The House passed, the American Clean Energy and Security (ACES) Act of 2009, H. R. 2454, on June 26, 2009 by a 219-212 vote. 


Under ACES, carbon emissions from large sources (25,000 tons of emissions annually) must be reduced by 17 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050.  To achieve these limits, ACES establishes a system of tradable permits called “emission allowances.”  Under ACES, approximately 80 percent of allowances are distributed without charge during the early years of the program.  This transition period starts to phase out after 2025. By 2031, about 70 percent of the allowances are auctioned.

While some manufacturers may incur direct costs, all will certainly bear some of the indirect costs because the two main sources of  Greenhouse Gas (GHG) emission are electricity generation and vehicles, and both are significant cost centers for any small businesses.  The legislation converts greenhouse gases in to Carbon Dioxide (CO2)equiavalents

 Electricity generation is the biggest source of emissions.  Electricity generators consumed 36 percent of U.S. energy from fossil fuels and emitted 42 percent of the CO2 from fossil fuel combustion in 2007.  Transportation activities are number two on the list, accounting for 33 percent of CO2 emissions from fossil fuel combustion in 2007.


Global warming is the name given to the increase in the average temperature of the Earth’s near-surface air and oceans.  Since the Industrial Revolution of the Mid-19th Century, the Earth’s climate has warmed by 1.1 to 1.5 degrees Fahrenheit (F).  While that number may seem unspectacular, many scientists argue that the Earth is now at, or near, its warmest in the past 12,000 years.  However the greater concern is that this rate will either continue or dramatically increase over the next century, ranging from 2.0 to 11.5 degrees.

Allocation Schemes (upstream and downstream) 

Regulatory approaches to allocating allowances (as opposed to auction schemes) which can choose different points and participants along the production process to assign allowances and the resulting compliance responsibility.  Upstream allocation schemes establish emission caps and assign allowances at a production, importation, or distribution point of products that will eventually produce greenhouse emissions further down the production process.  For example, in the natural gas sector, emission caps could be established and allowances assigned at processing facilities where facilities and participants shrink from about 400,000 wells and 8,000 companies to 500 plants and 200 companies.  In contrast, downstream allocation schemes establish emission caps and assign allowances at the point in the process where the emissions are emitted.  In the case of the natural gas industry, to achieve the same coverage as the upstream scheme, this would involve assigning allowances to natural gas-fired electric generators, industry, and even residential users.


An allowance is generally defined as a limited authorization by the government to emit 1 ton of pollutant.  In the case of greenhouse gases, an allowance generally refers to a metric ton of carbon dioxide equivalent.


Auctions can be used in market-based pollution control schemes in several different ways.  For example, Title IV of the 1990 Clean Air Act Amendments uses an annual auction to ensure the liquidity of the credit trading program.  For this purpose, a small percentage of the credits permitted under the program are auctioned annually, with the proceeds returned to the entities that would have otherwise received them.  Private parties are also allowed to participate.


Although allowances are generally allocated on an annual basis, most cap-and-trade programs do not require participants to either use the allowance that year or else lose it.  Under many proposals, allowances can be banked by the receiving participant (or traded to another participant who can use or bank it) to be used or traded in a future year.  Banking reduces the absolute cost of compliance by making annual emission caps flexible over time.


A bubble is a regulatory device that permits two or more sources of pollutants to be treated as one for the purposes of emission compliance.

Cap-and-trade Program

A cap-and-trade program is based on two premises.  First, a set amount of pollutant emitted by human activities can be assimilated by the ecological system without undue harm.  Thus, the goal of the cap-and-trade program is to impose a ceiling (i.e., an emissions cap) on the total emissions of that pollutant at a level below the assimilative capacity.  Second, a market in pollution licenses (i.e., allowances) between polluters is the most cost-effective means of reducing emissions to the level of the cap. This market in allowances is designed so that owners of allowances can trade those allowances with other emitters who need them or retain (bank) them for future use or sale.

Carbon Tax

A carbon tax is generally conceived as a levy on natural gas, petroleum, and coal according to their carbon content, in the approximate ratio of 0.6 to 0.8 to 1, respectively.

Emissions Cap

A mandated limit on how much pollutant (or greenhouse gases) an affected entity can release to the atmosphere. Caps can be either an absolute cap where the amount is specified in terms of tons of emissions on an annual basis, or a rate-based cap, where the amount of emissions produced per unit of output (such as electricity) is specified but not the absolute amount released.

“No Regrets” Policy

A “no regrets” policy is one of establishing programs for other purposes that would have concomitant greenhouse gas reductions. 

Safety Valve 

Provisions designed to prevent or to respond to unacceptably high compliance costs for greenhouse gas reductions.  Generally triggered by prices in the allowance markets, safety valve approaches can include (1) a set price alternative to making reductions or buying allowances at the market price, (2) a slowdown in tightening the emissions cap, and (3) lengthening of the time allowed for compliance.  Depending on the interplay between the emissions cap and safety valve and actual compliance costs, a safety valve can affect the integrity of the emissions cap.


Sequestration is the process of capturing carbon dioxide from emission streams or from the atmosphere and then storing it in such a way as to prevent its release to the atmosphere.


