FEDERAL
LAND.—The term ‘Federal 
land’ means land that is owned by the United 
States, other than land held in trust for an Indian 
or Indian tribe. 
‘‘(23) FOSSIL
FUEL.—The term ‘fossil fuel’ 
means natural gas, petroleum, or coal, or any form 
of solid, liquid, or gaseous fuel derived from such 
material, including consumer products that are de-
rived from such materials and are combusted. 
‘‘(24) FOSSIL
FUEL-FIRED.—The term ‘fossil 
fuel-fired’ means powered by combustion of fossil 
fuel, alone or in combination with any other fuel, re-
gardless of the percentage of fossil fuel consumed. 
‘‘(25) FUGITIVE EMISSIONS.—The term ‘fugi-
tive emissions’ means emissions from leaks, valves, 
joints, or other small openings in pipes, ducts, or 
other equipment, or from vents. 
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‘‘(26) GEOLOGIC
SEQUESTRATION; GEOLOGI-
CALLY SEQUESTERED.—The terms ‘geologic seques-
tration’ and ‘geologically sequestered’ mean the se-
questration of greenhouse gases in subsurface geo-
logic formations for purposes of permanent storage. 
‘‘(27) GEOLOGIC
SEQUESTRATION
SITE.—The 
term ‘geologic sequestration site’ means a site where 
carbon dioxide is geologically sequestered. 
‘‘(28) GREENHOUSE
GAS.—The term ‘green-
house gas’ means any gas described in section 
711(a) or designated under section 711, except to 
the extent that it is regulated under title VI. 
‘‘(29) HIGH CONSERVATION PRIORITY LAND.— 
The term ‘high conservation priority land’ means 
land that is not Federal land and is— 
‘‘(A) globally or State ranked as critically 
imperiled or imperiled under a State Natural 
Heritage Program; or 
‘‘(B) old-growth or late-successional forest, 
as identified by the office of the State Forester 
or relevant State agency with regulatory juris-
diction over forestry activities. 
‘‘(30) HOLD.—The term ‘hold’ means, with re-
spect to an allowance or offset credit, to have in the 
appropriate account in the allowance tracking sys-
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tem established under section 724(d), 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 
natural gas pipeline transportation sector 
(as defined in North American Industrial 
Classification System codes 211112 and 
486210). 
‘‘(32) 
INTERNATIONAL
EMISSION
ALLOW-
ANCE.—The term ‘international emission allowance’ 
means a tradable authorization to emit 1 ton of car-
bon dioxide equivalent of greenhouse gas that is 
issued by a national or supranational foreign govern-
ment pursuant to a qualifying international program 
designated by the Administrator pursuant to section 
728(a). 
‘‘(33) INTERNATIONAL OFFSET CREDIT.—The 
term ‘international offset credit’ means an offset 
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credit issued by the Administrator under section 
743. 
‘‘(34) LEAKAGE.—Except as provided in part 
F, the term ‘leakage’ means a significant increase in 
greenhouse gas emissions, or significant decrease in 
sequestration, which is caused by an offset project or 
activities under part E and occurs outside the 
boundaries of the offset project or the relevant pro-
gram or project under part E. 
‘‘(35) MINERAL
SEQUESTRATION.—The term 
‘mineral sequestration’ means sequestration of car-
bon dioxide from the atmosphere by capturing car-
bon dioxide into a permanent mineral, such as the 
aqueous precipitation of carbonate minerals that re-
sults in the storage of carbon dioxide in a mineral 
form. 
‘‘(36) NATURAL GAS LIQUID.—The term ‘nat-
ural gas liquid’ means ethane, butane, isobutane, 
natural gasoline, and propane. 
‘‘(37) NATURAL
GAS
LOCAL
DISTRIBUTION 
COMPANY.—The term ‘natural gas local distribution 
company’ has the meaning given the term ‘local dis-
tribution company’ in section 2(17) of the Natural 
Gas Policy Act of 1978 (15 U.S.C. 3301(17)). 
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‘‘(38) OFFSET CREDIT.—The term ‘offset cred-
it’ 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 
greenhouse gases, and for which offset credits are or 
may be issued under part D. 
‘‘(40) OFFSET
PROJECT
DEVELOPER.—The 
term ‘offset project developer’ means the individual 
or entity designated as the offset project developer 
in an offset project approval petition under section 
735(c)(1). 
‘‘(41) PETROLEUM.—The term ‘petroleum’ in-
cludes crude oil, tar sands, oil shale, and heavy oils. 
‘‘(42) RENEWABLE
BIOMASS.—The term ‘re-
newable biomass’ means any of the following: 
‘‘(A) Plant material, including waste mate-
rial, harvested or collected from actively man-
aged agricultural land that was in cultivation, 
cleared, or fallow and nonforested on January 
1, 2009. 
‘‘(B) Plant material, including waste mate-
rial, harvested or collected from pastureland 
that was nonforested on January 1, 2009. 
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‘‘(C) Nonhazardous vegetative matter de-
rived from waste, including separated yard 
waste, landscape right-of-way trimmings, con-
struction and demolition debris or food waste 
(but not municipal solid waste, recyclable waste 
paper, painted, treated or pressurized wood, or 
wood contaminated with plastic or metals). 
‘‘(D) Animal waste or animal byproducts, 
including products of animal waste digesters. 
‘‘(E) Algae. 
‘‘(F) Trees, brush, slash, residues, or any 
other vegetative matter removed from within 
600 feet of any building, campground, or route 
designated for evacuation by a public official 
with responsibility for emergency preparedness, 
or from within 300 feet of a paved road, electric 
transmission line, utility tower, or water supply 
line. 
‘‘(G) Residues from or byproducts of 
milled logs. 
‘‘(H) Any of the following removed from 
forested land that is not Federal land and is 
not high conservation priority land: 
‘‘(i) Trees, brush, slash, residues, 
interplanted energy crops, or any other 
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vegetative matter removed from an actively 
managed 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 
preventative 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 for-
est types. 
‘‘(iv) Dead or severely damaged trees 
removed within 5 years of fire, blowdown, 
or other natural disaster, and badly in-
fested trees. 
‘‘(I) Materials, pre-commercial thinnings, 
or removed invasive species from National For-
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est System land and public lands (as defined in 
section 103 of the Federal Land Policy and 
Management Act of 1976 (43 U.S.C. 1702)), 
including those that are byproducts of preven-
tive treatments (such as trees, wood, brush, 
thinnings, chips, and slash), that are removed 
as part of a federally recognized timber sale, or 
that are removed to reduce hazardous fuels, to 
reduce or contain disease or insect infestation, 
or to restore ecosystem health, and that are— 
‘‘(i) not from components of the Na-
tional Wilderness Preservation System, 
Wilderness 
Study 
Areas, 
Inventoried 
Roadless Areas, old growth or mature for-
est stands, components of the National 
Landscape Conservation System, National 
Monuments, National Conservation Areas, 
Designated Primitive Areas; or Wild and 
Scenic Rivers corridors; 
‘‘(ii) harvested in environmentally sus-
tainable quantities, as determined by the 
appropriate Federal land manager; and 
‘‘(iii) harvested in accordance with 
Federal and State law, and applicable land 
management plans. 
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‘‘(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, ex-
change, 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 
greenhouse gases to the atmosphere. 
‘‘(45) SEQUESTERED AND SEQUESTRATION.— 
The terms ‘sequestered’ and ‘sequestration’ mean 
the separation, isolation, or removal of greenhouse 
gases from the atmosphere, as determined by the 
Administrator. The terms include biological, geo-
logic, and mineral sequestration, but do not include 
ocean fertilization techniques. 
‘‘(46) STATIONARY
SOURCE.—The term ‘sta-
tionary source’ means any integrated operation com-
prising any plant, building, structure, or stationary 
equipment, including support buildings and equip-
ment, that is located within one or more contiguous 
or adjacent properties, is under common control of 
the same person or persons, and emits or may emit 
a greenhouse gas. 
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‘‘(47) STRATEGIC RESERVE ALLOWANCE.—The 
term ‘strategic reserve allowance’ means an emission 
allowance reserved for, transferred to, or deposited 
in the strategic reserve under section 726. 
‘‘(48) TON.—The term ‘ton’ means metric ton. 
‘‘(49) UNCAPPED EMISSIONS.—The term ‘un-
capped emissions’ means emissions of greenhouse 
gases emitted after December 31, 2011, that are not 
capped emissions. 
‘‘(50) UNITED STATES GREENHOUSE GAS EMIS-
SIONS.—The term ‘United States greenhouse gas 
emissions’ means the total quantity of annual green-
house gas emissions from the United States, as cal-
culated by the Administrator and reported to the 
United Nations Framework Convention on Climate 
Change Secretariat. 
‘‘(51) UTILITY UNIT.—The term ‘utility unit’ 
means a combustion device that, on January 1, 
2009, or any date thereafter, is fossil fuel-fired and 
serves a generator that produces electricity for sale, 
unless such combustion device, during the 12-month 
period starting the later of January 1, 2009, or the 
commencement of commercial operation and each 
calendar year starting after such later date— 
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‘‘(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. 
‘‘(52) VINTAGE YEAR.—The term ‘vintage year’ 
means the calendar year for which an emission al-
lowance is established under section 721(a) or which 
is assigned to an emission allowance under section 
726(g)(3)(A), except that the vintage year for a 
strategic reserve allowance shall be the year in which 
such allowance is purchased at auction.’’. 
