China Environmental Law

House Energy and Commerce Chair Henry Waxman (D-CA) and Energy and Environment Subcommittee Chair Ed Markey (D-MA) released their energy and climate bill yesterday.  The bill is 648 pages long, so we here at CELB haven’t had time to make it through the whole thing, but here’s our first take on the how the bill impacts China:

1. Section 728 “International Emission Allowances” permits the EPA Administrator (in consultation with the Secretary of State) to designate international climate change programs as “qualifying programs.”  US entities could only purchase emission allowances from countries that are parties to “qualified programs.”  To become qualified the program must impose “a mandatory absolute tonnage limit on greenhouse gas emissions from 1 or more foreign countries, or from 1 or more economic sectors in such a country or countries,” and, the program must be “at least as stringent as the program established by” Waxman-Markey.  If the program is qualified based on absolute tonnage limits imposed upon “1 or more economic sectors,” the allowance to be effective in the US must have been generated in one of the specifically controlled sector.  For instance, if China was part of a “qualifying program,” but had only agreed to sectoral limits on its steel industry, it appears that only emission allowances attributable to reduced emissions in China’s steel sector would qualify as an allowance in the US.  Emission reductions in China’s cement sector (if it were uncontrolled) would not qualify.

So far China has not publicly indicated a willingness to accept any “mandatory absolute tonnage limit on greenhouse gas emissions.”

2. Section 411-416. International Reserve Allowances.  Section 415 provides that “[a]fter the effective date of regulations issued by the Administrator under section 416(a), no person may import into the United States a covered good without submitting the required number of international reserve allowances in accordance with such regulations.”  Although there are a number of prerequisites that must be met before the “international reserve allowance” program is implemented, if China does not have “greenhouse gas compliance obligations commensurate with those that would apply in the United States,” its imports could conceivably require ‘international reserve allowances.”  A tariff by any other name would smell as sweet.

3. Technology Transfers.  Section D deals with “Exporting Clean Technology.”  These transfers are available to developing countries which includes those that have “signed and ratified an international treaty or agreement that requires such country to undertake nationally appropriate greenhouse gas mitigation activities.” Section 454(b)(1).

We will continue to review the bill, and it is possible that some of these initial conclusions will change or need to be amended.  At this point, however, it appears likely that the proposed “International Reserve Allowance” system will give China the most heartburn.