Energy Innovation and Carbon Dividend Act
Section by Section Analysis

Section 1: Short Title

Establishes title as “The Energy Innovation and Carbon Dividend Act of 2019”

Section 2: Findings (pg. 2)

Establishes the context and underlying economic premise of this policy:

  • Efficient markets strengthen our economy by encouraging competition & innovation.
  • Markets are most efficient when prices reflect all costs, including externalities.
  • Pollution costs are externalities which burden all Americans and future generations.
  • Carbon Dividends will improve market efficiency, drive innovation, and create jobs.

Section 3: Carbon Dividends and Carbon Fee – Key Components (pg. 3-29)

This section

  1. creates carbon emissions reduction targets for this policy and
  2. establishes a gradually-rising carbon fee based on the carbon content of fuels, and
  3. provides for establishment of Carbon Equalization Tariff on import and export of carbon intensive goods.

This section amends the Tax Code (Title 26) by adding the following subsections:

Subtitle L – “Carbon Dividends and Carbon Fee”

Sec. 9901 –  Definitions – Establishes additional defined terms.

Sec. 9902 –  Establishes a Carbon Fee as follows:

  1. Levies fee on certain covered fuels
  2. How the carbon fee is calculated
  3. Specifies starting fee and annual increases, (indexed to CPI) as follows
    • Year 1: $15 per metric ton of CO2-equivalent (CO2-e)
    • Fee increases $10 per ton each year ($15 if emission targets not met)
    • Fee stops increasing when emissions reach 10% of 2016 levels
  4. Exemption and refund of fee for fuels not combusted (e.g. oil used in plastics)
  5. Exemption for Military and Agriculture. Fuels for military and farm use are exempted via refund. GHGs incidental to agriculture operations but not caused by fossil fuel combustion are not subject to fee (i.e. bovine methane, rice paddy methane, etc.)

Sec. 9903 Emissions Reduction Schedule

Establishes annual targets for emission reduction for each year from 2025 through 2050. Defines reference year as 2016. Defines source metric.

Sec. 9904 – Fee is Also Levied on Fluorinated Greenhouse Gases

A fee is also levied on the GHG potential of certain fluorinated gases at 10% of carbon fee rate.

Sec. 9905 – Sunset Clause 

Decommissions the program when emissions reach 10% of 2016 level and when Carbon Dividend drops below $20 per month for 3 consecutive years.

Sec. 9906 – Carbon Capture and Sequestration 

Provides a refund of Carbon Fee paid when qualified carbon dioxide is captured and sequestered in a safe and permanent manner. Requires establishment of sound criteria for safe and permanent sequestration. Only CO2 from covered fuels, and only rebate for amount likely to remain sequestered.

Sec. 9907 – Administrative Authority

Grants rulemaking authority to Secretary and Administrator to enact the provisions of this program. Ensures no covered fuel assessed duplicative fees.

Sec. 9908Carbon Border Fee Adjustment (pg. 19 – 29)

Provides adjustment to equalize embedded carbon fee upon import and export.

  • Imports: pay difference between U.S. Fee and country of origin carried price for both fuels and carbon intensive goods
  • Exports: both fuels and carbon intensive goods are refunded fees paid less cost of carbon to be levied by jurisdiction of import
  • Special attention to compliance with WTO
  • Considers full fuel cycle GHGs to ensure symmetric pricing
  • Only foreign prices (fees, taxes, caps) considered; not foreign regulations

Sec. 9909Administration of The Carbon Border Fee Adjustment

This section describes the methodology to be used by Treasury Secretary for administering the carbon border fee adjustment. Provides measures for compliance with WTO rules and international treaties.

  • Shipments of covered fuels and carbon intensive goods from the United States to the non-contiguous territories shall be eligible for a refund of carbon fees paid.
  • Imports of covered fuels and carbon intensive goods to the non-contiguous territories shall not be subject to the carbon border fee adjustment.
  • Ensures no double-payment
  • Instructs to rely on best available methodology for interpolating data gaps
  • Petition to secretary to revise tariff assessed.

