Natural Resources and Electricity Cap-and-Trade Act

A BILL

To establish the principles and practices for sustainable natural resource extraction and electric power generation and transmission in the United States.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

(a) This Act may be cited as the ‘‘Natural Resources and Electricity Cap-and-Trade Act.”

SEC. 2. FINDINGS AND DECLARATIONS.

(a) The Congress finds that—

(1) Ecological and economic sustainability requires the conservation of natural resources at the beginning of the economic production process and the limitation of production as an outcome of the process;

(2) a sustainable level of natural resource extraction and a sustainable electric power generation and transmission system are crucial elements of sustainable economic activity, or a “steady state economy”;

(3) renewable natural resources may be harvested sustainably at levels that comport with the environmental and ecological conditions of their long-term maintenance;

(4) nonrenewable natural resources may be harvested until their stocks are depleted, and thenceforth are available only by reuse and recycling;

(5) harvesting of natural resources has environmental, ecological, and economic impacts, such that it may not be prudent to strive for the maximum sustainable yield of renewable natural resources and the harvesting of nonrenewable natural resources until they are depleted;

(6) a cap-and-trade market for specific natural resource extraction activities can encourage private, non-corporate actors to limit their extractive activity;

(7) a cap-and-trade market for megawatt hours, limited to trading among electric power utilities, can encourage electric power producers to choose the least costly approach to electricity-generation reduction;

(8) the preponderance of wholesale electric power markets compels expanded federal regulation of these markets and their Regional Transmission Organizations and Independent System Operators;

(9) the interstate and regional wholesale price effects of state-level renewable energy initiatives require additional federal regulation of the relevant electric power consumer markets;

(10) the difficult and complex verification requirements of cap-and-trade offset markets require their circumscription or prohibition; and

(11) the critical role of inexpensive power and modest levels of inelastic consumer demand calls for a federal pricing model to ensure conservation and equity.

(b) The Congress declares that—

(1) it is the policy of the Federal Government to limit the extraction of renewable and nonrenewable vital natural resources;

(2) it is the policy of the Federal Government to establish a timber and pulp cap-and-trade system for purposes of sustainable forest management;

(3) it is the policy of the Federal Government to establish an iron ore cap-and-trade system for purposes of sustainable iron management;

(4) it is the policy of the Federal Government to cap and then reduce the aggregate electricity generation of the nation’s electric power system;

(5) it is the policy of the Federal Government to regulate more completely regional and interstate wholesale electric power markets; and

(6) it is the policy of the Federal Government to promulgate, for residential and commercial users of the U.S. electric power system, pricing standards that cross-subsidize the most inelastic segments of their electric power demand.

SEC. 3. DEFINITIONS.

(a) In this Act—

(1) the term “Act” refers to the Natural Resources and Electricity Cap-and-Trade Act;

(2) the term “allowance” means a defined portion of any cap, distributed by grant or auction;

(3) the term “cap-and-trade” means any trading system in which extraction of natural resources or emissions of pollutants are limited in the aggregate, may be subject to annual declining limits, and are allocated by allowances among designated market participants, and in which these market participants may engage in the buying and selling of surplus allowances;

(4) the term “Commissioner” refers to the Commissioner of the Federal Energy Regulatory Commission;

(5) the term “electric power generating company” means any company that conducts electric power generation activities, which it then sells directly to consumers or in wholesale markets to retail energy providers that do not conduct electric power generation activities;

(6) the term “estimated proportional price” means the megawatt-hour rate established by the conventional electric power pricing model, under which system usage rates do not vary by usage amount;

(7) the term “FERC” refers to the Federal Energy Regulatory Commission;

(8) the term “Forest Service”” refers to the U.S. Forest Service in the U.S. Department of Agriculture;

(9) the term “offset” means any allowance obtained by purchase from any regulated entity that has earned the allowance by any practice verified to have reduced the entity’s normal natural resource consumption or electricity generation;

(10) the term “REA” refers to the Renewable Energy Assistance fund;