Subtitle B—Disposition of 
Allowances 
SEC. 321. DISPOSITION OF ALLOWANCES FOR GLOBAL 
WARMING 
POLLUTION 
REDUCTION 
PRO-
GRAM. 
Title VII of the Clean Air Act, as added by section 
311 of this Act, is amended by adding at the end the fol-
lowing part: 
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‘‘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). 
‘‘(c) CARRYOVER.—If the Administrator has not dis-
tributed all of the allowances allocated pursuant to this 
section for a given vintage year by the end of that year, 
all such undistributed emission allowances shall, in accord-
ance with section 782(s), be exchanged for allowances 
from the following vintage year and treated as part of the 
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allocation for supplemental reductions entities under this 
section for that later vintage year. 
‘‘SEC. 782. ALLOCATION OF EMISSION ALLOWANCES. 
‘‘(a) ELECTRICITY CONSUMERS.—(1) The Adminis-
trator shall allocate emission allowances for the benefit of 
electricity consumers, to be distributed in accordance with 
section 783(b), (c), and (d) in the following amounts: 
‘‘(A) For vintage years 2012 and 2013: 43.75 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(B) For vintage years 2014 and 2015: 38.89 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(C) For vintage years 2016 through 2025: 
35.00 percent of the emission allowances established 
for each year under section 721(a). 
‘‘(D) For vintage year 2026: 28 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(E) For vintage year 2027: 21 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(F) For vintage year 2028: 14 percent of the 
emission allowances established for that year under 
section 721(a). 
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‘‘(G) For vintage year 2029: 7 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(2) The Administrator shall allocate emission allow-
ances for energy efficiency, renewable electricity, and low 
income ratepayer assistance programs administered by 
small electricity local distribution companies, to be distrib-
uted in accordance with section 783(e) in the following 
amounts: 
‘‘(A) For vintage years 2012 through 2025: 0.5 
percent of the emission allowances established each 
year under section 721(a). 
‘‘(B) For vintage year 2026: 0.4 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(C) For vintage year 2027: 0.3 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(D) For vintage year 2028: 0.2 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(E) For vintage year 2029: 0.1 percent of the 
emission allowances established for that year under 
section 721(a). 
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‘‘(b) NATURAL GAS CONSUMERS.—The Adminis-
trator 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 that year under 
section 721(a). 
‘‘(3) For vintage year 2027, 5.4 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(4) For vintage year 2028, 3.6 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(5) For vintage year 2029, 1.8 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(c) HOME HEATING OIL
AND PROPANE CON-
SUMERS.—The Administrator shall allocate emission al-
lowances for the benefit of home heating oil and propane 
consumers to be distributed in accordance with section 
785 in the following amounts: 
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‘‘(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 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(3) For vintage years 2016 through 2025, 1.5 
percent of the emission allowances established for 
each year under section 721(a). 
‘‘(4) For vintage year 2026, 1.2 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(5) For vintage year 2027, 0.9 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(6) For vintage year 2028, 0.6 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(7) For vintage year 2029, 0.3 percent of the 
emission allowances established for that year under 
section 721(a). 
‘‘(d) LOW INCOME CONSUMERS.—For each vintage 
year starting in 2012, the Administrator shall auction, 
pursuant to section 791, 15 percent of the emission allow-
ances established for each year under section 721(a), with 
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the proceeds used for the benefit of low income consumers 
to fund the program set forth in subtitle C of title IV of 
American Clean Energy and Security Act of 2009 and the 
amendments made thereby. 
‘‘(e) TRADE-VULNERABLE INDUSTRIES.— 
‘‘(1) IN GENERAL.—The Administrator shall al-
locate emission allowances to energy-intensive, trade- 
exposed entities, to be distributed in accordance with 
section 765, in the following amounts: 
‘‘(A) For vintage years 2012 and 2013, up 
to 2.0 percent of the emission allowances estab-
lished for each year under section 721(a). 
‘‘(B) For vintage year 2014, up to 15 per-
cent of the emission allowances established for 
that year under section 721(a). 
‘‘(C) For vintage year 2015, up to the 
product of— 
‘‘(i) the amount specified in para-
graph (2); multiplied by 
‘‘(ii) the quantity of emission allow-
ances established for 2015 under section 
721(a) divided by the quantity of emission 
allowances established for 2014 under sec-
tion 721(a). 
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‘‘(D) For vintage year 2016, up to the 
product of— 
‘‘(i) the amount specified in para-
graph (3); multiplied by 
‘‘(ii) the quantity of emission allow-
ances established for 2015 under section 
721(a) divided by the quantity of emission 
allowances established for 2014 under sec-
tion 721(a). 
‘‘(E) For vintage years 2017 through 
2025, up to the product of— 
‘‘(i) the amount specified in para-
graph (4); multiplied by 
‘‘(ii) the quantity of emission allow-
ances established for that year under sec-
tion 721(a) divided by the quantity of 
emission allowances established for 2016 
under section 721(a). 
‘‘(F) For vintage years 2026 through 
2050, up to the product of the amount specified 
in paragraph (4)— 
‘‘(i) multiplied by the quantity of 
emission allowances established for the ap-
plicable year during 2026 through 2050 
under section 721(a) divided by the quan-
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tity of emission allowances established for 
2016 under section 721(a); and 
‘‘(ii) multiplied by a factor that shall 
equal 90 percent for 2026 and decline 10 
percent for each year thereafter until 
reaching zero, except that, if the President 
modifies a percentage for a year under 
subparagraph (A) of section 767(c)(3), the 
highest percentage the President applies 
for any sector under that subparagraph for 
that year (not exceeding 100 percent) shall 
be used for that year instead of the factor 
otherwise specified in this clause. 
‘‘(2) CARRYOVER.—After the Administrator dis-
tributes emission allowances pursuant to section 765 
for any given vintage year, any emission allowances 
allocated to energy-intensive, trade-exposed entities 
pursuant to this subsection that have not been so 
distributed shall, in accordance with subsection (s), 
be exchanged for allowances from the following vin-
tage year and treated as part of the allocation to 
such entities for that later vintage year. 
‘‘(f) DEPLOYMENT OF CARBON CAPTURE AND SE-
QUESTRATION TECHNOLOGY.— 
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‘‘(1) ANNUAL
ALLOCATION.—The Adminis-
trator shall allocate emission allowances for the de-
ployment of carbon capture and sequestration tech-
nology to be distributed in accordance with section 
786 in the following amounts: 
‘‘(A) For vintage years 2014 through 
2017, 1.75 percent of the emission allowances 
established for each year under section 721(a). 
‘‘(B) For vintage years 2018 and 2019, 
4.75 percent of the emission allowances estab-
lished for each year under section 721(a). 
‘‘(C) For vintage years 2020 through 
2050, 5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(2) CARRYOVER.—If the Administrator has 
not distributed all of the allowances allocated pursu-
ant to this subsection for a given vintage year by the 
end of that year, all such undistributed emission al-
lowances shall, in accordance with subsection (s), be 
exchanged for allowances from the following vintage 
year and treated as part of the allocation for the de-
ployment of carbon capture and sequestration tech-
nology under this subsection for that later vintage 
year. 
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‘‘(g) INVESTMENT IN ENERGY EFFICIENCY AND RE-
NEWABLE ENERGY.—The Administrator shall allocate 
emission allowances to invest in energy efficiency and re-
newable energy as follows: 
‘‘(1) To be distributed in accordance with sec-
tion 132 of the American Clean Energy and Security 
Act of 2009 in the following amounts: 
‘‘(A) For vintage years 2012 through 
2015, 9.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(B) For vintage years 2016 through 
2017, 6.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(C) For vintage years 2018 through 
2021, 5.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(D) For vintage years 2022 through 
2025, 1.0 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(E) For vintage years 2026 through 
2050, 4.5 percent of the emission allowances es-
tablished for each year under section 721(a). 
‘‘(F) At the same time allowances are dis-
tributed under subparagraph (D) for each of 
the vintage years 2022 through 2025, 3.55 per-
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cent of emission allowances established under 
section 721(a) for the vintage year four years 
after that vintage year shall also be distributed 
(which shall be in addition to the emission al-
lowances distributed under subparagraph (E)). 
‘‘(2) To be distributed in accordance with sec-
tion 304 of the Energy Conservation and Production 
Act, as amended by 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 for that year 
under section 721(a). 
‘‘(h) ENERGY RESEARCH AND DEVELOPMENT.— 
‘‘(1) ENERGY INNOVATION HUBS.—For vintage 
years 2012 through 2050, the Administrator shall 
allocate 0.45 percent of the emission allowances es-
tablished under section 721(a) to be distributed to 
Energy Innovation Hubs in accordance with section 
171 of the American Clean Energy and Security Act 
of 2009. 
‘‘(2) ADVANCED ENERGY RESEARCH.—For vin-
tage years 2012 through 2050, the Administrator 
shall allocate 1.05 percent of the emission allowances 
established under section 721(a) for the Advanced 
Research Project Agency-Energy to be distributed in 
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accordance with section 172 of the American Clean 
Energy and Security Act of 2009. 
‘‘(i) INVESTMENT
IN
CLEAN
VEHICLE
TECH-
NOLOGY.—The Administrator shall allocate emission al-
lowances to invest in the development and deployment of 
clean vehicles, to be distributed in accordance with section 
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 
and distribute according to section 787— 
‘‘(1) 2 percent of the emission allowances estab-
lished for each year under section 721(a) to domes-
tic petroleum refineries that are covered entities pur-
suant to section 700(13)(F)(viii), including small 
business refiners; and 
‘‘(2) an additional 0.25 percent of the emissions 
allowances established for each year under section 
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721(a) to small business refiners that are covered 
entities pursuant to section 700(13)(F)(viii). 