Sec. 9910Allocation of Carbon Border Fee Revenues

Revenue from Carbon Border Fee may be directed towards administrative expenses. Directions provided to Secretary of State to pursue treaty formation regarding equivalent border pricing and provides for suspension of the carbon border fee adjustment when such treaties are agreed.

Section 4: Carbon Dividend Trust Fund (pg. 30- 34)

This section establishes the Carbon Dividend Trust Fund to hold all revenue from the Carbon Fee.

Establishes a Carbon Dividends rebate system to distribute all money in the Trust Fund. Establishes maximum limits for administration expenses.

This section further amends the Tax Code by adding the following subsection:

Sec. 9512Carbon Dividend Trust Fund

  1. Establishes the Carbon Dividend Trust Fund
  2. Appropriates 100% of net fees to the Trust Fund
  3. Allows Expenditures as follows:
    • Admin costs of Trust Fund not to exceed 2% after fifth year (8% yrs 1-5)
    • Admin costs of Agencies- not to exceed 0.60%
    • Carbon Dividend Payments
      1. Secretary shall distribute remaining funds to eligible individuals
      2. Pro Rata Adults 1 share, Children half share
      3. Eligible Individuals – residents with SS Number or TIN
      4. Dividend included in gross income
      5. Dividend not included in means testing for federal or federal assisted programs
      6. Advanced Payment at start of program, recouped from future payments
  4. Grants Secretary the authority to implement and administer Trust Fund

Section 5: Limited Disclosure of Individual Information (Pg. 34-35)

Allows Treasury Department and Social Security Administration to share individual identity information for the purpose of paying Carbon Dividends under this policy.

Section 6: National Academy of Sciences Review of Efficiency and Efficacy (Pg. 35-37)

By the tenth year of the program, NAS shall study and report findings on the efficiency and effectiveness of the Act in achieving emission reduction targets in the various sectors of the economy. NAS shall make non-binding recommendations to Congress based on its findings.

Section 7: Impact of Carbon Fee on Biomass Use, Carbon Sinks, Biodiversity (Pg. 37-39)

The National Academy of Sciences shall study and report findings on whether or not this policy could adversely affect net greenhouse gas emissions from the use of biomass as an energy source or have adverse effects on carbon sinks provided by biomass and its impact on biodiversity. NAS shall make non-binding recommendations to Congress on how to prevent or mitigate such negative consequences.

Section 8: Adjustments to Duplicative GHG Regulations (pg. 39 – 46)

To avoid imposing both taxation and regulation of greenhouse gases, this section adjusts certain existing greenhouse gas regulations which would become redundant, conflicting, or duplicative by enactment of this policy.

  • Title III of the Clean Air Act is amended to provide that the EPA Administrator shall not limit (or to require states to limit) greenhouse gas emissions that are also subject to the Carbon Fee on the basis of their greenhouse gas effects.
  • EPA retains (1) all other regulatory authority over those emissions (e.g., monitoring and reporting requirements, information gathering), (2) authority to regulate greenhouse gas emissions for non-greenhouse gas effects, (3) ability to consider collateral benefits of limiting emissions based on greenhouse gas effects, and (4) to regulate any greenhouse gas that is not among the specific ones defined herein as “greenhouse gases.”
  • EPA also retains its full authority to limit GHG emissions from motor vehicles, non-road engines, and aircraft, although the latter may not be stricter that the limits imposed by the International Civil Aviation Organization.
  • EPA retains its full authority over greenhouse gas emissions from natural gas and petroleum systems (except natural gas processing plants, emissions from which are taxed under section 9002), and from publicly-owned sewage treatment plants.
  • EPA shall make a determination by March 30, 2030, and no less than once every five years thereafter, as to whether greenhouse gas emissions targets have been achieved. If those targets are not met, regulatory authority will be restored, and the EPA will issue regulations to bring emissions to levels at or below targets.

Sections 9 – 11: Housekeeping Provisions (pg. 46-47)

Section 9:  Effective Date – Carbon Fee shall begin 270 days after enactment

Section 10: Principles of Interpretation

Section 11: No Preemption of State Law

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