(11) The term “electric utility company” means any company, including any electric power generating company and any retail energy provider, in the business of selling electric power to residential and commercial consumers in markets regulated by their respective state utility commission;

(12) the term “reserve price” means a floor or minimum price for trading within a regulated market;

(13) the term “Secretary” refers to the U.S. Secretary of the Treasury;

(14) the term “Sustainable Forestry Initiative” refers to the Washington, D.C.-based 501c3 non-profit organization that develops and administers sustainability standards and certification programs for forest management, fiber sourcing, and chain of custody;

(15) the term “USDA” refers to the United States Department of Agriculture;

(16) the term “USER” refers to the Utility Seasonal Emergency Relief fund; and

(17) the term “wholesale electric power market” means the system of interstate trading of electric power between electric power utilities.

SEC. 4. TIMBER AND PULP CAP AND TRADE.

(a) GENERAL RULE.—There is hereby established a national cap-and-trade system for timber harvests and for the companion regulation of timber and finished lumber products and domestic pulp processing, to be administered by the Forest Service.

(b) CAP-AND-TRADE ALLOWANCE ISSUANCE.—The Forest Service shall establish a cap for national timber harvests, a 10-year schedule of declining annual limits, and a permit allocation schedule based on industry share.

(c) DECLINING ANNUAL LIMIT SCHEDULE.—The Forest Service shall establish its 10-year schedule of declining annual limits pursuant to the 2022 Sustainable Forestry Initiative Forest Management Standard requirements for no net deforestation or forest degradation and for the prohibition of the conversion of natural forests to plantation forests.

(d) ALLOWANCE OBLIGATION.—Any eligible participating timber harvesting company is required to acquire and surrender allowances equal to their annual compliance obligation.

(e) CAP-AND-TRADE ALLOWANCE PRICING.—The Forest Service shall establish a two-part allowance pricing schedule under which 90 percent of the total allowances shall be allocated free of charge to timber harvesting companies and the remaining 10 percent shall be sold to these companies by single-bid, uniform-price auction, as administered by the Forest Service.

(f) TRADING ELIGIBILITY.—The buying and selling of surplus timber harvesting allowances shall be limited to U.S. timber harvesting corporations and U.S.-based subsidiaries of foreign timber harvesting corporations and to private, non-corporate forest owners, with forested lands equal to or greater than 100 acres.

(g) CAP-AND-TRADE ALLOWANCE TRADING PRICE STANDARD.— The Forest Service shall establish a reserve price for the intercompany allowance trade market, which shall include all allowances purchased initially by single-bid, uniform price auction.

(h) OFFSET PURCHASES.—The purchase of offsets is limited to any timber harvesting company and to 3 percent of its annual allocation, and the sum of its annual offset purchases plus unsold current year allowances may not exceed 100 percent of the company’s previous year’s allowance allocation.

(i) BANKED ALLOWANCES.—The banking of unused allowances is prohibited.

(j) OFFSET SALES.—The sale of offsets is limited to private, non-corporate landowners who adhere to Forest Service standards for the preservation, protection, and managed growth of non-commercial timber stands, deemed equivalent to no net loss of forested land in the succeeding 25-year period.

(k) COMMENCEMENT.—The Timber and Pulp Cap-and-Trade system shall commence allowance allocations and trading operations beginning January 1, 2028.

(l) APPLICATION AND ADMINISTRATION.—The Timber and Pulp Cap-and-Trade system shall be administered by the Chief of the Forest Service and announced no later than July 1, 2027.

SEC. 5. STATE FOREST ACTION PLANS.

(a) GENERAL RULE.—There is hereby established a revised mandate for all state Forest Action Plans, established by the 2008 Farm Bill and updated in 2015 and 2020.

(b) FOREST ACTION PLAN REVISION AND MANDATE.—For privately-owned timber stands exceeding 10 acres, all property owners shall include as a necessary condition for any timber sale the registration of a timber management plan approved by a forester with Certified Forester credentials as authorized by the Society of American Foresters.

