Senators Kerry and Lieberman released the American Power Act today (draft summary), effectively re-launching the climate and clean energy dialogue in the US legislature. This much-anticipated bill stands a reasonable chance of being the foundational element of American action on climate change.

The bill includes a schedule for emission reductions in the short, medium, and long-term, which are generally consistent with previous legislative proposals. Using a 2005 baseline, the bill demands reductions of 4.75% by 2013, 17% by 2020, 42% by 2030, and 83% by 2050.

It establishes a cap-and-trade system and describes its governing principles, including free allowance allocations for emissions-intense trade-exposed industries to prevent carbon leakage; quarterly auctioning of allowances with purchase limits to prevent price manipulation; and price floors and collars. The floor price is set at $12/tonne for the 2013 auction year (in 2009 constant dollars), increasing at 3% per year plus inflation, while the ceiling price is set at $25/tonne, increasing at 5% per year plus inflation. This price range is critical for companies looking at future carbon liability costs. The trading details also mitigate against the development of complex financial instruments that could add volatility to the carbon market, or result in windfall profits for traders.

Controversy over offshore drilling provisions, which became the bill’s sticky wicket following BP’s offshore disaster last month, have largely been avoided by delegating authority to the individual states. 

Revenue from the sale of allowances will go towards:

• consumer protection;
• job creation and growth;
• clean energy development and deployment, including support for clean coal, carbon capture and storage, nuclear, and renewables;
• adaptation;
• early action to reduce GHG’s, including a focus on HFC’s, black carbon, and methane;
• transportation, including electric vehicle infrastructure, natural gas vehicle conversions, and tighter fuel efficiency requirements; and,
• deficit reduction.

The Kerry-Lieberman American Power Act is expected to usurp other legislation that had swirled around the Senate and House, including the Cantwell-Collins Carbon Limits for Energy and American Renewal Act, the Boxer-Kerry Clean Energy Jobs and American Power Act, and the monolithic, House-passed Waxman-Markey American Clean Energy and Security Act. Republican Senator Lindsey Graham withdrew his support for the American Power Act, which he had co-authored, just before it was to be released in April (see the blog), but is expected to endorse the bill in an open letter later today. The bill also has broad support from industry, with all major oil companies having committed to either endorse the bill or stay silent.

While there is no guarantee that this bill will be passed this year, if at all, the robust consultation and multi-partisan authorship may be enough to get 60 senate votes. If approved, the bill will go to the House for reading and amendment and a vote, be reconciled with the Senate bill, get voted on again by both chambers, and then be passed to the President for final approval. 

By Jeff Beyer, .(JavaScript must be enabled to view this email address)