‘‘(k) INVESTMENT IN WORKERS.—The Administrator 
shall auction pursuant to section 791 emission allowances 
for the benefit of workers pursuant to part 2 of subtitle 
B of the American Clean Energy and Security Act of 2009 
in the following amounts, and shall deposit into the Cli-
mate Change Worker Adjustment Assistance Fund estab-
lished pursuant to section 793, and report to the Secretary 
of Labor on, the proceeds from the sale of these allow-
ances: 
‘‘(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). 
All amounts deposited into the fund shall be available to 
the Secretary of Labor until expended to carry out part 
2 of subtitle B of title IV of the American Clean Energy 
and Security Act of 2009. Of the amounts deposited, not 
more than $10,000,000 shall be available to the Secretary 
of Labor for Federal administration costs of such part 2 
each fiscal year. 
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allowances established under section 721(a) and de-
posit the proceeds into the Climate Change Con-
sumer Refund Account: 
‘‘(A) Any allowances not allocated for dis-
tribution or auction pursuant to section 781 or 
subsections (a) through (p) of this section, or 
disbursed pursuant to section 790. 
‘‘(B) Unless otherwise specified, any allow-
ances allocated pursuant to subsections (a) 
through (o) and not distributed by March 31 of 
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 Consumer Refund Account. 
‘‘(3) Funds deposited into the Climate Change 
Consumer Refund Account shall be used as specified 
in section 789 and shall be available for expenditure, 
without further appropriation or fiscal year limita-
tion. 
‘‘(s) TREATMENT OF CARRYOVER ALLOWANCES.— 
‘‘(1) IN GENERAL.—If there are undistributed 
allowances from a vintage year for supplemental re-
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ductions pursuant to section 781(c), energy-inten-
sive, trade-exposed industries pursuant to subsection 
(e)(2) of this section, or deployment of carbon cap-
ture and sequestration technology pursuant to sub-
section (f)(2) of this section, the Administrator 
shall— 
‘‘(A) use the undistributed allowances to 
increase for the same vintage year— 
‘‘(i) the allocation of allowances to be 
auctioned for deficit reduction pursuant to 
subsection (q) or for consumer refunds 
pursuant to subsection (r); 
‘‘(ii) the allocation of allowances to be 
auctioned for low income consumers pursu-
ant to subsection (d); or 
‘‘(iii) a combination of both; and 
‘‘(B) except as provided in paragraph 
(2)— 
‘‘(i) decrease by the same amount for 
the following vintage year the allocation for 
the purpose for which the allocation was 
increased pursuant to subparagraph (A); 
and 
‘‘(ii) increase by the same amount for 
the following vintage year the allocation for 
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the purpose for which the undistributed al-
lowances were originally allocated. 
‘‘(2) EXCESS UNDISTRIBUTED ALLOWANCES.— 
(A) For each vintage year for which this subsection 
applies, the Administrator shall determine wheth-
er— 
‘‘(i) the total quantity of undistributed al-
lowances for that vintage year that were allo-
cated pursuant to section 781(c), and sub-
sections (e)(2) and (f)(2) of this section, ex-
ceeds 
‘‘(ii) the total quantity of allowances allo-
cated pursuant to subsection (d), (q) and (r) 
for the following vintage year, decreased by the 
quantity of allowances for that following vintage 
year set aside for the reserve established by sec-
tion 791(f). 
‘‘(B) If the Administrator determines under 
subparagraph (A) that the quantity described in 
subparagraph (A)(i) exceeds the quantity described 
in subparagraph (A)(ii), paragraph (1)(B)(ii) of this 
subsection shall not apply. Instead, for each purpose 
described in section 781(c), or subsections (e)(2) or 
(f)(2) of this section for which undistributed allow-
ances for a given vintage year were allocated, the 
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Administrator shall increase the allocation for the 
following vintage year by the amount that is the 
product of— 
‘‘(i) the number of undistributed allow-
ances for that purpose, times 
‘‘(ii) the quantity described in subpara-
graph (A)(ii) divided by the quantity described 
in subparagraph (A)(i). 
‘‘SEC. 783. ELECTRICITY CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) COAL-FUELED
UNIT.—The term ‘coal- 
fueled unit’ means a utility unit that derives at least 
85 percent of its heat input from coal, petroleum 
coke, or any combination of these 2 fuels. 
‘‘(2) 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, re-
gardless of whether that entity or another enti-
ty sells the electricity as a commodity to those 
retail consumers; and 
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‘‘(B) the retail rates of which, except in 
the case of an electric cooperative, are regulated 
or set by— 
‘‘(i) a State regulatory authority; 
‘‘(ii) a State or political subdivision 
thereof (or an agency or instrumentality 
of, or corporation wholly owned by, either 
of the foregoing); or 
‘‘(iii) an Indian tribe pursuant to trib-
al law. 
‘‘(3) ELECTRICITY SAVINGS; RENEWABLE EN-
ERGY
RESOURCE.—The terms ‘electricity savings’ 
and ‘renewable energy resource’ shall have the 
meaning given those terms in section 610 of the 
Public Utility Regulatory Policies Act of 1978 (as 
added by section 101 of the American Clean Energy 
and Security Act of 2009). 
‘‘(4) INDEPENDENT
POWER
PRODUCTION
FA-
CILITY.—The term ‘independent power production 
facility’ means a facility— 
‘‘(A) that is used for the generation of 
electric energy, at least 80 percent of which is 
sold at wholesale; and 
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‘‘(B) the sales of the output of which are 
not subject to retail rate regulation or setting 
of retail rates by— 
‘‘(i) a State regulatory authority; 
‘‘(ii) a State or political subdivision 
thereof (or an agency or instrumentality 
of, or corporation wholly owned by, either 
of the foregoing); 
‘‘(iii) an electric cooperative; or 
‘‘(iv) an Indian tribe pursuant to trib-
al law. 
‘‘(5) LONG-TERM CONTRACT GENERATOR.—The 
term ‘long-term contract generator’ means a quali-
fying small power production facility, a qualifying 
cogeneration facility ), an independent power pro-
duction facility, or a facility for the production of 
electric energy for sale to others that is owned and 
operated by an electric cooperative that is— 
‘‘(A) a covered entity; and 
‘‘(B) as of the date of enactment of this 
title— 
‘‘(i) a facility with 1 or more sales or 
tolling agreements executed before March 
1, 2007, that govern the facility’s elec-
tricity sales and provide for sales at a price 
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(whether a fixed price or a price formula) 
for electricity that does not allow for recov-
ery of the costs of compliance with the lim-
itation on greenhouse gas emissions under 
this title, provided that such agreements 
are not between entities that are affiliates 
of one another; or 
‘‘(ii) a facility consisting of 1 or more 
cogeneration units that makes useful ther-
mal energy available to an industrial or 
commercial process with 1 or more sales 
agreements executed before March 1, 
2007, that govern the facility’s useful ther-
mal energy sales and provide for sales at 
a price (whether a fixed price or price for-
mula) for useful thermal energy that does 
not allow for recovery of the costs of com-
pliance with the limitation on greenhouse 
gas emissions under this title, provided 
that such agreements are not between enti-
ties that are affiliates of one another. 
‘‘(6) MERCHANT COAL UNIT.—The term ‘mer-
chant coal unit’ means a coal-fueled unit that— 
‘‘(A) is or is part of a covered entity; 
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‘‘(B) is not owned by a Federal, State, or 
regional agency or power authority; and 
‘‘(C) generates electricity solely for sale to 
others, provided that all or a portion of such 
sales are made by a separate legal entity that— 
‘‘(i) has a full or partial ownership or 
leasehold interest in the unit, as certified 
in accordance with such requirements as 
the Administrator shall prescribe; and 
‘‘(ii) is not subject to retail rate regu-
lation or setting of retail rates by— 
‘‘(I) a State regulatory authority; 
‘‘(II) a State or political subdivi-
sion thereof (or an agency or instru-
mentality of, or corporation wholly 
owned by, either of the foregoing); 
‘‘(III) an electric cooperative; or 
‘‘(IV) an Indian tribe pursuant 
to tribal law. 
‘‘(7) MERCHANT COAL UNIT SALES.—The term 
‘merchant coal unit sales’ means sales to others of 
electricity generated by a merchant coal unit that 
are made by the owner or leaseholder described in 
paragraph (6)(C). 
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‘‘(8) NEW COAL-FUELED UNIT.—The term ‘new 
coal-fueled unit’ means a coal-fueled unit that com-
menced operation on or after January 1, 2009 and 
before September 30, 2012. 
‘‘(9) NEW MERCHANT COAL UNIT.—The term 
‘new merchant coal unit’ means a merchant coal 
unit— 
‘‘(A) that commenced operation on or after 
January 1, 2009 and before September 30, 
2012; and 
‘‘(B) the actual, on-site construction of 
which commenced prior to January 1, 2009. 
‘‘(10) QUALIFYING SMALL POWER PRODUCTION 
FACILITY; QUALIFYING COGENERATION FACILITY.— 
The terms ‘qualifying small power production facil-
ity’ and ‘qualifying cogeneration facility’ have the 
meanings given those terms in section 3(17)(C) and 
3(18)(B) of the Federal Power Act (16 U.S.C. 
