H.R. 2177

119th CONGRESS 1st Session

To amend the Clean Air Act to establish a tradeable energy performance standard for large electricity generators and thermal energy users, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES · March 18, 2025 · Sponsor: Mr. Casten · Committee: Committee on Energy and Commerce

H.R. 2177

Sec. 701. Definitions.

In this title:

The term Alternative Compliance Payment means a payment made under section 703(e) in lieu of the submission of an emission allowance.
The term bilateral purchase agreement means an agreement—
The term Covered Cogeneration Facility means a facility that simultaneously produces useful thermal energy output and electricity and—
The term Covered Electric Facility means a facility that produces electricity and—
The term Covered Facility means a Covered Electric Facility, a Covered Thermal Facility, or a Covered Cogeneration Facility.
The term Covered Thermal Facility means a facility—
The term designated representative means an individual for which a certificate of representation has been submitted under section 703(e)(3).
The term emission allowance means a limited authorization to emit 1 metric ton of carbon dioxide that is distributed under section 703.
The term Existing Covered Facility means a Covered Facility—
The term — fossil fuel
The term higher heating value basis means that a given calculation regarding the total energy content of a fuel is made on the basis of the heat produced per unit of fuel when—
The term hold means, with respect to an emission allowance, to have in the appropriate account created pursuant to the process under section 707(a)(2).
The term Newly Constructed Low-Emission Covered Facility means a Covered Facility—
The term Output-Based CO2 Emissions means the following:
The term Output-Based CO2 Emissions Baseline means, with respect to a category of Covered Facility, the Output-Based CO2 Emissions in calendar year 2027.
The term Output-Based CO2 Emissions Target means the number of metric tons of carbon dioxide per megawatt-hour or per million British thermal units, as applicable, that is used to calculate the number of emission allowances distributed by the Administrator to each Covered Facility under section 703.
The term , with respect to carbon dioxide, means the carbon dioxide shall not enter the atmosphere for at least 200 years, according to the best available science. Permanently Sequestered
The term Rated Fuel-Based Capacity means—
The term Social Cost of Carbon means the amount, in dollars, of the economic damages that would result from emitting one additional metric ton of carbon dioxide into the atmosphere, as determined by the Administrator in accordance with the method described in the document titled as published by the Environmental Protection Agency in November 2023. The term means the amount, in dollars, of the economic damages that would result from emitting one additional metric ton of carbon dioxide into the atmosphere, as determined by the Administrator in accordance with the method described in the document titled as published by the Environmental Protection Agency in November 2023. Report on the Social Cost of Greenhouse Gases: Estimates Incorporating Recent Scientific Advances
The term Total Emission Adjustment Index means, with respect to a given year, the number used to adjust the amount of emission allowances distributed for each megawatt-hour and for each million British thermal units, as applicable, as described under section 703(c).
The term Total U.S. CO2 Emissions means, with respect to a given calendar year, the total amount of carbon dioxide that would be produced if all the fossil fuels imported into the United States or extracted within the United States were fully combusted.
The term — useful thermal energy output

Sec. 702. Emission allowance submission requirement.

(a) In general
- Beginning in calendar year 2028, not later than June 1 of each calendar year, the owner or operator of each Covered Facility shall submit to the Administrator one emission allowance for each metric ton of carbon dioxide released directly to the atmosphere by the facility during the preceding calendar year.
(b) Acquisition of emission allowances
- The owner or operator of a Covered Facility may acquire an emission allowance—
  - by receiving an emission allowance distributed under section 703; and
  - by purchasing, exchanging, or transferring an emission allowance in accordance with section 704.
(c) Period of use
- An emission allowance may be used by the owner or operator of a Covered Facility to comply with subsection (a) only for—
  - the calendar year for which the emission allowance is distributed; or
  - the following calendar year.
(d) Rounding of emission allowances
- Any fraction of an emission allowance shall be rounded to the nearest whole emission allowance.

Sec. 703. Emission allowance distribution.