(c) CERTIFIED FORESTER COMPENSATION.—For each timber management plan review, any approved privately-employed forester, possessing the SAF Certified Forester credential, shall be compensated by the Forest Service on a per-acre schedule, accounting for differing initial and update review charges, approved by the Chief of the Forest Service.

(d) TIMBER MANAGEMENT PLAN FEES.—For privately-owned timber stands exceeding 10 acres, which shall be required to register a certified timber management plan, as defined by section 5(b), all states shall be prohibited from assessing any associated management plan fees.

(e) COMMENCEMENT.—All state Forest Action Plan mandates and related rules shall be implemented beginning January 1, 2028.

(f) APPLICATION AND ADMINISTRATION.—The requirements for the revised state Forest Action Plans shall be implemented by the Chief of the Forest Service, and announced no later than July 1, 2027.

SEC. 6. IRON ORE EXTRACTION CAP-AND-TRADE PROGRAM.

(a) GENERAL RULE.—There is hereby established a national cap-and-trade system for iron ore mining, to be administered by the Office of Surface Mining Reclamation and Enforcement in the U.S. Department of the Interior.

(b) TRADING ELIGIBILITY.—Each iron ore mining company operating one or more mines in the United States shall participate in the national Iron Ore Extraction Cap-and-Trade program, and shall act as a trading partner with any other participating company.

(c) CAP-AND-TRADE ALLOWANCE ALLOCATIONS.—Each iron ore mining company shall receive an allocation of allowances based on its share of national industry production, as certified by the Office of Surface Mining Reclamation and Enforcement for the five-year period preceding the establishment of the national Iron Ore Extraction Cap-and-Trade system.

(d) CAP-AND-TRADE ALLOWANCE PRICING.—The Office of Surface Mining Reclamation and Enforcement shall allocate iron ore extraction allowances to each iron ore mining company without auction sales or allowance fees.

(e) BANKED ALLOWANCES.—The banking of unused allowances is permitted, at a rate of up to 5 percent of the previous year’s allocation for each participating mining company, but banked allowances cannot be carried over beyond the current calendar year.

(f) TRADING LIMITS.—Any mining company shall be subject to the following limits in the trading of unused extraction allowances:

(1) The sale of unused allowances shall be limited to 10 percent of the seller’s total allowance allocation.

(2) The purchase of unused allowances shall be limited to 5 percent of the buyer’s total allowance allocation.

(g) COMMENCEMENT.—The national Iron Ore Extraction Cap-and-Trade program shall begin trading activity on January 1, 2028.

(h) APPLICATION AND ADMINISTRATION.—The trading rules of the national Iron Ore Extraction Cap-and-Trade program shall be administered by the Office of Surface Mining Reclamation and Enforcement, and shall be announced no later than July 1, 2027.

SEC. 7. FEDERAL CAP-AND-TRADE SYSTEM FOR WHOLESALE ELECTRICITY MARKETS.

(a) GENERAL RULE.—There is hereby established a national cap-and-trade system for electricity markets, to be regulated by the FERC.

(b) CAP-AND-TRADE ALLOWANCE ISSUANCE.—The FERC shall establish a cap for national electricity generation, in megawatt hours, a 10-year schedule of declining annual limits, and an allowance allocation schedule based on industry share.

(c) ALLOWANCE OBLIGATION.—Electric power generating companies are required to acquire, sell, or bank allowances equal to their annual system allocation.

(d) CAP-AND-TRADE ALLOWANCE PRICING.—The FERC shall establish a two-part allowance pricing schedule under which 90 percent of the total allowances shall be allocated free of charge to electric power generating companies and the remaining 10 percent shall be sold to these companies by single-bid, uniform-price auction, to be administered by the FERC.

(e) CAP-AND-TRADE ALLOWANCE TRADING LIMITS.—The buying and selling of surplus electricity-generation allowances shall be limited to electric power generating companies.