796(17)(C) and 796(18)(B)). 
‘‘(11) SMALL
LDC.—The term ‘small LDC’ 
means, for any given year, an electricity local dis-
tribution company that delivered less than 4,000,000 
megawatt hours of electric energy directly to retail 
consumers in the preceding year. 
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‘‘(12) STATE
REGULATORY
AUTHORITY.—The 
term ‘State regulatory authority’ has the meaning 
given that term in section 3(17) of the Public Utility 
Regulatory Policies Act of 1978 (16 U.S.C. 
2602(17)). 
‘‘(13) USEFUL THERMAL ENERGY.—The term 
‘useful thermal energy’has the meaning given that 
term in section 371(7) of the Energy Policy and 
Conservation Act (42 U.S.C. 6341(7)). 
‘‘(b) ELECTRICITY LOCAL DISTRIBUTION COMPA-
NIES.— 
‘‘(1) DISTRIBUTION
OF
ALLOWANCES.—Not 
later than September 30 of 2011 and each calendar 
year thereafter through 2028, the Administrator 
shall distribute to electricity local distribution com-
panies for the benefit of retail ratepayers the quan-
tity of emission allowances allocated for the fol-
lowing vintage year pursuant to section 782(a)(1). 
Notwithstanding the preceding sentence, the Admin-
istrator shall withhold from distribution under this 
subsection a quantity of emission allowances equal to 
the lesser of 14.3 percent of the quantity of emission 
allowances allocated under section 782(a)(1) for the 
relevant vintage year, or 105 percent of the emission 
allowances for the relevant vintage year that the Ad-
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ministrator anticipates will be distributed to mer-
chant coal units and to long-term contract genera-
tors, respectively, under subsections (c) and (d). If 
not required by subsections (c) and (d) to distribute 
all of these reserved allowances, the Administrator 
shall distribute any remaining emission allowances 
to electricity local distribution companies in accord-
ance with this subsection. 
‘‘(2) DISTRIBUTION BASED ON EMISSIONS.— 
‘‘(A) IN GENERAL.—For each vintage year, 
50 percent of the emission allowances available 
for distribution under paragraph (1), after re-
serving allowances for distribution under sub-
sections (c) and (d), shall be distributed by the 
Administrator among individual electricity local 
distribution companies ratably based on the an-
nual average carbon dioxide emissions attrib-
utable to generation of electricity delivered at 
retail by each such company during the base 
period determined under subparagraph (B). 
‘‘(B) BASE PERIOD.— 
‘‘(i) VINTAGE YEARS 2012 AND 2013.— 
For vintage years 2012 and 2013, an elec-
tricity local distribution company’s base 
period shall be— 
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‘‘(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 
THEREAFTER.—For vintage years 2014 
and thereafter, the base period shall be— 
‘‘(I) the base period selected 
under clause (i); or 
‘‘(II) calendar year 2012, in the 
case of an electricity local distribution 
company that owns, co-owns, or pur-
chases through a power purchase 
agreement 
(whether 
directly 
or 
through a cooperative arrangement) a 
substantial portion of the electricity 
generated by a new coal-fueled unit, 
provided that such company timely in-
forms the Administrator of its election 
to use 2012 as its base period. 
‘‘(C) DETERMINATION OF EMISSIONS.— 
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‘‘(i) 
DETERMINATION
FOR
1999- 
2008.—As part of the regulations promul-
gated pursuant to subsection (f), the Ad-
ministrator, after consultation with the 
Energy Information Administration, shall 
determine the average amount of carbon 
dioxide emissions attributable to genera-
tion of electricity delivered at retail by 
each electricity local distribution company 
for each of the years 1999 through 2008, 
taking into account entities’ electricity gen-
eration, electricity purchases, and elec-
tricity sales. In the case of any electricity 
local distribution company that owns, co- 
owns, or purchases through a power pur-
chase agreement (whether directly or 
through a cooperative arrangement) a sub-
stantial portion of the electricity generated 
by, a coal-fueled unit that commenced op-
eration after January 1, 2006 and before 
December 31, 2008, the Administrator 
shall adjust the emissions attributable to 
such company’s retail deliveries in calendar 
years 2006 through 2008 to reflect the 
emissions that would have occurred if the 
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relevant unit were in operation during the 
entirety of such 3-year period. 
‘‘(ii) ADJUSTMENTS FOR NEW COAL- 
FUELED UNITS.— 
‘‘(I) VINTAGE
YEARS
2012
AND 
2013.—For purposes of emission al-
lowance distributions for vintage years 
2012 and 2013, in the case of any 
electricity local distribution company 
that owns, co-owns, or purchases 
through a power purchase agreement 
(whether directly or through a cooper-
ative arrangement) a substantial por-
tion of the electricity generated by, a 
new coal-fueled unit, the Adminis-
trator shall adjust the emissions at-
tributable to such company’s retail de-
liveries in the applicable base period 
to reflect the emissions that would 
have occurred if the new coal-fueled 
unit were in operation during such pe-
riod. 
‘‘(II) VINTAGE
YEAR
2014
AND 
THEREAFTER.—Not later than nec-
essary for use in making emission al-
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lowance distributions under this sub-
section for vintage year 2014, the Ad-
ministrator shall, for any electricity 
local distribution company that owns, 
co-owns, or purchases through a 
power purchase agreement (whether 
directly or through a cooperative ar-
rangement) a substantial portion of 
the electricity generated by a new 
coal-fueled unit and has selected cal-
endar year 2012 as its base period 
pursuant to subparagraph (B)(ii)(II), 
determine the amount of carbon diox-
ide emissions attributable to genera-
tion of electricity delivered at retail by 
such company in calendar year 2012. 
If the relevant new coal-fueled unit 
was not yet operational by January 1, 
2012, the Administrator shall adjust 
such determination to reflect the 
emissions that would have occurred if 
such unit were in operation for all of 
calendar year 2012. 
‘‘(iii) 
REQUIREMENTS.—Determina-
tions under this paragraph shall be as pre-
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cise as practicable, taking into account the 
nature of data currently available and the 
nature of markets and regulation in effect 
in various regions of the country. The fol-
lowing requirements shall apply to such de-
terminations: 
‘‘(I) The Administrator shall de-
termine the amount of fossil fuel- 
based electricity delivered at retail by 
each electricity local distribution com-
pany, and shall use appropriate emis-
sion factors to calculate carbon diox-
ide emissions associated with the gen-
eration of such electricity. 
‘‘(II) Where it is not practical to 
determine the precise fuel mix for the 
electricity delivered at retail by an in-
dividual electricity local distribution 
company, the Administrator may use 
the best available data, including aver-
age data on a regional basis with ref-
erence to Regional Transmission Or-
ganizations or regional entities (as 
that term is defined in section 
215(a)(7) of the Federal Power Act 
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(16 U.S.C. 824o(a)(7)), to estimate 
fuel mix and emissions. Different 
methodologies may be applied in dif-
ferent regions if appropriate to obtain 
the most accurate estimate. 
‘‘(3) DISTRIBUTION BASED ON DELIVERIES.— 
‘‘(A) INITIAL FORMULA.—Except as pro-
vided in subparagraph (B), for each vintage 
year, the Administrator shall distribute 50 per-
cent of the emission allowances available for 
distribution under paragraph (1), after reserv-
ing allowances for distribution under sub-
sections (c) and (d), among individual elec-
tricity local distribution companies ratably 
based on each electricity local distribution com-
pany’s annual average retail electricity deliv-
eries for calendar years 2006 through 2008, un-
less the owner or operator of the company se-
lects 3 other consecutive years between 1999 
and 2008, inclusive, and timely notifies the Ad-
ministrator of its selection. 
‘‘(B) UPDATING.—Prior to distributing 
2015 vintage year emission allowances under 
this paragraph and at 3-year intervals there-
after, the Administrator shall update the dis-
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tribution formula under this paragraph to re-
flect changes in each electricity local distribu-
tion company’s service territory since the most 
recent formula was established. For each suc-
cessive 3-year period, the Administrator shall 
distribute allowances 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 
‘‘(ii) the number of customers of such 
electricity local distribution company in the 
most recent year in which the formula is 
updated under this subparagraph. 
‘‘(4) PROHIBITION AGAINST EXCESS DISTRIBU-
TIONS.—The regulations promulgated under sub-
section (f) shall ensure that, notwithstanding para-
graphs (2) and (3), no electricity local distribution 
company shall receive a greater quantity of allow-
ances under this subsection than is necessary to off-
set any increased electricity costs to such company’s 
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retail ratepayers, including increased costs attrib-
utable to purchased power costs, due to enactment 
of this title. Any emission allowances withheld from 
distribution to an electricity local distribution com-
pany pursuant to this paragraph shall be distributed 
among all remaining electricity local distribution 
companies ratably based on emissions pursuant to 
paragraph (2). 
‘‘(5) 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 
emission allowances distributed under this sub-
section for the benefit of ratepayers, an elec-
tricity local distribution company shall ensure 
that ratepayer benefits are distributed— 
‘‘(i) among ratepayer classes ratably 
based on electricity deliveries to each class; 
and 
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‘‘(ii) equitably among individual rate-
payers within each ratepayer class, includ-
ing entities that receive emission allow-
ances pursuant to part F. 
‘‘(C) LIMITATION.—In general, an elec-
tricity local distribution company shall not use 
the value of emission allowances distributed 
under this subsection to provide to any rate-
payer a rebate that is based solely on the quan-
tity of electricity delivered to such ratepayer. 