(a) Distribution
- (1) Covered electric facilities
  - For each of calendar years 2028 through 2048, the Administrator shall, not later than March 1 of a given calendar year, distribute to the owner or operator of each Covered Electric Facility a number of emission allowances equal to the product of—
    - the number of megawatt-hours of electricity produced by the Covered Electric Facility during the previous calendar year; and
    - the Output-Based CO2 Emissions Target for the calendar year.
- (2) Covered thermal facilities
  - For each of calendar years 2028 through 2048, the Administrator shall, not later than March 1 of a given calendar year, distribute to the owner or operator of each Covered Thermal Facility a number of emission allowances equal to the product of—
    - the number of millions of British thermal units of useful thermal energy output produced by the Covered Thermal Facility during the previous calendar year; and
    - the Output-Based CO2 Emissions Target for the calendar year.
- (3) Covered cogeneration facilities
  - For each of calendar years 2028 through 2048, the Administrator shall, not later than March 1 of a given calendar year, distribute to the owner or operator of each Covered Cogeneration Facility—
    - for each megawatt hour of electricity produced by the Covered Cogeneration Facility, a number of emission allowances calculated in accordance with paragraph (1); and
    - for each million British thermal units of useful thermal energy output produced by the Covered Cogeneration Facility, a number of emission allowances calculated in accordance with paragraph (2).
(b) Calculation of the output-Based co2 emissions target
- The Output-Based CO2 Emissions Target for calendar year 2028 shall equal the Output-Based CO2 Emissions Baseline.
- (2) Subsequent years
  - In a given calendar year other than calendar year 2028, the Output-Based CO2 Emissions Target shall be the greater of—
    - zero; and
    - the lesser of—
      - (i) the Output-Based CO2 Emissions Target of the preceding calendar year minus 5 percent of the Output-Based CO2 Emissions Baseline;
      - (ii) the Output-Based CO2 Emissions of the preceding calendar year minus 5 percent of the Output-Based CO2 Emissions Baseline;
      - (iii) the Output-Based CO2 Emissions Target of preceding calendar year minus 10 percent of the Output-Based CO2 Emissions Baseline minus the Total Emission Adjustment Index of the given calendar year; and
      - (iv) the Output-Based CO2 Emissions of preceding calendar year minus 10 percent of the Output-Based CO2 Emissions Baseline minus the Total Emission Adjustment Index of the given calendar year.
(c) Calculation of total emission adjustment index
- With respect to a given calendar year, the Total Emission Adjustment Index shall be calculated as 1 minus the ratio of—
  - the Total U.S. CO2 Emissions in the previous calendar year; to
  - the Total U.S. CO2 Emissions in the calendar year that began two years before the given year.
(d) General rules
- (1) Identification numbers
  - The Administrator shall assign to each emission allowance distributed under this section a unique identification number.
- (2) Designated representatives
  - The owner or operator of each Covered Facility, and the owner or operator of each other entity holding an emission allowance or receiving an emission allowance from the Administrator under this title, shall submit to the Administrator a certificate of representation designating a designated representative.
- (3) Prevention of double counting
  - The Administrator shall not consider any Covered Facility to which the Administrator distributes emission allowances under this section to be more than one type of facility as defined under paragraphs (3), (4), or (6) of section 701.
(e) Alternative compliance payments
- (1) In general
  - The owner or operator of a Covered Facility may satisfy the requirements of section 702(a), in whole or in part, with respect to any calendar year, by submitting to the Administrator an Alternative Compliance Payment in lieu of an emission allowance that would otherwise be due.
- (2) Amounts
  - (A) Calendar years 2028 through 2038
    - For calendar years 2028 through 2038, the amount of an Alternative Compliance Payment shall be as follows, except as the Administrator shall adjust for inflation:
  - (B) Calendar years 2039 through 2048
    - For calendar years 2039 through 2048, the amount of the Alternative Compliance Payment for a given year shall annually increase by an equal amount from $70 in 2038, adjusted for inflation under subparagraph (A), to the Social Cost of Carbon in 2048.
  - (C) Calendar year 2048 and thereafter
    - The amount of an Alternative Compliance Payment for calendar year 2048 and thereafter shall be equal to the Social Cost of Carbon.