(f) CAP-AND-TRADE ALLOWANCE TRADING PRICE STANDARD.—The FERC shall establish a reserve price of $25 per megawatt hour for the intercompany allowance trade market, which shall include all allowances purchased initially by single-bid, uniform-price auction.

(g) PROHIBITION OF OFFSETS.—In its cap-and-trade megawatt-hour trading market, the FERC shall prohibit the purchase of megawatt-hour offset credits from any entity other than an electric power generating company.

(h) BANKED ALLOWANCES.—Any unsold and unused annual allowance may be banked by any participating electric power generating company, but shall not exceed 3 percent of that year’s allocation, and shall expire at the end of the following calendar year.

(i) TRADING LIMITS.—Any participating electric power generating company shall be subject to the following limits in the trading of unused electricity-generation allowances:

(1) The sale of unused allowances shall be limited to 10 percent of the seller’s total allowance allocation.

(2) The purchase of unused allowances shall be limited to 5 percent of the buyer’s total allowance allocation.

(j) COMMENCEMENT.—This Electricity Cap-and-Trade system shall commence allowance allocations and trading operations beginning January 1, 2028.

(k) APPLICATION AND ADMINISTRATION.—The introduction of this Electricity Cap-and-Trade system shall be administered by the Commissioner and announced no later than July 1, 2027.

SEC. 8. FEDERAL ELECTRICITY CONSUMER PRICING STANDARDS.

(a) GENERAL RULE.—The FERC is hereby authorized to develop and promulgate national electricity consumer pricing standards.

(b) RESIDENTIAL AND INDUSTRY SUSTAINABLE AND EQUITABLE USAGE STANDARDS RULE.—The FERC shall develop a schedule of sustainable and equitable electricity usage levels for all classes of residential structures and industries.

(c) PUBLICATION OF CONSERVATION STANDARD PRICE SCHEDULE.—The FERC shall publish a schedule that establishes sustainable and equitable usage standards, by residential unit and industry classification, under which any residential or commercial electric power consumer is eligible for cross-subsidized electric power rates.

(d) DETERMINATION OF PRICE SCHEDULE AND PRICE TIER RATES.—In consideration of regional cost differences, the FERC shall determine a regionally differentiated price schedule that meets three standards—

(1) a cross-subsidized Tier One rate for electric power consumption established at a megawatt-hour price equal to 50 percent of the estimated proportional price;

(2) Tier Two and Tier Three price standards established at two progressively higher prices sufficient to offset the reduced electric utility income associated with the cross-subsidized Tier One price, plus a Tier Three penalty margin of sufficient magnitude to discourage Tier Three consumption levels; and

(3) the application of Tier Two and Tier Three pricing levels only for usage in excess of any recommended Tier One or Tier Two usage ceiling.

(e) PROMULGATION OF PRICE SCHEDULE.—The Commissioner shall publish the price schedule no later than September 1, 2028.

(f) STATE PUBLIC UTILITY COMMISSION PRICE STANDARD REQUIREMENT.—All state utility commissions shall be required to adopt the applicable regional conservation price schedule adopted and approved by the FERC.

(g) COMMENCEMENT.—These electric power pricing standards shall be introduced for any state utility commission adoption beginning January 1, 2028.

(h) APPLICATION AND ADMINISTRATION.—The adoption and certification of adoption of the electric power pricing standards shall be administered by the Commissioner and announced no later than July 1, 2027.

SEC. 9. FEDERAL CAP-AND-TRADE SYSTEM AUCTION REVENUE.

(a) GENERAL RULE.—The FERC shall collect all revenue associated with the national cap-and-trade allocation of allowances by auction, as defined in section 7(d), and shall deposit this revenue into two greenhouse gas reduction funds established by the Department of the Treasury and the FERC.

(b) ESTABLISHMENT OF GREENHOUSE GAS REDUCTION FUNDS.—As repositories for all revenue received in the auction for megawatt-hours allowances, as defined in section 7(c), the FERC shall establish—

(1) the Renewable Energy Assistance (REA) Fund; and

(2) the Utility Seasonal Emergency Relief (USER) Fund.

