New Bill Proposes Carbon Allowance Trading for Power Plants Starting 2028

This proposed legislation, the "Tradeable Energy Performance Standards Act," aims to cut carbon dioxide (CO2) emissions by setting up a new system for larger energy facilities – think power plants generating electricity or heat with a capacity of 2 megawatts or more. Starting in 2028, these "Covered Facilities" would need to hold and submit one "emission allowance" for every metric ton of CO2 they released the previous year. The core idea is to put a price on carbon emissions from these sources and drive reductions over time.

The Allowance Game: How It Works

So, what's an "emission allowance"? It's basically a permit to emit one metric ton of CO2. The Environmental Protection Agency (EPA) Administrator would distribute these allowances annually to facilities based on their energy output (electricity or heat) and a yearly target for CO2 emissions per unit of energy. This target, called the "Output-Based CO2 Emissions Target," starts based on 2027 levels and gets progressively stricter each year through 2048. Facilities need to turn in their allowances by June 1st each year for the prior year's emissions. Importantly, allowances are only good for the year they're issued or the following year, creating a 'use it or lose it' dynamic.

Getting Your Allowances: Buy, Trade, or Pay Up

Facilities have a few ways to get the allowances they need. They'll receive some directly from the EPA based on that yearly target. If they need more, they can buy them from other facilities that have extras – the bill explicitly permits trading and mandates an allowance tracking system to monitor these transactions. There's also an option for deals between existing plants and newly built, cleaner ones through "Bilateral Purchase Agreements," potentially shifting allowances to encourage new low-emission construction.

If a facility can't get enough allowances through distribution or trading, they can opt for an "Alternative Compliance Payment" (ACP) instead. Think of it as paying a fee instead of submitting the permit. The price for this starts fixed (adjusted for inflation) from 2028-2038, then ramps up annually until it equals the "Social Cost of Carbon" by 2048. The "Social Cost of Carbon" is defined as the estimated economic damage from emitting one extra ton of CO2, a figure determined by the EPA Administrator based on specific 2023 guidelines. This ACP effectively sets a price cap on emissions for these facilities.

The Carbon Piggy Bank: Funding Green Projects

Where does the money from those Alternative Compliance Payments (and any penalties) go? It funds a new "Carbon Mitigation Fund." This fund supports an "Offset Program" that will award grants for projects designed to either avoid greenhouse gas emissions or "Permanently Sequester" carbon dioxide. The bill defines "Permanently Sequestered" as keeping CO2 out of the atmosphere for at least 200 years and requires the EPA to set up regulations for ensuring this happens safely.

Keeping Score: Rules, Penalties, and Oversight

This isn't just an honor system. Facilities that don't submit enough allowances face stiff penalties: a fine equal to three times the highest allowance price that year, plus they have to make up the shortfall with extra allowances the following year. To prevent anyone from cornering the market or causing wild price swings, the EPA Administrator must set limits on how many allowances any single entity can hold. The bill also requires the Government Accountability Office (GAO) to report to Congress every two years on how the program is working, looking at efficiency, costs, and impacts on jobs and the economy. The EPA has 24 months after the bill's enactment to finalize all the necessary regulations to get this system up and running.