[63] The bill covers emissions of the following greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (NOx), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

[64] This section describes the provisions proposed in S.A. 3546 and H.R. 4067, both titled the Climate Stewardship Act of 2004. For the full text of the bill, see web site http:// frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname= 108_cong_bills& docid=f:h4067ih.txt.pdf.

[65] The commercial sector includes government entities.

[66] In the definition of a covered entity, the clarification that the 10,000 metric ton threshold applies to emissions “from any single facility owned by the entity” was not present in the original version of the bill (S. 139). Because few commercial facilities would have emissions above the threshold, most entities in the commercial sector would be exempt. Addition of the “single facility” restriction clears up a key uncertainty in the definition of a “covered entity” in S. 139. The most recent bill also requires that all of a covered entity’s emissions be subject to allowance requirements—not just the emissions from facilities that exceed the threshold. This interpretation suggests a possible avoidance strategy: an entity might design, organize, and operate its facilities to ensure that no single facility’s emissions exceeded the threshold.

[67] The bill allows each covered entity to obtain 15 percent of its emission allowances from alternative compliance sources, including purchase of allowances from certified reduction or sequestration programs, both domestically and abroad. As an incentive for early action, entities reducing their emissions below 1990 levels by 2010 may be granted a limit of 20 percent of their target reductions from alternative compliance sources from 2010 to 2016.

[68] Covered entities would be required to submit allowances for their covered emissions or, to a limited extent, offsetting emission reduction credits from noncovered entities. Therefore, the covered emissions, less any offset credits, would be subject to the allowance cap.

[69] This provision would require the entity to show that a specific capital project is underway to reduce emissions and to return any allowances borrowed, at an effective interest rate of 10 percent per year. In addition, borrowed allowances would count against the limit on alternative compliance offsets. Therefore, in the aggregate, allowance borrowing would likely be minimal.

[70] The emissions for 2000 cited in the bill match the levels reported in U.S. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2000, EPA-430-R-02-003 (Washington, DC, April 2002), after adjusting for the residential and agricultural sectors and U.S. territories.

[71] Energy Information Administration, Analysis of S. 139, the Climate Stewardship Act of 2003, SR/OIAF/2003-02 (Washington, DC, June 2003). For the full report, see web site www.eia.doe.gov/oiaf/servicerpt/ml/pdf/sroiaf(2003) 02.pdf. For a summary, see web site www.eia.doe.gov/ oiaf/servicerpt/ml/pdf/summary.pdf. A followup analysis of the amended (single phase) version of the bill, Analysis of Senate Amendment 2028, the Climate Stewardship Act of 2003, is available at web site www.eia.doe.gov/oiaf/analysispaper/sacsa/index.html.

[72] A provision entitled “Dedicated Program for Sequestration in Agricultural Soils” would allow an entity to satisfy up to 1.5 percent of its total allowance submission requirements with registered increases in net carbon sequestration in agricultural soils. Entities would remain subject to an overall limit on offsets of 15 percent, or 20 percent if they met certain early action criteria.

[73] Refineries, as industrial entities, would be required to obtain allowance permits for the fuel they burned in refining oil, in addition to allowances for downstream emissions of the transportation fuel they sold. The costs would be passed on to consumers.