Climate Change Legislation

On June 26 the House of Representatives passed by a 219-212 vote a comprehensive climate change and energy bill entitled the American Clean Energy and Security Act of 2009 (H.R. 2454). The legislation would amend the Clean Air Act (CAA) to establish an economy-wide cap-and-trade program covering 85% of US greenhouse gas (GHG) emissions. It would reduce covered emissions by 3% below 2005 levels in 2012, 17% below 2005 levels in 2020, 42% below 2005 levels in 2030, and 83% below 2005 levels in 2050. Covered entities would include large industrial sources that emit more than 25,000 metric tons of GHGs in a year.

Hydrofluorocarbons (HFCs) are covered separately from other GHGs in the bill by amending Title VI of the CAA, which currently regulates ozone depleting substances (ODS) that are covered under the Montreal Protocol. Class II substances under Title VI would be split into two groups, with group I containing the hydrochlorofluorocarbons (HCFCs) and group II containing the HFCs. The production of HFCs would be phased down in a series of steps beginning in 2012 and ending in 2032. The reduction percentages contained in the bill are measured against a 2004-2006 average baseline that includes both HFC and HCFC production (on a GWP-weighted basis). The bigger baseline means that the required reductions in HFC production should actually be less than the percentages shown below.

HFC Reduction Schedule

2012-90% of baseline
2013-87.5%
2014-85%
2015-82.5%
2016-80%
2017-77.5%
2018-75%
2019-71%
2020-67%
2021-63%
2022-59%
2023-54%
2024-50%
2025-46%
2026-42%
2027-38%
2028-34%
2029-30%
2030-25%
2031-21%
2032-17%
after 2032-15%

Because HFCs are added to Title VI of the existing CAA, the essential use, labeling, nonessential product, safe alternatives, and other provisions of Title VI that currently cover class II ODS would be extended to HFCs (the wording of the HFC label would be "contributing to global warming"). Offset credits would be provided at a 20% discount on a GWP-weighted basis for destruction of CFCs after 2011. EPA could add other class I or class II ODS to the list of substances that could be destroyed for offsets credits.

Although the bill does not include an HFC excise tax, it does require HFC producers to buy production allowances either at auction or directly from EPA. 80% of the allowances are set aside for purchase by HFC producers/importers and 20% of the allowances are set aside for purchase by manufacturers/importers of equipment containing HFCs and HFC reclaimers. The minimum auction price and non-auction sales price for allowances are set in the early years of the program as follows: $1.00 per metric ton in 2012, $1.20 in 2013, and $1.40 in 2014. The minimum auction price rises to $1.60 in 2015, $1.80 in 2016, $2.00 in 2017, and then increases with inflation for the rest of the program. After 2017 the non-auction sales price is equal to the auction clearing price.

In order to get an idea of the impact of requiring HFC producers to buy allowances, the cost of allowances to manufacture HFCs used in fire protection would be the following:

The proceeds from the sale of HFC production allowances are to be deposited in the "Stratospheric Ozone and Climate Protection Fund" that is created by the bill. The funds are designated for specific uses including recycling and reclamation, Montreal Protocol Multilateral Fund, and low global warming product transition assistance. The transition assistance program would allow EPA to distribute funds to manufacturers of products containing HFCs to facilitate the transition to low-carbon alternatives. Fire protection systems are included in the list of products for which assistance would be available.