To the extent an electricity local distribution 
company uses the value of emission allowances 
distributed under this subsection to provide re-
bates, it shall, to the maximum extent prac-
ticable, provide such rebates with regard to the 
fixed portion of ratepayers’ bills or as a fixed 
credit or rebate on electricity bills. 
‘‘(D) INDUSTRIAL RATEPAYERS.—Notwith-
standing subparagraph (C), if compliance with 
the requirements of this title results (or would 
otherwise result) in an increase in electricity 
costs for industrial retail ratepayers of any 
given electricity local distribution company (in-
cluding entities that receive emission allowances 
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pursuant to part F), such electricity local dis-
tribution company— 
‘‘(i) shall pass through to industrial 
retail ratepayers their ratable share (based 
on deliveries to each ratepayer class) of the 
value of the emission allowances distrib-
uted to such company under this sub-
section, to reduce electricity cost impacts 
on such ratepayers; and 
‘‘(ii) may do so based on the quantity 
of electricity delivered to individual indus-
trial retail ratepayers. 
‘‘(E) GUIDELINES.—As part of the regula-
tions promulgated under subsection (f), the Ad-
ministrator shall, after consultation with State 
regulatory authorities, prescribe guidelines for 
the implementation of the requirements of this 
paragraph. Such guidelines shall include re-
quirements to ensure that industrial retail rate-
payers (including entities that receive emission 
allowances under part F) receive their ratable 
share of the value of the allowances distributed 
to each electricity local distribution company 
pursuant to this subsection. 
‘‘(6) REGULATORY PROCEEDINGS.— 
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‘‘(A) REQUIREMENT.—No electricity local 
distribution company shall be eligible to receive 
emission allowances under this subsection or 
subsection (e) unless the State regulatory au-
thority with authority over such company’s re-
tail rates, or the entity with authority to regu-
late or set retail electricity rates of an elec-
tricity local distribution company not regulated 
by a State regulatory authority, has— 
‘‘(i) after public notice and an oppor-
tunity for comment, promulgated a regula-
tion or completed a rate proceeding (or the 
equivalent, in the case of a ratemaking en-
tity other than a State regulatory author-
ity) that provides for the full implementa-
tion of the requirements of paragraph (5) 
of this subsection and the requirements of 
subsection (e); 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 (5) and the 
requirements of subsection (e) will be im-
plemented. 
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‘‘(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 , after public notice and 
an opportunity for comment, and a new report 
be made available to the Administrator and the 
public, pursuant to subparagraph (A), not less 
frequently than every 5 years. 
‘‘(7) PLANS AND REPORTING.— 
‘‘(A) REGULATIONS.—As part of the regu-
lations promulgated under subsection (f), the 
Administrator 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 com-
pany shall submit to the Administrator a plan, 
approved by the State regulatory authority or 
other entity charged with regulating tor setting 
the retail rates of such company, describing 
such company’s plans for the disposition of the 
value of emission allowances to be received pur-
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suant to this subsection and subsection (e), in 
accordance with the requirements of this sub-
section and subsection (e). Such plan shall in-
clude a description of the manner in which the 
company will provide to industrial retail rate-
payers (including entities that receive emission 
allowances under part F) their ratable share of 
the value of such allowances. 
‘‘(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 Adminis-
trator, and to the relevant State regulatory au-
thority or other entity charged with regulating 
or setting the retail electricity 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 and subsection (e), including— 
‘‘(i) a description of sales, transfer, 
exchange, or use by the company for com-
pliance with obligations under this title, of 
any such emission allowances; 
‘‘(ii) the monetary value received by 
the company, whether in money or in some 
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other form, from the sale, transfer, or ex-
change of any such emission allowances; 
‘‘(iii) the manner in which the com-
pany’s disposition of any such emission al-
lowances complies with the requirements of 
this subsection and of subsection (e), in-
cluding each of the requirements of para-
graph (5) of this subsection, including the 
requirement that industrial retail rate-
payers (including entities that receive 
emission allowances under part F) receive 
their ratable share of the value of such al-
lowances; and 
‘‘(iv) such other information as the 
Administrator may require pursuant to 
subparagraph (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. 
‘‘(8) AUDITS.—Each year, the Administrator 
shall audit a representative sample of electricity local 
distribution companies to ensure that emission al-
lowances distributed under this subsection have been 
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used exclusively for the benefit of retail ratepayers 
and that such companies are complying with the re-
quirements of this subsection and of subsection (e), 
including the requirement that industrial retail rate-
payers (including entities that receive emission al-
lowances under part F) receive their ratable share of 
the value of such allowances. In selecting companies 
for audit, the Administrator shall take into account 
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. 
‘‘(9) ENFORCEMENT.—A violation of any re-
quirement of this subsection or of subsection (e) 
shall be a violation of this Act. Each emission allow-
ance the value of which is used in violation of the 
requirements of this subsection or of subsection (e) 
shall be a separate violation. 
‘‘(c) MERCHANT COAL UNITS.— 
‘‘(1) QUALIFYING EMISSIONS.—The qualifying 
emissions for a merchant coal unit for a given cal-
endar year shall be the product of the number of 
megawatt hours of merchant coal unit sales gen-
erated by such unit in such calendar year and the 
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average carbon dioxide emissions per megawatt hour 
generated by such unit during the base period under 
paragraph (2), provided that the number of mega-
watt hours in a given calendar year for purposes of 
such calculation shall be reduced in proportion to 
the portion of such unit’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 biomass, to the extent that the 
owner or operator of the unit is not required to 
hold emission allowances for such emissions. 
‘‘(2) BASE PERIOD.—For purposes of this sub-
section, the base period for a merchant coal unit 
shall be— 
‘‘(A) calendar years 2006 through 2008; or 
‘‘(B) in the case of a new merchant coal 
unit— 
‘‘(i) the first full calendar year of op-
eration of such unit, provided that such 
year shall not be any year after calendar 
year 2012; or 
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‘‘(ii) calendar year 2012, if such unit 
commences operation on or after January 
1, 2012. 
‘‘(3) PHASE-DOWN SCHEDULE.—The Adminis-
trator shall identify an annual phase-down factor, 
applicable to distributions to merchant coal units for 
each of vintage years 2012 through 2029, that cor-
responds to the overall decline in the amount of 
emission allowances allocated to the electricity sector 
in such years pursuant to section 782(a)(1). 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 under section 782(a)(1) for 
such vintage year; divided by 
‘‘(ii) the quantity of emission allow-
ances allocated under section 782(a)(1) for 
vintage year 2012. 
‘‘(4) 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-
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tage year to the owner or operator of each merchant 
coal unit described in subsection (a)(6)(C) in an 
amount equal to the product of— 
‘‘(A) 0.5; 
‘‘(B) the qualifying emissions for such 
merchant coal unit for the preceding year, as 
determined under paragraph (1); and 
‘‘(C) the phase-down factor for the pre-
ceding calendar year, as identified under para-
graph (3). 
‘‘(5) ADJUSTMENT.— 
‘‘(A) STUDY.—Not later than July 1, 
2014, the Administrator, in consultation with 
the Federal Energy Regulatory Commission, 
shall complete a study to determine whether the 
allocation formula under paragraph (3) is re-
sulting in, or is likely to result in, windfall prof-
its to merchant coal generators or substantially 
disparate treatment of merchant coal genera-
tors operating in different markets or regions. 
‘‘(B) REGULATION.—If the Administrator, 
in consultation with the Federal Energy Regu-
latory Commission, makes an affirmative find-
ing of windfall profits or disparate treatment 
under subparagraph (A), the Administrator 
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shall, not later than 18 months after the com-
pletion of the study described in subparagraph 
(A), promulgate regulations providing for the 
adjustment of the allocation formula under 
paragraph (3) to mitigate, to the extent prac-
ticable, such windfall profits, if any, and such 
disparate treatment, if any. 
‘‘(6) LIMITATION ON ALLOWANCES.—Notwith-
standing paragraph (4) or (5), for each vintage year 
the Administrator shall distribute under this sub-
section no more than 10 percent of the total quan-
tity of emission allowances available for such vintage 
year for distribution to the electricity sector under 
section 782(a)(1). If the quantity of emission allow-
ances that would otherwise be distributed pursuant 
to paragraph (4) or (5) for any vintage year would 
exceed such limit, the Administrator shall distribute 
10 percent of the total emission allowances available 
for distribution under section 782(a)(1) for such vin-
tage year ratably among merchant coal generators 
based on the applicable formula under paragraph (4) 
or (5). 
‘‘(7) ELIGIBILITY.—The owner or operator of a 
merchant coal unit shall not be eligible to receive 
emission allowances under this subsection for any 
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vintage year for which such owner or operator has 
elected to receive emission allowances for the same 
unit under subsection (d). 
‘‘(d) LONG-TERM CONTRACT GENERATORS.— 
‘‘(1) DISTRIBUTION.—Not later than March 1 
of 2013 and each calendar year through 2030, the 
Administrator shall distribute to the owner or oper-
ator of each long-term contract generator a quantity 
of emission allowances of the preceding vintage year 
that is equal to the sum of— 
‘‘(A) the number of tons of carbon dioxide 
emitted as a result of a qualifying electricity 
sales agreement referred to in subsection 
(a)(5)(B)(i); and 
‘‘(B) the incremental number of tons of 
carbon dioxide emitted solely as a result of a 
qualifying thermal sales agreement referred to 
in subsection (a)(5)(B)(ii), provided that in no 
event shall the Administrator distribute more 
than 1 emission allowance for the same ton of 
emissions. 
