Tradeable Energy Performance Standards Act
The Tradeable Energy Performance Standards Act would add a new Title VII to the Clean Air Act creating a mandatory, tradeable system of emission allowances for large electricity generators and large thermal energy users. The program would require facilities to surrender emission allowances equal to their CO2 emissions, with allowances allocated based on output (megawatt-hours for electric facilities and millions of BTUs for thermal facilities) and a national output-based CO2 target that tightens over time. Owners could meet obligations by holding and surrendering allowances, purchasing them, or paying an Alternative Compliance Payment (APC). The bill also establishes a market infrastructure (tracking system, bilateral purchase options between existing and newly constructed low-emission facilities, voluntary participation for smaller facilities), an offset program funded by APCs and penalties, and a Carbon Mitigation Fund to support emissions-reducing projects. Final regulations would be due within two years, with federal oversight and regular reporting. In short, it creates a national, output-based cap-and-trade-like program aimed at reducing CO2 from large energy producers and users, while offering optional pathways for new low-emission capacity, voluntary participation for smaller facilities, and a funded set of offset and mitigation activities to accompany the compliance regime.
Key Points
- 1Tradeable emission allowances: Starting in 2028, facilities must surrender one emission allowance for each ton of CO2 emitted. Allowances can be distributed by the government or traded among entities; allowances are not a guaranteed property right.
- 2Output-based targets and allocation: The number of allowances distributed to electric, thermal, and cogeneration facilities is tied to their output (MWh or MMBtu) multiplied by an Output-Based CO2 Emissions Target, which is derived from a 2027 baseline and adjusts downward over time (with several calculation options) and is affected by a Total Emission Adjustment Index.
- 3Bilateral purchase agreements: Existing facilities and newly constructed low-emission facilities can enter 10-year bilateral agreements. Allowances are allocated to such pairs to reflect the agreement terms, with formulas linking volumes covered by the agreement to the year’s output and emission targets.
- 4Alternative Compliance Payments (APCs): If a facility cannot meet its surrender obligation, it may pay APCs instead. APC amounts rise from $50 per ton in 2028 to $70 per ton by 2038, then progress toward the Social Cost of Carbon (SCC) by 2048, after which APC equals the SCC. APCs also apply if a facility fails to meet deadlines or if penalties are imposed.
- 5Emission allowance tracking and market integrity: The bill creates an EPA-run tracking system, requires designated representatives for entities, imposes certification requirements for transfers, and imposes weekly public reporting of prices, volumes, and holdings. It sets position limits to ensure liquidity and prevent market manipulation.
- 6Penalties and replacement: Noncompliance triggers civil penalties, calculated as three times the highest previous-year sale price times the missing allowances, payable immediately. If needed, replacement allowances must be surrendered by the end of the second succeeding year.
- 7Offset program and carbon mitigation fund: There is a Carbon Mitigation Fund funded by APCs and civil penalties. The Offset Program grants funds for activities that avoid or sequester CO2 (e.g., energy efficiency, grid improvements, electrification of heating/vehicles, charging infrastructure). Projects must meet strict criteria (monitoring, verifiable avoidance/sequestration, additionality, risk discounting, and alignment with sustainability goals).
- 8Final regulations and oversight: The Administrator must issue final regulations within 24 months of enactment. A Comptroller General report every two years evaluates program effectiveness, efficiency, market integrity, and impacts on jobs and transitions for workers and families.