Sec. 704. Trading of emission allowances.

(a) Permitted transactions
- An entity that holds an emission allowance may—
  - submit the emission allowances to the Administrator; and
  - sell, exchange, and transfer the emission allowance to another entity in accordance with subsection (c).
(b) Legal status of emission allowances
- (1) In general
  - An emission allowance distributed by the Administrator under this title does not constitute a property right.
- (2) Termination or limitation
  - Nothing in this title shall be construed to limit or alter the authority of the United States to terminate or limit the sale, exchange, transfer, holding, or submission of emission allowances.
(c) Effectiveness of emission allowance transactions
- No sale, exchange, transfer, or submission of an emission allowance shall be effective for purposes of this title until a certification of the sale, transfer, exchange, or submission is—
  - signed by the designated representative of the entity holding the emission allowance; and
  - received and recorded by the Administrator in accordance with regulations issued under section 707.

Sec. 705. Emission allowance bilateral purchase agreements.

(a) Distribution of allowances to an Existing Covered Facility
- (1) In general
  - For a calendar year that is covered by a bilateral purchase agreement, beginning with the first full calendar year during which the Newly Constructed Low-Emission Covered Facility produces electricity or useful thermal energy output, the Administrator shall distribute to the owner or operator of the Existing Covered Facility—
    - for megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by the Existing Covered Facility that are covered by the agreement, a number of emission allowances that is equal to—
      - (i) such number of megawatt hours or million British thermal units, as applicable; multiplied by
      - (ii) the Output-Based CO2 Emissions for Covered Electric Facilities or Covered Thermal Facilities, as applicable, for such first full calendar year; and
    - for megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by the Existing Facility that are not covered by the agreement, the number of emission allowances calculated under section 703(a).
- (2) Calculation of megawatt hours or million British thermal units covered by agreement
  - For purposes of paragraph (1), the number of megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by an Existing Covered Facility that are covered by the agreement shall be equal to—
    - the number of emission allowances sold to the owner or operator of the Existing Covered Facility pursuant to the agreement for the first full calendar year described in paragraph (1), divided by the difference of—
      - (i) the number of emission allowances submitted to the Administrator by the owner or operator of the Existing Covered Facility for such first full calendar year; minus
      - (ii) the number of emission allowances distributed to the owner or operator of the Existing Covered Facility by the Administrator for such first full calendar year; multiplied by
    - the total number of megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by the Existing Covered Facility in such first full calendar year.
(b) Distribution of allowances to a Newly Constructed Low-Emission Covered Facility
- (1) In general
  - For calendar years that are covered by an agreement described in subsection (a), beginning with the first full calendar year during which the Newly Constructed Low-Emission Covered Facility produces at least 1 megawatt-hour of electricity or 1 million British thermal units of useful thermal energy output, the Administrator shall distribute to the owner or operator of the Newly Constructed Low-Emission Covered Facility—
    - for megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by the Newly Constructed Low-Emission Covered Facility that are covered by the agreement, a number of emission allowances that is equal to—
      - (i) such number of megawatt hours or million British thermal units of useful thermal energy output; multiplied by
      - (ii) the Output-Based CO2 Emissions for Covered Electric Facilities or Covered Thermal Facilities, as applicable, for such first full calendar year; and
    - for megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by the Newly Constructed Low-Emission Covered Facility that are not covered by the agreement, the number of emission allowances calculated under section 703(a).
- (2) Calculation of megawatt hours or million British thermal units covered by agreement
  - For purposes of paragraph (1), the number of megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by a Newly Constructed Low-Emission Covered Facility that are covered by the agreement shall be equal to—
    - the number of emission allowances sold to the owner or operator of the Existing Covered Facility pursuant to the agreement for the first full calendar year described in paragraph (1), divided by the difference of—
      - (i) the number of emission allowances submitted to the Administrator by the owner or operator of the Newly Constructed Low-Emission Covered Facility for such first full calendar year; minus
      - (ii) the number of emission allowances distributed to the owner or operator of the Newly Constructed Low-Emission Covered Facility by the Administrator for such first full calendar year; multiplied by
    - the total number of megawatt hours of electricity or million British thermal units of useful thermal energy output, as applicable, produced by the Existing Facility in such first full calendar year.
(c) Conditions
- The owner or operator of an existing Covered Facility or Newly Constructed Low-Emission Covered Facility that is a party to a bilateral purchase agreement may receive emission allowances under this section only if such owner or operator provides to the Administrator a copy of—
  - the applicable bilateral purchase agreement; and
  - any amendment to such bilateral purchase agreement within 30 days of the amendment being made.
(d) Regulations
- The Administrator shall promulgate regulation to ensure the integrity and enforceability of contracts executed under this section.

