To distribute emission allowances under a domestic climate policy to facilities in certain domestic energy-intensive industrial sectors to prevent an increase in greenhouse gas emissions by manufacturing facilities located in countries without commensurate greenhouse gas regulation, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Carbon Leakage Prevention Act''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) All domestic and foreign industries should contribute 
        to climate stabilization.
            (2) Domestic producers of certain energy-intensive products 
        subject to international competition present a unique challenge 
        for United States climate policy because increased costs 
        associated with compliance may unintentionally cause domestic 
        industry to divert new investments and production to facilities 
        located in countries without commensurate greenhouse gas 
        regulation.
            (3) Without exempting any industries, the United States 
        must move forward with economy-wide action on climate change 
        while reducing incentives for producers to relocate to 
        unregulated countries, which could displace both jobs and 
        emissions.
            (4) International agreements are the most appropriate means 
        to reduce emissions from energy-intensive industries because 
        unilateral domestic efforts to reduce greenhouse gas emissions 
        could accelerate the relocation of energy-intensive 
        manufacturing abroad.
            (5) Carbon leakage can be mitigated substantially through 
        the output-based distribution of emission allowances.
            (6) Output-based emission allowance distribution is an 
        appropriate temporary measure that should complement other 
        targeted domestic and international policies and agreements 
        meant to encourage United States trading partners to 
        substantially reduce global greenhouse gas emissions.

SEC. 3. PURPOSES.

    The purposes of this Act are as follows:
            (1) To compensate certain facilities from a subset of 
        eligible domestic industrial sectors for carbon emission costs 
        incurred under any cap-and-trade program.
            (2) To limit compensation to facilities in eligible 
        industrial sectors to an amount of emission allowances that 
        will prevent carbon leakage while also rewarding innovation and 
        facility-level investments in performance improvements.
            (3) To provide compensation to the owners and operators of 
        facilities for both the direct and indirect costs of purchasing 
        emission allowances needed for compliance with a domestic cap-
        and-trade program, but not for costs associated with other 
        related or unrelated market dynamics.
            (4) To prevent carbon leakage resulting from direct and 
        indirect compliance costs incurred under a domestic cap-and-
        trade program.

SEC. 4. DEFINITIONS.

    In this Act:
            (1) The term ``Administrator'' means the Administrator of 
        the Environmental Protection Agency.
            (2) The term ``cap-and-trade program'' means an economy-
        wide program enacted by Congress that distributes or auctions 
        emission allowances for the control of greenhouse gas 
        emissions.
            (3) The term ``carbon dioxide equivalent'' means, for each 
        greenhouse gas, the quantity of greenhouse gas that the 
        Administrator determines makes the same contribution to global 
        warming as 1 metric ton of carbon dioxide.
            (4) The term ``carbon leakage'' means any substantial 
        increase (as determined by the Administrator) in greenhouse gas 
        emissions by manufacturing facilities located in countries 
        without commensurate greenhouse gas regulation caused by an 
        incremental cost of production increase in the United States as 
        a result of a domestic cap-and-trade program.
            (5) The term ``covered facility'' means, for each calendar 
        year, a facility that emits greenhouse gases in that year and 
        that has an obligation to submit emission allowances for such 
        greenhouse gas emissions under any cap-and-trade program.
            (6) The term ``emission allowance'' means an authorization, 
        under any cap-and-trade program, to emit 1 carbon dioxide 
        equivalent of greenhouse gas.
            (7) The term ``facility'' means 1 or more buildings, 
        structures, or installations of an entity on 1 or more 
        contiguous or adjacent properties located in the United States.
            (8) The term ``greenhouse gas'' means any gas designated as 
        a greenhouse gas under a cap-and-trade program.
            (9) The term ``output'' means the total tonnage or other 
        standard unit of production (as determined by the 
        Administrator) produced by a manufacturing facility.

SEC. 5. DISTRIBUTION OF EMISSION ALLOWANCES TO CERTAIN ENERGY-INTENSIVE 
              MANUFACTURING FACILITIES.

