The cap: Each large-scale emitter, or company, will have a limit on the amount of greenhouse gas that it can emit. The firm must have an “emissions permit” for every ton of carbon dioxide it releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution that the company is allowed to emit. Over time, the limits become stricter, allowing less and less pollution, until the ultimate reduction goal is met. This is similar to the cap and trade program enacted by the Clean Air Act of 1990, which reduced the sulfur emissions that cause acid rain, and it met the goals at a much lower cost than industry or government predicted.

The trade: It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than others. These more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily. This creates a system that guarantees a set level of overall reductions, while rewarding the most efficient companies and ensuring that the cap can be met at the lowest possible cost to the economy.

The profits: If the federal government auctions the emissions permits to the companies required to reduce their emissions, it would create a large and dependable revenue stream. These financial resources could be used to achieve critical public policy objectives related to climate change mitigation and economic development. The federal government can also choose to “grandfather” allowances to the polluting firms by handing them out free based on historic or projected emissions. This would give the most benefits to those companies with higher baseline emissions that have historically done the least to reduce their pollution.

SEC. 355. LIMITATION ON ELIGIBILITY TO PURCHASE A CREDIT DEFAULT SWAP.

(a) In General- Section 4c of the Commodity Exchange Act (7 U.S.C. 6c) is amended by adding at the end the following:

`(h) Limitation on Eligibility to Purchase a Credit Default Swap- It shall be unlawful for any person to enter into a credit default swap unless the person--

`(1) owns a credit instrument which is insured by the credit default swap;

`(2) would experience financial loss if an event that is the subject of the credit default swap occurs with respect to the credit instrument; and

`(3) meets such minimum capital adequacy standards as may be established by the Commission, in consultation with the Board of Governors of the Federal Reserve System, or such more stringent minimum capital adequacy standards as may be established by or under the law of any State in which the swap is originated or entered into, or in which possession of the contract involved takes place.'.

(b) Elimination of Preemption of State Bucketing Laws Regarding Naked Credit Default Swaps- Section 12(e)(2)(B) of such Act (7 U.S.C. 16(e)(2)(B)) is amended by inserting `(other than a credit default swap in which the purchaser of the swap would not experience financial loss if an event that is the subject of the swap occurred)' before `that is excluded'.

(c) Definition of Credit Default Swap- Section 1a of such Act (7 U.S.C. 1a), as amended by section 351(a) of this Act, is amended by adding at the end the following:

`(37) CREDIT DEFAULT SWAP- The term `credit default swap' means a contract which insures a party to the contract against the risk that an entity may experience a loss of value as a result of an event specified in the contract, such as a default or credit downgrade. A credit default swap that is traded on or cleared by a registered entity shall be excluded from the definition of a security as defined in this Act and in section 2(a)(1) of the Securities Act of 1933 or section 3(a)(10) of the Securities Exchange Act of 1934, except it shall be deemed a security solely for purpose of enforcing prohibitions against insider trading in sections 10 and 16 of the Securities Exchange Act of 1934.'.

(d) Effective Date- The amendments made by this section shall be effective for credit default swaps (as defined in section 1a(37) of the Commodity Exchange Act) entered into after 60 days after the date of the enactment of this section.

SEC. 354. SETTLEMENT AND CLEARING THROUGH REGISTERED DERIVATIVES CLEARING ORGANIZATIONS.

(a) In General-

(1) APPLICATION TO EXCLUDED DERIVATIVE TRANSACTIONS-

(A) Section 2(d)(1) of the Commodity Exchange Act (7 U.S.C. 2(d)(1)) is amended--

(i) by striking `and' at the end of subparagraph (A);

(ii) by striking the period at the end of subparagraph (B) and inserting `; and'; and

(iii) by adding at the end the following:

`(C) except as provided in section 4(f), the agreement, contract, or transaction is settled and cleared through a derivatives clearing organization registered with the Commission.'

June 27, 2009

Climate Change Bill Must Be Strengthened

Public Citizen Statement

Climate change legislation that narrowly passed the House of Representatives late Friday must be strengthened. The legislation will not solve our climate crisis but will enrich already powerful oil, coal and nuclear power companies.

President Obama got it right when he announced in February his plan to impose strict new limits on greenhouse gas emissions and require polluters to pay. But HR 2454 enshrines a new legal right to pollute and gives away 85 percent of the credits to that right to polluters.

The Senate should do the following:

1. Listen to the scientists, not the lobbyists, and cut global warming emissions by 80 percent below 1990 levels by 2050.

2. Require polluters to pay for emissions credits - don't hand them out for free, thereby providing financial windfalls to coal and oil power plant owners. The nuclear utility Exelon bragged this week to investors that the climate bill will provide it $1 billion in extra profit per year. In addition, giving away allowances deprives the government of money needed to invest in clean technologies.

3. Don't rely on Wall Street to get climate change right. Under the bill, the price of pollution would be determined by a trillion-dollar derivatives market that could be similar to the one that helped sink our economy into its current depressed state.

4. Boost the amount of renewable energy utilities must use. The first draft of the bill would have required utilities to produce 25 percent of their power from renewable energy by 2025; that figure has shrunk to 20 percent, and additional loopholes prompted the American Wind Energy Association to conclude that the renewable standard will result in "effectively zero" new renewables.

5. Remove the "carbon tax" that households would have to pay. This pot of money would be controlled by the utilities and used to fund only carbon capture projects by coal utilities. The bill doesn't, but should, provide money to help homeowners pay for such as things as weatherization or to receive rebates for rooftop solar.

6. Protect consumers - not utility profits. The legislation's primary "consumer protection" provision distributes free pollution allowances to electric and natural gas utilities with the assumption that the 50 different state utility commissions will redirect all that money back to consumers. But there's a reason corporate utilities have called this provision "critical": they understand that they will be able to direct a portion of that money to their shareholders instead. Public Citizen supports directing money directly to households as President Obama proposed earlier this year.