Sec. 706. Voluntary program participation.

(a) Eligible entities
- The Administrator may, upon the request of the owner or operator, classify—
  - as a Covered Electric Facility, any facility that produces electricity at a Rated Fuel-Based Capacity of less than 2 megawatts;
  - as a Covered Thermal Facility, any facility that produces useful thermal energy output at a Rated Fuel-Based Capacity of less than 50 million British thermal units per hour, calculated on a higher heating value basis; and
  - as a Covered Cogeneration Facility, any facility that—
    - simultaneously produces useful thermal energy output and electricity; and
    - has a rated electric capacity of less than 2 megawatts.
(b) Designation of representative
- The Administrator shall approve a request submitted under subsection (a) if the owner or operator of the facility designates a representative under section 703(d)(2).
(c) Deadline for notification
- Not later than 90 days after receipt of a request submitted under subsection (a), the Administrator shall notify the owner or operator of the facility whether the Administrator approves or disapproves the request.
(d) Termination of classification
- The Administrator shall terminate the classification of a facility as a Covered Facility under subsection (a) if, during the previous calendar year, the facility did not—
  - produce electricity; or
  - produce useful thermal energy output.

Sec. 707. Emission allowance tracking system.

(a) Regulations
- The Administrator shall issue regulations to provide for—
  - the establishment of a system to process the distribution of emission allowances to Covered Facilities under section 703 and section 705;
  - a process to create accounts in which Covered Facilities and other entities may hold emission allowances;
  - the establishment of an emission allowance tracking system to track—
    - the number of emission allowances sold, exchanged, transferred, and submitted;
    - the price or monetary value of such emission allowances;
    - the date of each such sale, exchange, transfer, and submission;
    - the parties involved in each such sale, exchange, transfer, and submission; and
    - any additional information the Administrator determines necessary to ensure the integrity and efficiency of the market for emission allowances; and
  - the weekly publication by the Administrator on the website of the Environmental Protection Agency, in a publicly available and searchable format, of—
    - a summary of average prices or monetary values of emission allowances, the total number of emission allowances sold, exchanged, transferred, or submitted, and any other additional information determined by the Administrator as necessary to ensure the integrity and efficiency of the market for emission allowances;
    - the number of emission allowances distributed by the Administrator under section 703 and section 705;
    - the number of emission allowances distributed by the Administrator under section 703 and section 705 during the calendar year before the year of publication that are held at the end of each month of the current calendar year by each category of Covered Facility; and
    - the number of emission allowances submitted to the Administrator each year by each category of Covered Facility.
(b) Position limits
- The Administrator, in consultation with the Commodity Futures Trading Commission, shall establish by regulation limits on the number of emission allowances that an entity may hold so that, in the determination of the Administrator—
  - no entity shall hold a number of emission allowances that may influence the price or monetary value of emission allowances; and
  - adequate liquidity for buyers and sellers of emission allowances shall be ensured.
(c) Status of submitted emission allowances
- Once an emission allowance is submitted to the Administrator under section 702, the emission allowance shall be disqualified from subsequent use under this title, including subsequent sale, exchange, transfer, and submission.
(d) Orderly and competitive market
- The Administrator shall issue regulations as necessary in the determination of the Administrator for an orderly and competitive market for selling, exchanging, transferring, and submitting emission allowances.

