The U.S. House of Representatives passed the American Clean Energy and Security Act (ACES) in June of this year. Originally called the Waxman-Markey bill, it is popularly known as “cap and trade.” It contains more than 1,000 new federal regulations through 21 federal agencies to control energy use and production.

These controls put limitations on the use of fossil fuels as a major source of energy supply and shift the focus on renewable energy and energy efficiency. Texas, one of the leading energy suppliers for the U.S., will be significantly impacted by the bill.

The Texas Public Policy Foundation, a non-profit, non-partisan research institute, has issued a policy perspective based on its study of the energy bill. It found it to be a very complex bill that will cost $822 billion according to the Congressional Budget Office. However, the CBO estimates that the indirect carbon tax imposed on energy users will generate revenues of $846 billion to the U.S. Treasury. The Foundation claims this tax will result in “another nearly trillion dollar burden on American taxpayers” as the cost of energy rises for the consumer.

Title III of the bill is the “cap and trade” section concerned with reducing global warming pollution. It puts limits or caps on seven greenhouse gases (ghg), one of which is carbon dioxide. The EPA is the agency that will enforce caps by restricting the number of emissions for each calendar year. “Covered entities” - those sources of pollution subject to direct regulation - will cover all sectors of the economy: industrial, commercial, transportation and residential. All must remain in their allowable emissions cap. According to the study the EPA will somehow calculate the allowable emission level or carbon cap for each covered entity. “To comply with the carbon caps, each covered entity must hold enough ‘allowances’ to meet their prescribed emission level. An allowance is defined as limited authorization to emit one ton of CO2 equivalent ghg emissions.” However, entities can get offset credits if they have used up their emission allowances. These credits are authorized volumes of greenhouse gas emissions that the EPA has set aside and can be purchased, prorated, or traded by the various entities.

The initial allowances of the total greenhouse gas emissions allocated by the bill would be a 35% allowance to the electricity sector, 5% to coal generators, 2% to oil refining, 8% to natural gas, 30% to government programs and 15% to trade industries. Allowances not spent will be put in a federal reserve to be auctioned annually by the EPA.

The President’s budget called for an initial auction of 100% of the allowances to generate revenue. But the House bill did not address this, according to the Texas Public Policy Foundation research. It said: “Many observers of this bill’s evolution from committee to House floor claim that the allowances were not allocated according to a formula, but to gain necessary votes. The result is disparate impact among regions, states, and industries. California’s electric sector evidently has more allowances than it needs and can sell them. Texas, evidently, falls far short.”

In other sections of the bill Congress finds that oil is a danger to the security of the U.S. because it is imported from unfriendly nations. The use of alcohol fuels, ethanol and methanol, is recommended to put an end to oil’s dominance in the transportation sector. But the Foundation says Congress has failed to mention that most U.S. oil imports come from Canada and Mexico, which are considered friendly nations. It also says there is no recognition in the bill of the need for more domestic production of oil and natural gas. Ethanol, it says, has inherent limitations and cannot “meet a significant portion of transportation fuel demand.”

There are new federal standards for energy efficiency in the bill. Among them will be mandates for federal building codes for commercial buildings, residences and manufactured homes. It also gives detailed guidelines for lighting and appliances, and a wide range of consumer products will have to have carbon output labels. These requirements will increase consumer cost, according to the Foundation. Energy saving standards would apply to all institutions including utilities, industries, hospitals and schools. Failure to comply with the federal energy standards could result in criminal charges.

The Senate version of the energy or climate bill has passed the Environment and Public Works Committee and is being further crafted before it is presented to the full Senate for a vote. If the House and Senate bills differ, they will be sent to a conference committee to reconcile and then presented for a vote. If the energy legislation is passed, it will be sent to the President to sign into law.

To read more information about the Texas Public Policy Foundation’s research go to www.texaspolicy.com.