The cornerstone of this issue is understanding greenhouse gasses-what they are, how they are caused, and what can be done about them.  It is important to note that the greenhouse effect is essentially a natural process that helps regulate the temperature of the Earth.  It prevents the Earth from freezing, and without it, the Earth would be about zero degrees Fahrenheit instead of its current 57F.  The greenhouse effect is caused by the heat absorption of certain gasses in the atmosphere, which are called greenhouse gases.  The heat from the gas that is absorbed in the atmosphere is then re-radiated downward. 

Greenhouse gasses are created both naturally and by humans.  Water vapor causes between 30 and 70 percent of the greenhouse effect (not including clouds); carbon dioxide causes 9 to 26 percent; methane causes between 4 and 9 percent; and ozone causes 3 to 7 percent.  The remaining greenhouse gases come from fluorinated gases.

The concern, therefore, is not that we have greenhouse gases, but that human activity could be leading to an increase in greenhouse gases.  This concern, drawn out over the next century, is what has led some scientists to believe that we could be heading towards a much larger temperature increase. 


Greenhouse Gases

Carbon Dioxide

As noted above, carbon dioxide is the second leading contributor of greenhouse gases.  It would therefore follow that increased emissions of carbon dioxide is an area of concern in regards to global warming.  Not surprisingly, there was a substantial increase in measured carbon dioxide concentrations following the Industrial Revolution, from 280 parts per million (ppm) to about 380 ppm.  Also, not surprisingly, the United States, as the world’s economic leader, has produced nearly one-fifth of net global greenhouse gas emissions, in large part due to carbon dioxide.  The main human-related source of carbon dioxide emissions is the combustion of fossil fuels, solid waste, wood, and wood products.  The second leading cause of carbon dioxide increase is deforestation. 


Another contributor of greenhouse gases is methane.  Methane is a much more potent gas than carbon dioxide, but not nearly as prevalent in the atmosphere.  It is the principal component of natural gas.  It is also emitted from trash decomposition in landfills and from coal mining.  However, methane emissions have historically been nature-made rather than man-made.  It is believed that early in the Earth’s history, before mankind, there was 1,000 times as much methane in the atmosphere as now.  The earliest methane was released by volcanic activity.  Methane is also released naturally from certain animals, such as livestock and termites. 


Ozone is another greenhouse gas.  While not directly emitted by humans, its potency is elevated by emissions such as nitrogen oxides and solvent evaporation.  Since the Industrial Revolution, ozone concentrations have increased by as much as 50 percent.  Currently, the U.S. regulates the air pollutants that contribute to ozone concentrations through the Clean Air Act.


Nitrous Oxide is the third leading cause of global warming, which is largely emitted through agricultural activities such as the use of fertilizer.  The remaining greenhouse gases come from fluorinated gases, which make up commercial, industrial, and household products, such as refrigeration systems. 

Sulfur and Carbon Aerosols

Aerosols, tiny particles suspended in the air, come from a wide variety of sources.  Some are natural, such as volcanoes and forest fires.  Others come from human pollution, such as emissions from power plants or vehicles.  The aerosols of most concern, from a climate change perspective, are black carbon and organic carbon.  Black carbon is thought primarily to warm the atmosphere while organic carbon has a mostly cooling effect.  Aerosols work by either scattering light, which has a cooling effect, or absorbing light, which has a warming effect.


The main argument for those who are most concerned with global warming is not what already has happened, but what they fear will happen.  They believe that global temperatures are only beginning to rise and that we face a much steeper increase over the next century.  Most studies indicate that if current trends continue, the global average temperature will increase by at least 2.7F by the end of the 21st Century, with a 10 percent chance it could exceed 9F.  Most climate modelers estimate that temperatures will increase between 4 and 7 F by 2100.  However, the accuracy of these models is the subject of a wide debate.


The Kyoto Protocol is an agreement made under the United Nations Framework Convention on Climate Change (UNFCCC).  Some of the countries that ratify this protocol commit to reducing their greenhouse gas emissions (carbon dioxide, methane, nitrous oxide, and three of the fluorinated gasses).  Governments that sign the protocol, which currently covers 160 nations, are separated into two categories: developed countries, referred to as Annex I countries; and developing countries, referred to as Non-Annex I countries.

Annex I countries must reduce their greenhouse gas emissions by an average of 5 percent below their 1990 level by sometime between 2008 and 2012, depending on the specific country.  For many of these countries, this represents a 15 percent decrease from current levels.  These nations must submit to an annual greenhouse gas inventory inspection by the UNFCCC. 

Non-Annex I countries have no greenhouse gas emission reduction obligations but may participate in the Clean Development Mechanism (CDM).  The CDM is an arrangement allowing Non-Annex I nations to create a greenhouse gas emissions reduction project.  Once this project is complete, they receive a credit and are allowed to sell the credit to an Annex I nation, which will essentially allow them to pollute a little less. 

On July 25, 1997, the U.S. Senate unanimously passed the Byrd-Hagel resolution, by a vote of 95-0.  This resolution expressed the sense of the Senate that the U.S. should not be a signatory of any protocol (the Kyoto Protocol had not yet been finalized) that would seriously harm the U.S. economy and not include timetables or binding targets for industrialized nations.  Vice President Al Gore symbolically signed the protocol, but the Clinton Administration never submitted it to the Senate for ratification. 


The Senate is expected to consider legislation in Fall, 2009.  The question is whether Congress can pass two major pieces of legislation - health care reform and climate change, in the same year.  If Congress moves forward with health care reform, climate change legislation may be held over until next year.



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