U.S. import tariffs have gradually declined in recent decades as a result of international tariff-cutting agreements under the General Agreement on Tariffs and Trade and a succession of bilateral and multilateral preferential trade agreements.  At the same time, however, the United States has increasingly imposed conditions or restrictions on importation to further U.S. policy objectives, including on environmental issues.  The American Clean Energy and Security Act of 2009 (ACESA), introduced by Representatives Waxman and Markey, would further this trend by requiring U.S. importers of certain fossil fuels to hold emissions allowances accounting for downstream greenhouse gas emissions.

As discussed previously on ClimateIntel, Title III of ACESA would amend the Clean Air Act to provide for a national greenhouse gas emissions cap-and-trade scheme covering a wide range of emitting industries and activities.  Under Section 722(a)(2) of Title III, U.S. importers of specified fossil fuels would, for each calendar year starting in 2013, be required to hold emissions allowances in an amount covering the downstream greenhouse gas emissions resulting from the combustion of the imported fossil fuels.  The requirement applies to “covered entities,” defined in relevant part at Section 700(12)(B) as “any entity that imports, for sale or distribution in interstate commerce in 2009 or any subsequent year, petroleum-based or coal-based liquid fuel, petroleum coke, or national gas liquid, the combustion of which would emit more than 25,000 tons of carbon dioxide equivalent…”

In a related recent development also discussed on ClimateIntel, the U.S. Environmental Protection Agency on April 10, 2009, opened a 60-day public comment period on its Proposed Mandatory Greenhouse Gas Reporting Rule (Proposed Rule), pursuant to which various entities, including U.S. importers and exporters of petroleum products, would be required to report on the carbon dioxide emissions associated with the combustion of the imported products.  While ACESA does not expressly draw this link, it seems that the Proposed Rule could facilitate implementation of the bill’s emissions allowance requirements for importers.  It also seems that U.S. Customs Border Protection (CBP) would likely play a significant role in the implementation of ACESA’s importer provisions, but this role is nowhere specified in the draft legislation.

Under Section 722(a)(2) of ACESA, each covered importer would be required to hold one emissions allowance for each ton of greenhouse gases, expressed on a carbon dioxide-equivalent basis, that would be emitted from the combustion of the imported fossil fuels.  As detailed in Section 722(c), affected importers would be able, on a limited basis, to satisfy emissions allowance requirements through other means, which include offset credits, emissions allowances issued in foreign jurisdictions, and compensatory allowances.  Under the proposed statutory scheme, downstream industrial users of imported fossil fuels would be excluded from emissions allowance requirements covering use or combustion of the imported fuels.  Thus, the bill places the responsibility for U.S. emissions of imported fossil fuels - and the associated costs - in the first instance on the importers.

Covered importers of the specified types of fossil fuels would be subject, like all other covered entities, to the annual caps on emissions allowances specified in Section 721(e) of ACESA.  Section 721(e) provides a schedule that lists, for each of the years 2012 through 2050, the total number of emissions allowances to be issued.  The draft legislation nowhere specifies, however, how the fixed annual quantum of emissions allowances will be allocated among covered entities.

Section 723 sets forth significant penalties for “excess emissions.”  The owner or operator of any covered entity that does not hold adequate emissions allowances for any given year would be liable for a penalty payment amounting to the product of the number of emissions allowances that the operator at issue failed to hold by twice the market value of emissions allowances for the year in which the allowances were due.  ACESA also specifies that liability under Section 723 will not diminish liability for the same violation arising under “any other law.”  Depending on how the importer emissions allowances are implemented, such other laws could include the significant fines to which U.S. importers of record may be exposed under CBP’s penalty authority.

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