Tradeable Energy Performance Standards Act

Bill Number

H.R. 2177

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Energy

Status

Introduced

Latest Action

2025-03-18: Referred to the House Committee on Energy and Commerce.

Last Updated

2025-04-06T10:42:54Z

AI-Generated Summary

Summary of H.R. 2177: Tradeable Energy Performance Standards Act

Purpose

This bill aims to reduce carbon dioxide (CO2) emissions from large electricity generators and facilities that use thermal energy (like heat for industrial processes) by creating a nationwide system of tradeable emission allowances. It sets performance standards based on the efficiency of energy output, encouraging facilities to lower emissions per unit of energy produced. The goal is to transition toward a lower-emission energy system while allowing flexibility through trading and incentives for cleaner technologies.

Key Provisions

The bill amends the Clean Air Act by adding a new Title VII, which establishes a framework for managing CO2 emissions starting in 2028. Core elements include:

• Definitions (Section 701): Key terms are defined, such as "Covered Facility" (large electric plants ≥2 megawatts, thermal facilities with fuel capacity ≥50 million British thermal units per hour, or cogeneration plants producing both electricity and heat); "Emission Allowance" (a permit to emit 1 metric ton of CO2); "Output-Based CO2 Emissions" (emissions per unit of energy produced, like per megawatt-hour of electricity); and "Social Cost of Carbon" (economic damages from emitting one ton of CO2, based on EPA estimates).

• Emission Allowance Submission (Section 702): Starting in 2028, owners of covered facilities must submit one allowance per metric ton of CO2 emitted the previous year by June 1. Allowances can be obtained through distribution, trading, or alternative payments, and are valid for one or two years.

• Distribution of Allowances (Section 703): The EPA Administrator distributes free allowances annually (March 1) based on a facility's energy output multiplied by a declining "Output-Based CO2 Emissions Target."
• The target starts at 2027 baseline levels in 2028 and decreases by at least 5% yearly (up to 10% with adjustments), potentially reaching zero.
• A "Total Emission Adjustment Index" ties reductions to overall U.S. fossil fuel use trends.
• Facilities can pay "Alternative Compliance Payments" instead (starting at $50/ton in 2028, rising to the Social Cost of Carbon by 2048, adjusted for inflation).

• Trading and Bilateral Agreements (Sections 704-705): Allowances can be traded, sold, or transferred, but they are not property rights (government can limit or end them). A tracking system monitors transactions for transparency. Long-term (≥10 years) bilateral agreements allow older high-emission facilities to buy allowances from new low-emission ones, with special distribution rules to support transitions.

• Voluntary Participation (Section 706): Smaller facilities can opt in to the program.

• Tracking System (Section 707): EPA must create an online system to track allowances, publish weekly market data, and set limits on holdings to prevent market manipulation and ensure liquidity.

• Offset Program (Section 708): Creates a "Carbon Mitigation Fund" funded by compliance payments and penalties. EPA awards grants for projects that avoid emissions or sequester CO2 (e.g., energy efficiency upgrades, electric vehicle replacements, grid improvements). Grants prioritize cost-effective proposals (lowest dollars per ton avoided/sequestered), with strict verification to account for risks like emissions leakage or reversal.

• Penalties (Section 709): Noncompliance incurs civil penalties (3x the highest allowance price times shortfall tons), plus requirements to submit extra allowances later. Penalties fund the offset program.

• Reporting and Regulations (Sections 710-712): Comptroller General reports biennially on program effectiveness (e.g., emissions reductions, job impacts). EPA must issue final rules within 24 months. Existing Clean Air Act requirements remain unaffected.

Significant Changes to Existing Law

• Adds a new Title VII to the Clean Air Act (42 U.S.C. 7401 et seq.), introducing the first federal output-based CO2 cap-and-trade system specifically for power and thermal sectors.
• Shifts from input-based regulations (e.g., fuel limits) to output-based standards, rewarding efficient production regardless of fuel type.
• Integrates the Social Cost of Carbon into compliance costs, formalizing economic valuation of emissions damages.
• No direct cap on total emissions; instead, it uses declining performance targets tied to national fossil fuel trends, differing from prior programs like the Acid Rain trading system.

Potential Impacts

• Government Agencies: EPA gains significant administrative duties (distribution, tracking, offsets), requiring new systems and regulations. Could increase workload and budget needs; funds from payments/penalties support offsets without new appropriations.
• Citizens: May lead to cleaner air and climate benefits from reduced CO2 (potentially billions of tons over 20 years), but could raise energy costs if passed to consumers. Offset grants might lower costs for electric vehicles, efficiency upgrades, and rural charging infrastructure, aiding working families and communities.
• International Relations: Supports U.S. commitments to global climate goals (e.g., Paris Agreement) by cutting domestic CO2 from fossil fuels, potentially improving U.S. standing in international environmental diplomacy without direct trade impacts.

Main Stakeholders Affected

• Energy Sector: Owners/operators of covered facilities (e.g., power plants, factories using heat) face compliance requirements, trading opportunities, and incentives for low-emission tech like renewables or carbon capture.
• Environmental and Advocacy Groups: Benefit from emissions reductions and offsets; may monitor program integrity.
• Consumers and Workers: Households and industries could see higher utility bills but job creation in clean tech; offsets target transitions for workers in fossil fuel sectors.
• States and Local Governments: Eligible for offset grants (e.g., vehicle fleets, infrastructure); may influence local energy planning.
• EPA and Federal Agencies: EPA administers the program; consultations with Interior/Agriculture for sequestration rules.

Notable Legal, Constitutional, or Political Implications

• Legal: Expands EPA's regulatory authority under the Clean Air Act to include CO2 trading, with enforceable penalties and tracking to prevent fraud. Incorporates existing tax code elements (e.g., carbon sequestration credits under Section 45Q). Bilateral agreements require EPA oversight for contract integrity.
• Constitutional: Relies on Congress's commerce clause power to regulate interstate energy and emissions; no apparent First Amendment or property rights issues, as allowances are explicitly not property.
• Political: Represents a market-based climate approach (trading over mandates), potentially bipartisan appeal for innovation and jobs while addressing emissions. Could spark debates on federal overreach into energy markets or equity in cost burdens; biennial reports provide accountability to Congress.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Casten, Sean [D-IL-6]

Recent Actions

• 2025-03-18: Referred to the House Committee on Energy and Commerce.
• 2025-03-18: Introduced in House
• 2025-03-18: Introduced in House

Bill Versions

• Tradeable Energy Performance Standards Act — issued 2025-03-18 — PDF (36 pages)