(c) ALLOCATION OF GREENHOUSE REDUCTION FUNDS.—All revenue received in the auction for megawatt-hours allowances, as defined in section 7(d), shall be deposited into the two funds established in section 9(b) on the following basis—

(1) 75 percent of all auction proceeds shall be deposited into the REA Fund; and

(2) 25 percent of all auction proceeds shall be deposited into the USER Fund.

(d) COMMENCEMENT.—The REA and USER Funds shall be established at the Department of the Treasury on January 1, 2028.

(e) APPLICATION AND ADMINISTRATION.—The REA and USER Funds shall be administered by the Secretary and the Commissioner, and the requirements for fund disbursements shall be announced no later than July 1, 2027.

SEC. 10. GREENHOUSE GAS REDUCTION FUNDS OPERATION.

(a) GENERAL RULE.—The FERC shall develop regulations pursuant to the operation of the REA and USER Funds that shall include eligibility requirements for electric utility companies; eligible categories of assistance and relief; and factors that shall determine the maximum allowable assistance or relief for each eligible entity.

(b) ELIGIBILITY.—Proceeds from the REA and USER Funds, established and defined in sections 9(a), 9(b), and 9(c), shall be made available to any electric utility company, eligible to participate in the national cap-and-trade market established in section 7 or under the standards defined in section 8(f), on the following basis:

(1) REA fund eligibility rules shall reflect the need for equitable renewable energy generation subsidy or renewable energy research and development assistance.

(2) USER fund eligibility rules shall reflect the need for emergency assistance due to seasonal climate extremes and associated consumer demand fluctuations.

(c) EMERGENCY REALLOCATION OF GREENHOUSE GAS REDUCTION FUND BALANCES.—REA and USER Fund balances may be reallocated by the Commissioner on the basis of extraordinary USER fund requests for assistance, or rising amounts of deferred REA fund requests and declining USER fund requests, subject to approval by Congress.

(d) COMMENCEMENT.—Disbursements from the REA and USER Funds may commence after July 1, 2028.

(e) APPLICATION AND ADMINISTRATION.—The REA and USER Funds shall be administered by the Secretary and the Commissioner.

SEC. 11. IRON ORE EXTRACTION CAP-AND-TRADE PROGRAM: VIOLATIONS, PENALTIES, AND ENFORCEMENT.

(a) GENERAL RULE.—There is hereby established a penalty for any violations of allocation limits imposed by the Office of Surface Mining Reclamation and Enforcement connected to the domestic mining of iron ore.

(b) COMMENCEMENT.—All penalties established in section 11(a) shall be enforced by the Director, Office of Surface Mining Reclamation and Enforcement, beginning on January 1, 2028.

(c) APPLICATION AND ADMINISTRATION.—The methods of determination of any violation or penalty up to $10,000,000 per offense shall be determined by the Director, Office of Surface Mining Reclamation and Enforcement.

SEC. 12. ELECTRICITY CAP-AND-TRADE PROGRAM: VIOLATIONS, PENALTIES, AND ENFORCEMENT.

(a) GENERAL RULE.—There is hereby established a series of penalties for violations of the caps, allowance limits, and offset prohibitions imposed in sections 7(b), 7(c), and 7(g).

(b) ELECTRIC POWER GENERATING COMPANIES.—Any eligible electric power generating company in violation of the allowance limits or offset prohibitions established by sections 7(b) and 7(g) of this Act shall be subject to criminal penalties of up to $1,000,000 per offense, as imposed by the FERC.

(c) COMMENCEMENT.—All penalties established in sections 12(b) shall be enforced by the Commissioner beginning on January 1, 2028.

(d) APPLICATION AND ADMINISTRATION.—The methods of determination of violations and of penalty assessment shall be determined by the Commissioner and published in the Federal Register no later than September 1, 2027.