Sec. 708. Offset program.

(a) Carbon mitigation fund
- (1) Creation of fund
  - The Administrator shall establish a fund to be known as the . Carbon Mitigation Fund
- (2) Administration
  - The Carbon Mitigation Fund shall be administered by the Administrator.
- (3) Deposits
  - There shall be deposited into the Carbon Mitigation Fund the following:
    - The amounts paid as Alternative Compliance Payments pursuant to section 703(e).
    - The amounts collected as civil penalties under section 709.
- (4) Appropriation
  - Amounts in the Carbon Mitigation Fund shall be available without further appropriation or fiscal year limitation to carry out the Offset Program under subsection (b).
(b) Offset program
- (1) In general
  - The Administrator shall carry out a program (to be known as the ) to award grants to entities to carry out activities that avoid emissions of greenhouse gases or permanently sequester carbon dioxide from the atmosphere, as determined in accordance with paragraph (3). Offset Program
- (2) Activities
  - The activities described in paragraph (1) may include—
    - improvements to the energy efficiency of existing facilities and devices;
    - improvements to the electrical grid;
    - the replacement of natural gas space heaters, natural gas water heaters, and natural gas stoves with electric appliances;
    - the replacement of fossil fuel-powered vehicles owned by State or local agencies with electric vehicles or other low-carbon fuel vehicles;
    - the replacement of fossil fuel-powered ground airport and seaport vehicles with electric vehicles or other low-carbon fuel vehicles;
    - installation of charging stations for electric vehicles along highways and other public roads in urban areas and rural areas in which the availability of such charging stations is significantly below the national average; and
    - beneficial electrification-related reductions not otherwise identified in this paragraph.
- (3) Criteria
  - The Administrator may only award grants under the Offset Program for an activity for which the Administrator determines that—
    - the amount of greenhouse gas emissions to be avoided or permanently sequestered from the atmosphere by the activity will be adequately confirmed through monitoring, reporting, and verification;
    - the risk that some amount of the carbon dioxide that is to be sequestered from the atmosphere by the activity may reenter the atmosphere at a later date is adequately reflected through a discounting of the amount described in paragraph (4)(C)(ii);
    - the risk that some amount of the greenhouse gases, the emission of which is avoided by the activity, may enter the atmosphere at a later date is adequately reflected through a discounting of the amount described in paragraph (4)(C)(i);
    - the risk that the activity may directly or indirectly increase the release of greenhouse gases from another location has been adequately addressed;
    - the activity is not required, or being supported financially (except pursuant to this subsection), by a Federal, State, or local law, program, or activity; and
    - if the activity involves land use, the activity—
      - (i) aligns with the Sustainable Development Goals, as adopted by of the United Nations under the Post-2015 Development Agenda, and amended by the United Nations, including being consistent with the conservation of biological diversity and natural ecosystems (including forests and grasslands); and
      - (ii) maintains ecosystem services and other social and environmental benefits.
- (4) Proposals
  - In order to apply for a grant awarded under the Offset Program, an entity shall submit to the Administrator a proposal that—
    - describes the activity to be carried out with the grant;
    - identifies the amount of money for which the entity is applying;
    - identifies the amount (to be measured in one-year increments) of, as applicable—
      - (i) greenhouse gas emissions to be avoided by the activity; and
      - (ii) carbon dioxide to be permanently sequestered from the atmosphere by the activity;
    - identifies the bid amount, expressed as dollars per metric ton, which shall be the quotient obtained by dividing the amount identified under subparagraph (B) by the amount identified under subparagraph (C);
    - provides any information required by the Administrator in order to make a determination described in paragraph (3); and
    - provides any other certifications the Administrator determines appropriate.
- (5) Deadlines
  - (A) Solicitation
    - Not later than February 1, 2028, and each February 1 thereafter, the Administrator shall solicit proposals for activities described in paragraph (1) for which the Administrator may award grants under the Offset Program.
  - (B) Identification
    - Not later than June 1, 2028, and each June 1 thereafter, the Administrator shall identify and publish a list of proposals that have been submitted by March 1 of the applicable year for activities described in paragraph (1) that qualify for an award of a grant under the Offset Program.
  - (C) Award of grants
    - Not later than August 1, 2028, and each August 1 thereafter, the Administrator shall, to the extent amounts are available in the Carbon Mitigation Fund, award grants to entities that submitted a proposal that is listed pursuant to subparagraph (B).
- (6) Awards to most cost-effective activities
  - The Administrator shall award funds to entities for activities described in proposals identified under paragraph (5)(B)—
    - beginning by awarding funds to the entity submitting such a proposal with the lowest bid amount identified pursuant to paragraph (4)(D); and
    - then awarding funds to entities sequentially by entity submitting such a proposal with the next lowest bid amount so identified until all funds are awarded.
(c) Regulations regarding carbon dioxide sequestration
- (1) Regulations
  - Under section 711, the Administrator shall issue regulations establishing—
    - the conditions under which carbon dioxide may be safely and permanently sequestered;
    - the methods and processes by which carbon dioxide may be safely and permanently sequestered, including by incorporating the carbon in a commercial product; and
    - requirements to account for the risk that some fraction of the carbon dioxide intended to be permanently sequestered may be emitted into the atmosphere.
- (2) Existing requirements
  - In issuing regulations described in this subsection, the Administrator shall incorporate to the extent practicable any existing requirements for the sequestration of carbon dioxide, including any requirements promulgated under of the Internal Revenue Code of 1986. section 45Q
(d) Consultation
- The Administrator shall consult with the Secretary of the Interior and the Secretary of Agriculture in issuing regulations to measure, monitor, and verify any natural sequestration activities carried out using a grant awarded under the Offset Program.