    (a) Distribution of Emission Allowances.--
            (1) In general.--The Administrator shall annually 
        distribute emission allowances, in amounts calculated under 
        subsection (c), to the owners and operators of facilities in 
        eligible industrial sectors and subsectors identified under 
        subsection (b), subject to the maximum quantity limitation 
        established under paragraph (2) of this subsection.
            (2) Maximum.--The maximum quantity of emission allowances 
        distributed under paragraph (1) each year shall equal 15 
        percent of the total quantity of allowances distributed or 
        auctioned under a cap-and-trade program for emissions occurring 
        during the first year for which allowances are required to be 
        submitted under such program. If the total allowances 
        calculated under subsection (c) exceed such maximum, the 
        Administrator shall reduce the amount distributed to owners and 
        operators under paragraph (1) on a pro rata basis.
    (b) Eligible Industrial Sectors and Subsectors.--
            (1) In general.--Not later than January 1, 2011, the 
        Administrator shall promulgate a rule identifying, based on the 
        criteria under paragraph (2), the industrial sectors and 
        subsectors eligible to receive emission allowances under this 
        Act. The Administrator shall consider, among others, the iron, 
        steel, pulp, paper, cement, rubber, basic chemicals, glass, 
        industrial ceramics, and aluminum and other non-ferrous metals 
        industrial sectors and subsectors.
            (2) Criteria.--To minimize the potential for carbon 
        leakage, in identifying eligible sectors and subsectors under 
        paragraph (1), the Administrator shall take into account each 
        of the following:
                    (A) The greenhouse gas intensity of the domestic 
                production, including direct emissions from the 
                combustion of fuels and process emissions at the 
                facility and the indirect emissions by electric power 
                providers.
                    (B) The potential for greater foreign sourcing of 
                production or services and the effect of international 
                competition on domestic production.
                    (C) The effect of international markets on product 
                pricing.
                    (D) The potential for net imports to increase or 
                exports to decrease (resulting in a loss of market 
                share held by domestic manufacturers to manufacturers 
                located in other countries) caused by the direct and 
                indirect compliance costs under a domestic cap-and-
                trade program.
                    (E) The state of international negotiations, 
                agreements, and activities to reduce global greenhouse 
                gas emissions.
    (c) Calculation of Allowances.--
            (1) Covered facilities.--Except as provided in subsection 
        (a)(2), the quantity of emission allowances distributed by the 
        Administrator under this Act for a calendar year to the owner 
        or operator of a covered facility shall be equal to the sum of 
        the facility's direct compliance allowance factor and the 
        facility's indirect carbon allowance factor. Calculations under 
        this paragraph shall be based on data from 2 calendar years 
        prior to the calendar year of distribution. For purposes of 
        determining such amounts:
                    (A) Direct compliance allowance factor.--The direct 
                compliance allowance factor for a facility for a 
                calendar year is the amount obtained by multiplying the 
                output of the facility by 85 percent of the average 
                tonnage of greenhouse gas emissions per unit of output 
                for all facilities in the sector or subsector, as 
                determined by the Administrator based on reports 
                provided under subparagraph (C).
                    (B) Indirect carbon allowance factor.--The indirect 
                carbon allowance factor for a facility for a calendar 
                year is the product obtained by multiplying the total 
                output of the facility by the fraction set forth in 
                clause (i) (the emissions intensity factor) and the 
                fraction set forth in clause (ii) (the electricity 
                efficiency factor) for the year concerned.
                            (i) Emissions intensity factor.--
                                    (I) Regulated electricity 
                                markets.--In a regulated electricity 
                                market, the emissions intensity factor 
                                is the average tonnage of greenhouse 
                                gas emissions per kilowatt hour of the 
                                electricity purchased by the facility, 
                                as determined by the facility owner or 
                                operator based on reports provided 
                                under subparagraph (D).
                                    (II) Wholesale competitive 
                                electricity markets.--In a wholesale 
                                competitive electricity market, the 
                                emissions intensity factor is the 
                                average tonnage of greenhouse gas 
                                emissions per kilowatt hour of the 
                                marginal source of supply of 
                                electricity purchased by the facility, 
                                as determined by the facility owner or 
                                operator based on reports provided 
                                under subparagraph (D).
                            (ii) Electricity efficiency factor.--The 
                        electricity efficiency factor is 85 percent of 
                        the average amount of electricity (in kilowatt 
                        hours) used per ton of production for all 
                        facilities in the sector or subsector 
                        concerned, as determined by the Administrator 
                        based on reports provided under subparagraph 
                        (C).
                    (C) Report to administrator.--Each owner or 
                operator of a facility in any sector or subsector 
                identified under subsection (b) and each department, 
                agency, or instrumentality of the United States shall 
                provide the Administrator with such information as the 
                Administrator finds necessary to determine the direct 
                compliance allowance factor and the indirect carbon 
                allowance factor for each facility subject to this Act.
                    (D) Greenhouse gases from electricity.--Each person 
                selling electricity to the owner or operator of a 
                facility in any sector or subsector identified under 
                subsection (b) shall provide the owner or operator of 
                the facility and the Administrator, on a quarterly 
                basis, such information as is required to determine the 
                emissions intensity factor under subparagraph (B)(i).
                    (E) Emissions intensity factor reduction.--The 
                numerator of the emissions intensity factor under 
                subparagraph (B)(i) shall be reduced by the tonnage of 
                allowances the Administrator determines are distributed 
                at no cost under any cap-and-trade program to the 
                person making the sale of electricity and are used by 
                such person to prevent electricity rate increases to 
                the owner or operator of the facility.
                    (F) Iron and steel sector or subsectors.--For the 
                purposes of determining the quantity of emission 
                allowances to be distributed under this section to the 
                owner or operator of any iron and steel manufacturing 
                facility in a sector or subsector identified under 
                subsection (b), the Administrator shall differentiate 
                between facilities using integrated iron and 
                steelmaking technologies (including coke ovens, blast 
                furnaces, and other iron-making technologies) and 
                facilities using electric arc furnace technologies when 
                calculating sector or subsector averages under 
                subparagraphs (A) and (B)(ii).
            (2) Other eligible entities.--The quantity of emission 
        allowances distributed by the Administrator for a calendar year 
        to an owner or operator of a facility in an eligible industrial 
        sector or subsector that is not a covered facility shall be 
        equal to the indirect carbon allowance factor for the facility, 
        as determined under paragraph (1)(B). Calculations under this 
        paragraph shall be based on data from 2 calendar years prior to 
        the calendar year of distribution.
            (3) New facilities.--
                    (A) First and second year of operation.--In the 
                first and second year of operation of a facility in any 
                sector or subsector identified under subsection (b), 
                the owner or operator of such facility shall receive a 
                quantity of emission allowances under this Act equal to 
                emission allowances distributed under this Act to the 
                owner or operator of a comparable facility in the same 
                sector or subsector that produces equivalent output 
                using a substantially similar production process, as 
                determined by the Administrator.
                    (B) Subsequent years of operation.--In the third 
                year of operation of a facility in any sector or 
                subsector identified under subsection (b), the 
                Administrator shall adjust the quantity of emission 
                allowances to be distributed to the owner or operator 
                of such facility in such year to reconcile the total 
                quantity of allowances received during the first and 
                second years of operation to the quantity the facility 
                would have received during the first and second years 
                of operation had the appropriate data been available 
                for such years.