‘‘(2) LIMITATION ON ALLOWANCES.— Notwith-
standing paragraph (1), for each vintage year the 
Administrator shall distribute under this subsection 
no more than 4.3 percent of the total quantity of 
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emission allowances available for such vintage year 
for distribution to the electricity sector under section 
782(a)(1). If the quantity of emission allowances 
that would otherwise be distributed pursuant to 
paragraph (1) for any vintage year would exceed 
such limit, the Administrator shall distribute 4.3 
percent of the total emission allowances available for 
distribution under section 782(a)(1) for such vintage 
year ratably among long-term contract generators 
based on paragraph (1). 
‘‘(3) ELIGIBILITY.— 
‘‘(A) FACILITY
ELIGIBILITY.—The owner 
or operator of a facility shall cease to be eligible 
to receive emission allowances under this sub-
section upon the earliest date on which the fa-
cility no longer meets each and every element of 
the definition of a long-term contract generator 
under subsection (a)(5). 
‘‘(B) CONTRACT ELIGIBILITY.—The owner 
or operator of a facility shall cease to be eligible 
to receive emission allowances under this sub-
section based on an electricity or thermal sales 
agreement referred to in subsection (a)(5)(B) 
upon the earliest date that such agreement— 
‘‘(i) expires; 
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‘‘(ii) is terminated; or 
‘‘(iii) is amended in any way that 
changes the location of the facility, the 
price (whether a fixed price or price for-
mula) for electricity or thermal energy sold 
under such agreement, the quantity of 
electricity or thermal energy sold under the 
agreement, or the expiration or termi-
nation date of the agreement. 
‘‘(4) DEMONSTRATION OF ELIGIBILITY.—To be 
eligible to receive allowance distributions under this 
subsection, the owner or operator of a long-term 
contract generator shall submit each of the following 
in writing to the Administrator within 180 days 
after the date of enactment of this title, and not 
later than September 30 of each vintage year for 
which such generator wishes to receive emission al-
lowances: 
‘‘(A) A certificate of representation de-
scribed in section 700(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. 
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‘‘(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 each quali-
fying electricity or thermal sales agreement re-
ferred to in subsection (a)(5)(B). 
‘‘(F) A copy of each qualifying electricity 
or thermal sales agreement referred to in sub-
section (a)(5)(B). 
‘‘(5) NOTIFICATION.—Not later than 30 days 
after, in accordance with paragraph (3), a facility or 
an agreement ceases to meet the eligibility require-
ments for distribution of emission allowances pursu-
ant to this subsection, the designated representative 
of such facility shall notify the Administrator in 
writing when, and on what basis, such facility or 
agreement ceased to meet such requirements. 
‘‘(e) SMALL LDCS.— 
‘‘(1) DISTRIBUTION.—Not later than Sep-
tember 30 of each calendar year from 2011 through 
2028, the Administrator shall, in accordance with 
this subsection, distribute emission allowances allo-
cated pursuant to section 782(a)(2) for the following 
vintage year. Such allowances shall be distributed 
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ratably among small LDCs based on historic emis-
sions in accordance with the same measure of such 
emissions applied to each such small LDC for the 
relevant vintage year under subsection (b)(2) of this 
section. 
‘‘(2) USES.—A small LDC receiving allowances 
under this section shall use such allowances exclu-
sively for the following purposes: 
‘‘(A) Cost-effective programs to achieve 
electricity savings, provided that such savings 
shall not be transferred or used for compliance 
with section 610 of the Public Utility Regu-
latory Policies Act of 1978. 
‘‘(B) Deployment of technologies to gen-
erate electricity from renewable energy re-
sources, provided that any Federal renewable 
electricity credits issued based on generation 
supported under this section shall be submitted 
to the Federal Energy Regulatory Commission 
for voluntary retirement and shall not be used 
for compliance with section 610 of the Public 
Utility Regulatory Policies Act of 1978. 
‘‘(C) Assistance programs to reduce elec-
tricity costs for low-income residential rate-
payers of such small LDC, provided that such 
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assistance is made available equitably to all res-
idential ratepayers below a certain income level, 
which shall not be higher than 200 percent of 
the poverty line (as that term is defined in sec-
tion 673(2) of the Community Services Block 
Grant Act (42 U.S.C. 9902(2)). 
‘‘(3) REQUIREMENTS.—As part of the regula-
tions promulgated under subsection (f), the Adminis-
trator shall prescribe— 
‘‘(A) after consultation with the Federal 
Energy Regulatory Commission, requirements 
to ensure that programs and projects under 
paragraph (2)(A) and (B) are consistent with 
the standards established by, and effectively 
supplement electricity savings and generation of 
electricity from renewable energy resources 
achieved by, the Combined Efficiency and Re-
newable Electricity Standard established under 
section 610 of the Public Utility Regulatory 
Policies Act of 1978; 
‘‘(B) eligibility criteria and guidelines for 
consumer assistance programs for low-income 
residential ratepayers under paragraph (2)(C); 
and 
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‘‘(C) such other requirements as the Ad-
ministrator determines appropriate to ensure 
compliance with the requirements of this sub-
section. 
‘‘(4) REPORTING.—Reports submitted under 
subsection (b)(7) shall include, in accordance with 
such requirements as the Administrator may pre-
scribe— 
‘‘(A) a description of any facilities de-
ployed under paragraph (2)(A), the quantity of 
resulting electricity generation from renewable 
energy resources; 
‘‘(B) an assessment demonstrating the 
cost-effectiveness of, and electricity savings 
achieved by, programs supported under para-
graph (2)(B); and 
‘‘(C) a description of assistance provided to 
low-income retail ratepayers under paragraph 
(2)(C). 
‘‘(f) REGULATIONS.—Not later than 2 years after the 
date of enactment of this title, the Administrator, in con-
sultation with the Federal Energy Regulatory Commis-
sion, shall promulgate regulations to implement the re-
quirements of this section. 
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‘‘SEC. 784. NATURAL GAS CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) COST-EFFECTIVE.—The term ‘cost-effec-
tive’, with respect to an energy efficiency program, 
means that the program meets the Total Resource 
Cost Test, which requires that the net present value 
of economic benefits over the life of the program, in-
cluding avoided supply and delivery costs and de-
ferred or avoided investments, is greater than the 
net present value of the economic costs over the life 
of the program, including program costs and incre-
mental costs borne by the energy consumer. 
‘‘(2) NATURAL GAS LOCAL DISTRIBUTION COM-
PANY.—The term ‘natural gas local distribution 
company’ means a natural gas local distribution 
company that is a covered entity. 
‘‘(3) NON-COVERED ENTITY.—The term ‘non- 
covered entity’ means, when used in reference to a 
date or period prior to the enactment of this title, 
an entity that would not have been a covered entity 
if this title had been in effect during such date or 
period. 
‘‘(4) STATE
REGULATORY
AUTHORITY.—The 
term ‘State regulatory authority’ has the meaning 
given the term ‘State commission’ in section 2(8) of 
the Natural Gas Act (15 U.S.C. 717a(8)). 
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‘‘(b) DISTRIBUTION.—Not later than June 30 of 
2015 and each calendar year thereafter through 2028, the 
Administrator shall distribute to natural gas local dis-
tribution 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 to cus-
tomers that were non-covered entities, unless the 
owner or operator of the company selects 3 other 
consecutive years between 1999 and 2008, inclusive, 
and timely notifies the Administrator of its selection. 
‘‘(2) UPDATING.—Prior to distributing 2019 
vintage year emission allowances and at 3-year inter-
vals thereafter, the Administrator shall update the 
distribution formula under this subsection to reflect 
changes in each natural gas local distribution com-
pany’s service territory since the most recent for-
mula was established. For each successive 3-year pe-
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riod, the Administrator shall distribute allowances 
ratably among natural gas local distribution compa-
nies based on the product of— 
‘‘(A) each natural gas local distribution 
company’s average annual natural gas deliveries 
per customer to customers that were non-cov-
ered entities 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 that are not 
covered entities in the most recent year in 
which the formula is updated under this para-
graph. 
‘‘(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 other than covered 
entities 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 
distributed— 
‘‘(A) among ratepayer classes ratably 
based on natural gas deliveries to each class, 
excluding deliveries to covered entities; and 
‘‘(B) equitably among individual ratepayers 
other than covered entities within each rate-
payer class. 
‘‘(3) LIMITATION.—In general, a natural gas 
local distribution company shall not use the value of 
emission allowances 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 distribu-
tion company 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 rate-
payers’ bills or as a fixed creditor rebate on natural 
gas bills. 
‘‘(4) 
INDUSTRIAL
RATEPAYERS.—Notwith-
standing paragraph (3), if compliance with the re-
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quirements of this title results (or would otherwise 
result) in an increase in natural gas costs for indus-
trial retail ratepayers of any given natural gas local 
distribution company that are not covered entities 
(including entities that receive emission allowances 
pursuant to part F), such natural gas local distribu-
tion company— 
‘‘(A) shall pass through to industrial retail 
ratepayers that are not covered entities their 
ratable share (based on deliveries to each rate-
payer class) of the value of the emission allow-
ances distributed to such company under this 
subsection, to reduce natural gas cost impacts 
on such ratepayers; and 
‘‘(B) may do so based on the quantity of 
natural gas delivered to individual industrial re-
tail ratepayers. 