Sec. 709. Penalty for noncompliance.

(a) Civil penalty
- (1) In general
  - The owner or operator of a Covered Facility that fails to submit an emission allowance as required by section 702(a) shall be liable for payment to the Administrator of a penalty in the amount described in paragraph (2).
- (2) Amount
  - The amount of a penalty described in this paragraph shall be equal to the product of—
    - three times the highest price or monetary value during the previous calendar year (as indicated by the emission allowance tracking system established pursuant to section 707) for the sale, exchange, or transfer of an emission allowance; and
    - the number of emission allowances that the owner or operator of the Covered Facility failed to submit as described in paragraph (1).
- (3) Timing
  - A penalty required under this subsection shall be immediately due to the Administrator, without demand by the Administrator.
- (4) No effect on liability
  - A penalty due by the owner or operator of a Covered Facility under this subsection shall not diminish the liability of the owner or operator for any fine, penalty, or assessment against the owner or operator for the same violation under any other provision of this Act or any other law.
(b) Replacement emission allowances
- The owner or operator of a Covered Facility that fails to submit one or more emission allowances as required under section 702(a) for a calendar year shall submit a number of emission allowances that is equal to sum of the number the owner or operator failed to submit and the emission allowances otherwise required to be submitted by the April 1 deadline of the second succeeding calendar year.

Sec. 710. Comptroller general reports.

Not later than January 1, 2029, and every 2 years thereafter, the Comptroller General of the United States shall submit to Congress a report on the results of implementation of this title, which shall include—

a comprehensive evaluation of—
- the efficiency, transparency, and integrity of the distribution of emission allowances under section 703 and section 705;
- the cost-effectiveness of this title in reducing greenhouse gas emissions; and
- the effectiveness of this title in—
  - (i) creating and preserving jobs;
  - (ii) ensuring a manageable transition to a zero-emission economy for working families and workers;
  - (iii) driving the innovation and deployment of zero-emission technologies; and
  - (iv) maintaining an orderly and competitive market for selling, exchanging, transferring, and submitting emission allowances; and
recommendations, if any, for legislative, regulatory, or administrative changes with respect to this title to improve its effectiveness.

Sec. 711. Final regulations.

The Administrator shall issue final regulations to carry out this title not later than 24 months after the date of enactment of this title.

Sec. 712. Savings provisions.

Nothing in this title shall be interpreted to affect the requirements of any other title of this Act.