SEC. 6. REPORTS TO CONGRESS.

    Not later than one year after the first year in which allowances 
are distributed pursuant to this Act, and at least every two years 
thereafter, the Administrator, in consultation with the Secretary of 
Commerce, the Secretary of Energy, the Secretary of State, and the 
United States Trade Representative, shall submit to Congress a report 
on the carbon leakage of domestic energy-intensive industrial 
manufacturers and the effectiveness of the distribution of emission 
allowances under section 5 in achieving the purposes of this Act. Such 
reports shall include recommendations on how to better achieve the 
purposes of this Act.

SEC. 7. MODIFICATION OR ELIMINATION OF DISTRIBUTION OF ALLOWANCES TO 
              ENERGY-INTENSIVE MANUFACTURING FACILITIES.

    (a) Presidential Determination and Modification.--If the President 
finds that international governmental activities to reduce global 
greenhouse gas emissions have substantially mitigated--
            (1) the disadvantage to domestic manufacturers of energy-
        intensive products subject to competition from facilities in 
        countries without commensurate greenhouse gas regulation; and
            (2) the carbon leakage and related diversion of production 
        of such products to facilities located in countries without 
        commensurate greenhouse gas regulation;
then the Administrator shall, pursuant to a rule, reduce the amount of 
emission allowances distributed under this Act in an amount reasonably 
calculated to achieve the purposes of this Act.
    (b) Termination.--If the President determines that the competitive 
disadvantage to domestic manufacturers described in subsection (a) has 
been rendered insignificant, the Administrator shall terminate the 
distribution of emission allowances under this Act.

Summary: Carbon Leakage Prevention Act - Directs the Administrator of the Environmental Protection Agency (EPA) to annually distribute emission allowances to the owners and operators of facilities in eligible industrial sectors that are subject to a national cap and trade program. Requires the Administrator to identify the industrial sectors eligible to receive emission allowances under this Act based on specified criteria that includes: (1) the greenhouse gas intensity of the domestic production; and (2) the potentional for greater foreign sourcing of production or services and the effect of international competition on domestic production.

Sets forth calculations for determining the quantity of emission allowances to be distributed by the Administrator under this Act for a calendar year to an owner or operator based on a direct compliance allowance factor and an indirect carbon allowance factor accounting for emissions intensity and electricity efficiency. Requires the Administrator to differentiate between iron and steel manufacturing facilities using integrated iron and steelmaking technologies and facilities using electric arc furnace technologies.

Requires the Administrator to report to Congress biennially on the carbon leakage of domestic energy-intensive industrial manufacturers and the effectiveness of the emission allowances distributed under this Act.

Directs the Administrator to reduce or terminate the distribution of emission allowances under this Act if the President determines that international governmental activities to reduce global greenhouse gas emissions have substantially mitigated or rendered insignificant: (1) the competitive disadvantage to U.S. manufacturers; and (2) the carbon leakage and related diversion of production to foreign facilities.