‘‘(5) ENERGY
EFFICIENCY
PROGRAMS.—The 
value of no less than one third of the emission allow-
ances distributed to natural gas local distribution 
companies pursuant to this section in any calendar 
year shall be used for cost-effective energy efficiency 
programs for natural gas consumers. Such programs 
must be authorized and overseen by the State regu-
latory authority, or by the entity with authority to 
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regulate or set retail natural gas rates in the case 
of a natural gas local distribution company that is 
not regulated by a State regulatory authority. 
‘‘(6) CERTAIN INTRACOMPANY DELIVERIES.—If 
a natural gas local distribution company makes an 
intracompany delivery of natural gas to a customer 
that is not a covered entity, for which such company 
is required to hold emission allowances under section 
722, such customer shall, for purposes of this sec-
tion, be considered a retail ratepayer and a member 
of a ratepayer class to be determined by the relevant 
State regulatory authority, or other entity with au-
thority to regulate or set natural gas rates in the 
case of a company not regulated by a State regu-
latory authority. 
‘‘(7) GUIDELINES.—As part of the regulations 
promulgated under subsection (h), the Administrator 
shall, after consultation with State regulatory au-
thorities, prescribe guidelines for the implementation 
of the requirements of this subsection. Such guide-
lines shall include requirements to ensure that in-
dustrial retail ratepayers that are not covered enti-
ties (including entities that receive emission allow-
ances under part F) receive their ratable share of 
the value of the allowances distributed to each nat-
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ural gas local distribution company pursuant to this 
section. 
‘‘(d) REGULATORY PROCEEDINGS.— 
‘‘(1) REQUIREMENT.—No natural gas local dis-
tribution company shall be eligible to receive emis-
sion allowances under this section unless the State 
regulatory authority with authority over the retail 
rates of such company, or the entity with authority 
to regulate or set retail rates of a natural gas local 
distribution company not regulated by a State regu-
latory authority, has— 
‘‘(A) after public notice and an opportunity 
for comment, promulgated a regulation or com-
pleted a public rate proceeding (or the equiva-
lent, in the case of a ratemaking entity other 
than a State regulatory authority) that provides 
for the full implementation of the requirements 
of subsection (c); and 
‘‘(B) made available to the Administrator 
and the public a report describing, in adequate 
detail, the manner in which the requirements of 
subsection (c) will be implemented. 
‘‘(2) UPDATING.—The Administrator shall re-
quire, as a condition of continued receipt of emission 
allowances under this section, that a new regulation 
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be promulgated or rate proceeding be completed, 
after public notice and an opportunity for comment, 
and a new report be made available to the Adminis-
trator 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 
natural gas local distribution company shall submit 
to the Administrator a plan, approved by the State 
regulatory authority or other entity charged with 
regulating or setting the retail rates of such com-
pany, describing such company’s plans for the dis-
position of the value of emission allowances to be re-
ceived pursuant to this 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 
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‘‘(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 compa-
nies 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 select-
ing companies for audit, the Administrator shall take into 
account any credible evidence of noncompliance with such 
requirements. The Administrator shall make available to 
the public a report describing the results of each such 
audit, including by publishing such report on the Internet. 
‘‘(g) ENFORCEMENT.—A violation of any require-
ment of this section shall be a violation of this Act. Each 
emission allowance the value of which is used in violation 
of the requirements of this section shall be a separate vio-
lation. 
‘‘(h) REGULATIONS.—Not later than January 1, 
2014, the Administrator, in consultation with the Federal 
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Energy Regulatory Commission, shall promulgate regula-
tions to implement the requirements of this section. 
‘‘SEC. 785. HOME HEATING OIL, PROPANE, AND KEROSENE 
CONSUMERS. 
‘‘(a) DEFINITIONS.—For purposes of this section: 
‘‘(1) CARBON
CONTENT.—The term ‘carbon 
content’ 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-effec-
tive’ has the meaning given that term in section 
784(a)(1). 
‘‘(3) OILHEAT FUEL.—The term ‘oilheat fuel’ 
means fuel that— 
‘‘(A) is— 
‘‘(i) No. 1 distillate; 
‘‘(ii) No. 2 dyed distillate; 
‘‘(iii) a liquid blended with No. 1 dis-
tillate or No. 2 dyed distillate; or 
‘‘(iv) a biobased liquid; and 
‘‘(B) is used as a fuel for nonindustrial 
commercial or residential space or hot water 
heating. 
‘‘(b) DISTRIBUTION AMONG STATES.—Not later than 
September 30 of each of calendar years 2011 through 
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2028, the Administrator shall distribute among the States, 
in accordance with this section, the quantity of emission 
allowances allocated for the following vintage year pursu-
ant to section 782(c). The Administrator shall distribute 
emission allowances among the States under this section 
each year ratably based on the ratio of— 
‘‘(1) the carbon content of oilheat fuel, propane, 
and kerosene sold to consumers within each State in 
the preceding year for residential or commercial 
uses; to 
‘‘(2) the carbon content of oilheat fuel, propane, 
and kerosene sold to consumers within the United 
States in the preceding year for residential or com-
mercial uses. 
‘‘(c) USE OF ALLOWANCES.— 
‘‘(1) IN GENERAL.—States shall use emission 
allowances distributed under this section exclusively 
for the benefit of consumers of oilheat fuel, propane, 
or kerosene for residential or commercial purposes. 
Such proceeds shall be used exclusively for— 
‘‘(A) cost-effective energy efficiency pro-
grams for consumers that use oilheat fuel, pro-
pane, or kerosene for residential or commercial 
purposes; or 
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‘‘(B) rebates or other direct financial as-
sistance programs for consumers of oilheat fuel, 
propane, or kerosene 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 
section for cost-effective energy efficiency pro-
grams to reduce consumers’ overall fuel costs; 
‘‘(B) to the extent practicable, deliver con-
sumer support under this section through exist-
ing energy efficiency and consumer energy as-
sistance programs or delivery mechanisms, in-
cluding, where appropriate, programs or mecha-
nisms administered by parties other than the 
State; and 
‘‘(C) seek to coordinate the administration 
and delivery of energy efficiency and consumer 
energy assistance programs supported under 
this section, with one another and with existing 
programs for various fuel types, so as to deliver 
comprehensive, fuel-blind, coordinated programs 
to consumers. 
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‘‘(d) REPORTING.—Each State receiving emission al-
lowances under this section shall submit to the Adminis-
trator, within 12 months of each receipt of such allow-
ances, a report, in accordance with such requirements as 
the Administrator may prescribe, that— 
‘‘(1) describes the State’s use of emission allow-
ances distributed under this section, including a de-
scription of the energy efficiency and consumer as-
sistance programs supported with such allowances; 
‘‘(2) demonstrates the cost-effectiveness of, and 
the energy savings and greenhouse gas emissions re-
ductions achieved by, energy efficiency programs 
supported under this section; and 
‘‘(3) includes a report prepared by an inde-
pendent third party, in accordance with such regula-
tions as the Administrator may promulgate, evalu-
ating the performance of the energy efficiency and 
consumer assistance programs supported under this 
section. 
‘‘(e) ENFORCEMENT.—If the Administrator deter-
mines that a State is not in compliance with this section, 
the Administrator may withhold a portion of the emission 
allowances, 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 
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such State would otherwise be eligible to receive under this 
section in later years. Allowances withheld pursuant to 
this subsection shall be distributed among the remaining 
States ratably in accordance with the formula in sub-
section (b). 
‘‘SEC. 787. ALLOCATIONS TO REFINERIES. 
‘‘(a) PURPOSE.—The purpose of this section is to 
provide emission allowance rebates to petroleum refineries 
in the United States in a manner that promotes energy 
efficiency and a reduction in greenhouse gas emissions at 
such facilities. 
‘‘(b) DEFINITIONS.—In this section: 
‘‘(1) EMISSIONS.—The term ‘emissions’ in-
cludes direct emissions from fuel combustion, proc-
ess emissions, and indirect emissions from the gen-
eration of electricity, steam, and hydrogen used to 
produce the output of a petroleum refinery or the 
petroleum refinery sector. 
‘‘(2) PETROLEUM REFINERY.—The term ‘petro-
leum refinery’ means a facility classified under code 
324110 of the North American Industrial Classifica-
tion System of 2002. 
‘‘(3) SMALL
BUSINESS
REFINER.—The term 
‘small business refiner’ means a refiner that meets 
the applicable Federal refinery capacity and em-
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ployee limitations criteria described in section 
45H(c)(1) of the Internal Revenue Code of 1986 (as 
in effect on the date of enactment of this section and 
without regard to section 45H(d)). Eligibility of a 
small business refiner under this paragraph shall not 
be recalculated or disallowed on account of (i) its 
merger with another small business refiner or refin-
ers after December 31, 2002 or (ii) its acquisition 
of another small business refiner (or refinery of such 
refiner) after December 31, 2002. 
‘‘(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, including small business refiners, in 
the United States. 
‘‘(d) DISTRIBUTION SCHEDULE.—The Administrator 
shall distribute emission allowances pursuant to the regu-
lations issued under subsection (e) for each vintage year 
no later than October 31 of the preceding calendar year. 
