Two proposals for mandatory programs on greenhouse gases have recently been discussed in the Senate. Their targets and likely effects are discussed here along with projections for the Kyoto Protocol and the existing Bush Administration Climate Change Plan, two commonly discussed alternative approaches. Senator Bingaman has offered a proposal based on recommendations made by the National Commission on Energy Policy. (See Summary of Bingaman Climate and Economy Insurance Act of 2005 .) Senators McCain and Lieberman reintroduced a modified version of their Climate Stewardship Act. (See Summary of McCain-Lieberman Climate Stewardship and Innovation Act of 2005 .) A cornerstone of both proposals is an economy-wide tradeable permits system, which imposes mandatory targets for large emitters and a market based system for meeting those targets. Such a system was used by the Clean Air Act to deal with acid rain, and is central to the Kyoto Protocol. It is, however, not part of President Bush’s Climate Initiative, which relies on voluntary action and nonbinding targets.
Senator Bingaman’s proposal differs from previous proposals that sought to impose mandatory targets in two distinct areas. First, absolute emission reduction targets are set based on emissions intensity – emissions per million dollars of GDP. Initially the goal is to reduce emissions intensity by 2.4% per year until 2019, after which the target becomes more stringent and increases to 2.8%. Despite this reduction in intensity, absolute emissions would actually grow. The Climate Initiative proposed by President Bush also set an intensity target but did not translate this target into an absolute level of mandatory reductions. (See Analysis of President Bush's Climate Change Plan .) The McCain-Lieberman proposal, in contrast, has sought to stabilize emissions at a specific level – as such it requires a greater scale of reduction as our economy continues to grow. The second significantly different element in the Bingaman proposal is a “safety value”, or price cap on the cost of greenhouse gas permits. A cost (or price) cap ensures that large emitters with targets will not have to pay more than some specified price for permits. Bingaman’s proposal sets the price cap at $7/TCO2 initially but increases this cap by 5% nominally each year (assuming a 2% rate of inflation, this implies that the price would only rise by 3% in real terms). As a point of reference, permits in the European greenhouse gas market have been trading during the summer of 2005 for over $25 USD/TCO2. A price cap gives emitters with targets some assurance about the cost of compliance but like a tax, does not ensure any specific level of reduction will occur. The EIA projects that allowance prices would reach the safety valve by 2016, causing emissions to exceed the cap after this time.
Balancing the cost of a new policy while ensuring that sufficient reductions occur to address the issue is crucial for the selection of the appropriate climate policy approach for the U.S.. The various climate policy proposals that have come forward to date have a wide range in cost, but also considerable differences in the resulting emissions reductions. The following table compares and contrasts the significant elements of current proposals that include targets - the Climate and Economy Insurance Act (proposed by Bingaman), the Climate Stewardship and Innovation Act (proposed by McCain and Lieberman), the Bush Climate Initiative, and the Kyoto Protocol. More detailed descriptions of these proposals as well as economic modeling cost projections are available on our website.
Program Element/Result [i]
Bingaman Proposal [ii]
Climate Stewardship and Innovation Act
Climate Initiative Bush Administration[v]
Mandatory / Voluntary
Absolute based on 2.4% intensity improvement 2010-2018, after 2019 target increases stringency to 2.8%
Absolute emissions 2000 emissions level after 2010
7% below 1990 levels by 2012
Intensity target goal 18% reduction by 2012
Offsetting Emissions Allowed for Compliance
Not to exceed 3%
not to exceed 15% of allowance allocation
no limits specified through Kyoto, though implementing countries have discretion
Yes - $7
(12% above 2010 levels in 2020)
(12% above 2000 levels by 2012)
EIA Estimated Emissions Reductions 2025
EIA Estimated Permit Price 2025 ($/TCO2)[x]
EIA Estimated Impact on real GDP
($135 billion in 2020)
[i] This table compares EIA’s analysis of only the greenhouse gas-trading program contained in each policy options. It does not include other policy elements, like technology incentives, that may be contained in each proposal
[ii] As modeled by EIA in Impacts of Modeled Recommendations of the National Commission on Energy Policy, April 2005, for the Cap and Trade component of the NCEP proposal.
[iii] Because the bill does not change the significant provisions related to carbon limits, this review summarizes the analysis of the previous McCain-Lieberman proposal as voted on in the U.S. Senate on October 30, 2003, Amendment 2028: The Climate Stewardship Act of 2000. A summary of the bill is available at http://wwww.c2es.org/federal/analysis/congress/108/summary-lieberman-mccain-climate-stewardship-act-2003 . Results are from EIA’s (2004), assessment of http://www.eia.doe.gov/oiaf/analysispaper/sacsa/pdf/s139amend_analysis. 
[iv] Described and analyzed by EIA (1998), Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, Report SR/OIAF/98-03, available at http://www.eia.doe.gov/oiaf/kyoto/pdf/sroiaf9803.pdf . Reduction and price estimates are taken from the “1990-3%” scenario and are based on an auction approach for GHG permits with revenue recycling through tax policy.
[v] As announced on February 14, 2004, available at www.whitehouse.gov/news/releases/2002/02/climatechange.html 
[vi] The Bingaman (NCEP) proposal calculates the target level of reductions in terms of emissions intensity based on expected future GDP growth; this target, however, is translated into an absolute emission target but because it is based on a growing economy the target grows over time. Should GDP differ from the forecasted level, the target is not affected. Utilization of the safety valve, in addition, will result in emissions above the target level of emissions reductions.
[vii] Assuming that the U.S. could meet some of its target through the use of biological sinks, the numbers represented here are those associated with EIA’s modeling of 3% below 1990 emission levels.
[viii] Estimated emission reductions have been adjusted to reflect a consistent baseline using EIA’s AEO2005 baseline assumptions. Adjustments are based on predicted percentage change applied to AEO2005 baseline levels. For example, EIA analysis suggested that McCain Lieberman reductions in 2025 would be 7,997 (-22%) million metric tonnes carbon dioxide equivalent (MMTCO2e) below their AEO2003 base case level of emissions. Utilizing the lower AEO2005 emissions baseline and assuming that a reduction of 22% implies emissions are reduced by approximately 2,180 MMTCO2e.
[ix] To convert from MTCO2 to MTC divide by 3.67.
[x] All dollars converted to $2004 constant dollars utilizing CPI.
[xi]The safety-valve permit price rises from $6.26 per metric ton in 2010 to 8.73 in 2025 (in 2004 dollars).
[xiii] Table 29 Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, Report SR/OIAF/98-03. Assuming revenue recycled through an income tax rebate.