‘‘(e) REGULATIONS.—Not later than 3 years after the 
date of enactment of this title, the Administrator, in con-
sultation with the Administrator of the Energy Informa-
tion Administration, shall promulgate regulations that es-
tablish a formula for distributing emission allowances con-
sistent with the purpose of this section. In establishing 
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such formula, the Administrator shall consider the relative 
complexity of refinery processes and appropriate mecha-
nisms to take energy efficiency and greenhouse gas reduc-
tions into account. If a petroleum refinery’s electricity pro-
vider received a free allocation of emission allowances pur-
suant to section 782(a), the Administrator shall take this 
free allocation into account when establishing such for-
mula to avoid rebates to a petroleum refinery for costs 
that the Administrator determines were not incurred by 
the petroleum refinery because the allowances were freely 
allocated to the petroleum refinery’s electricity provider 
and used for the benefit of the petroleum refinery. This 
formula shall apply separately to the distribution of allow-
ances allocated pursuant to section 782(j)(1) and to those 
allocated under section 782(j)(2). 
‘‘SEC. 788. øSECTION RESERVED¿. 
‘‘SEC. 789. CLIMATE CHANGE CONSUMER REFUNDS. 
‘‘(a) REFUND.—In each year after deposits are made 
to the Climate Change Consumer Refund Account, the 
Secretary of the Treasury shall provide tax refunds on a 
per capita basis to each household in the United States 
that shall collectively equal the amount deposited into the 
Climate Change Consumer Refund Account. 
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‘‘(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 distrib-
uting 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 exchange greenhouse gas emission allowances issued be-
fore December 31, 2011, by the State of California or for 
the Regional Greenhouse Gas Initiative, or the Western 
Climate Initiative (in this section referred to as ‘State al-
lowances’) for emission allowances established by the Ad-
ministrator under section 721(a). 
‘‘(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 
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amount that is sufficient to compensate for the cost 
of obtaining and holding such State allowances; 
‘‘(2) establish a deadline by which persons must 
exchange the State allowances; and 
‘‘(3) provide that the Federal emission allow-
ances disbursed pursuant to this section shall be de-
ducted from the allowances to be auctioned pursuant 
to section 782(d). 
‘‘(c) COST OF OBTAINING STATE ALLOWANCE.—For 
purposes of this section, the cost of obtaining a State al-
lowance shall be the average auction price, for emission 
allowances issued in the year in which the State allowance 
was issued, under the program under which the State al-
lowance was issued. 
‘‘SEC. 791. AUCTION PROCEDURES. 
‘‘(a) IN GENERAL.—To the extent that auctions of 
emission allowances by the Administrator are authorized 
by this part, such auctions shall be carried out pursuant 
to this section and the regulations established hereunder. 
‘‘(b) INITIAL REGULATIONS.—Not later than 12 
months after the date of enactment of this title, the Ad-
ministrator, in consultation with other agencies, as appro-
priate, shall promulgate regulations governing the auction 
of allowances under this section. Such regulations shall in-
clude the following requirements: 
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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 sen-
tence shall not apply to auctions held before 2012, 
during which period, by necessity, the Administrator 
shall auction only allowances with a vintage year 
that is later than the year in which the auction is 
held. Beginning with the first auction and at each 
quarterly auction held thereafter, the Administrator 
may offer for sale allowances with vintage years of 
up to four years after the year in which the auction 
is being conducted, 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 
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the Administrator may establish financial assurance 
requirements to ensure that auction participants can 
and will perform on their bids. 
‘‘(5) DISCLOSURE
OF
BENEFICIAL
OWNER-
SHIP.—Each bidder in the auction shall be required 
to disclose the person or entity sponsoring or bene-
fitting from the bidder’s participation in the auction 
if such person or entity is, in whole or in part, other 
than the bidder. 
‘‘(6) PURCHASE LIMITS.—No person may, di-
rectly or in concert with another participant, pur-
chase more than 5 percent of the allowances offered 
for sale at any quarterly auction. 
‘‘(7) PUBLICATION
OF
INFORMATION.—After 
the auction, the Administrator shall, in a timely 
fashion, publish the identities of winning bidders, 
the quantity of allowances obtained by each winning 
bidder, and the auction clearing price. 
‘‘(8) OTHER
REQUIREMENTS.—The Adminis-
trator may include in the regulations such other re-
quirements or provisions as the Administrator, in 
consultation with other agencies, as appropriate, 
considers appropriate to promote effective, efficient, 
transparent, and fair administration of auctions 
under this section. 
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‘‘(c) REVISION
OF REGULATIONS.—The Adminis-
trator may, in consultation with other agencies, as appro-
priate, at any time, revise the initial regulations promul-
gated under subsection (b) by promulgating new regula-
tions. Such revised regulations need not meet the require-
ments identified in subsection (b) if the Administrator de-
termines that an alternative auction design would be more 
effective, taking into account factors including costs of ad-
ministration, transparency, fairness, and risks of collusion 
or manipulation. In determining whether and how to re-
vise the initial regulations under this subsection, the Ad-
ministrator 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 minimum reserve auction price for the previous year 
increased by 5 percent plus the rate of inflation (as meas-
ured by the Consumer Price Index for all urban con-
sumers). 
‘‘(e) DELEGATION OR CONTRACT.—Pursuant to reg-
ulations under this section, the Administrator may by del-
egation or contract provide for the conduct of auctions 
under the Administrator’s supervision by other depart-
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ments or agencies of the Federal Government or by non-
governmental agencies, groups, or organizations. 
‘‘(f) SMALL BUSINESS REFINER RESERVE.—The Ad-
ministrator shall, in accordance with this subsection, issue 
regulations setting aside a specified number of allowances 
that small business refiners may purchase at the average 
auction price and may use to demonstrate compliance pur-
suant to section 722. These regulations shall provide the 
following: 
‘‘(1) AMOUNT.—The Administrator shall place 
in the small business refiner reserve account allow-
ances that are to be sold at auction pursuant to the 
allocations in section 782 in an amount equal to— 
‘‘(A) 6.2 percent of the emission allow-
ances established under section 721(a) for each 
vintage year from 2012 through 2013; 
‘‘(B) 5.4 percent of the emission allow-
ances established under section 721(a) for each 
vintage year from 2014 through 2015; and 
‘‘(C) 4.9 percent of the emission allow-
ances established under section 721(a) for each 
vintage year from 2016 through 2024. 
‘‘(2) ALLOWED PURCHASES.—From January 1 
of the calendar year that matches the vintage year 
for which allowances have been placed in the reserve, 
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781 
through January 14 of the following year, small 
business refiners (as defined in section 787(b)) may 
purchase allowances from this reserve at the price 
determined pursuant to paragraph (3). 
‘‘(3) PRICE.—The price for allowances pur-
chased from this reserve shall be the average auction 
price for allowances of the same vintage year pur-
chased at auctions conducted pursuant to this sec-
tion during the 12 months preceding the purchase of 
the allowances. 
‘‘(4) USE OF ALLOWANCES.—Allowances pur-
chased from this reserve shall only be used by the 
purchaser to demonstrate compliance pursuant to 
section 722 for attributable greenhouse gas emis-
sions in the calendar year that matches the vintage 
year of the purchased allowance. Allowances pur-
chased from this reserve may not be banked, traded 
or borrowed. 
‘‘(5) LIMITATIONS
ON
PURCHASE
AMOUNT.— 
The Administrator, by regulation adopted after pub-
lic notice and an opportunity for comment, shall es-
tablish procedures to distribute the ability to pur-
chase allowances from the reserve fairly among all 
small business refiners interested in purchasing al-
lowances from this reserve so as to address the po-
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tential that requests to purchase allowances exceed 
the number of allowances available in the reserve. 
This regulation may place limits on the number of 
allowances a small business refiner may purchase 
from the reserve. 
‘‘(6) UNSOLD ALLOWANCES.—Vintage year al-
lowances not sold from the reserve on or before Jan-
uary 15 of the calendar year following the vintage 
year shall be sold at an auction conducted pursuant 
to this section no later than March 31 of the cal-
endar year following the vintage year. If significantly 
more allowances are being placed in the reserve than 
are being purchased from the reserve several years 
in a row, the Administrator may adjust either the 
percent of allowances placed in the reserve or the 
date by which allowances may be purchased from the 
reserve. 
‘‘SEC. 792. AUCTIONING ALLOWANCES FOR OTHER ENTI-
TIES. 
‘‘(a) CONSIGNMENT.—Any entity holding emission al-
lowances or compensatory allowances may request that the 
Administrator auction, pursuant to section 791, the allow-
ances on consignment. 
‘‘(b) PRICING.—When the Administrator acts under 
this section as the agent of an entity in possession of emis-
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sion allowances or compensatory allowances, the Adminis-
trator is not obligated to obtain the highest price possible 
for the allowances, and instead shall auction consignment 
allowances in the same manner and pursuant to the same 
rules as auctions of other allowances under section 791. 
The Administrator may permit the entity offering the al-
lowance for sale to condition the sale of its allowances pur-
suant to this section on a minimum reserve price that is 
different than the reserve auction price set pursuant to 
section 791(d). 
‘‘(c) PROCEEDS.—For emission allowances and com-
pensatory allowances auctioned pursuant to this section, 
notwithstanding section 3302 of title 31, United States 
Code, or any other provision of law, within 90 days of re-
ceipt, the United States shall transfer the proceeds from 
the auction to the entity which held the allowances auc-
tioned. No funds transferred from a purchaser to a seller 
of emission allowances or compensatory allowances under 
this subsection shall be held by any officer or employee 
of the United States or treated for any purpose as public 
monies. 
‘‘(d) UNSOLD ALLOWANCES.—Allowances offered for 
sale under this section that are not sold shall be returned 
to the entity in possession of the allowance, notwith-
standing section 726(b)(2)(A). 
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