Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth, P.A.
800 North Magnolia Avenue, Suite 1500
P.O. Box 2346 (ZIP 32802-2346)
Orlando, FL 32803
Orlando
Fort Pierce
Viera
407-841-1200
407-423-1831 Fax
www.deanmead.com
CHARLES H. EGERTON
407-428-5112
cegerton@deanmead.com
July 27, 2009
Considering the Tax Consequences
of Carbon Credits
By
Charles H. Egerton, Esq.
Christine L. Weingart, Esq.
On June 26, the House of Representatives passed H.R. 2454, the American Clean Energy and
Security Act of 2009 (the “Waxman-Markey Bill”). In addition to other climate and
environmental protection provisions, the Waxman-Markey Bill would establish a program to cap
and reduce greenhouse gas emissions (including carbon dioxide, methane, and nitrous oxide) (the
“Cap and Trade Program”). Pursuant to the Cap and Trade Program, the Environmental
Protection Agency (“EPA”) would establish specified emission allowances to which certain
covered entities, generally utilities and fuel producers and importers, would be subject. Covered
entities would then be assessed penalties if they exceeded their emissions allowances and did not
acquire sufficient offsets. The Cap and Trade Program would include provisions for trading,
banking and borrowing, auctioning, selling, exchanging, transferring, and holding or retiring
emission allowances.
On June 16, 2009, the Senate Committee on Finance held a public hearing on the tax
considerations of the Waxman-Markey Bill, and in anticipation thereof, the Joint Committee on
Taxation prepared a white paper to discuss the fundamental tax issues raised by the Cap and
Trade Program (the “Committee Report”).i Because there is no legal precedent directly on
point, the Committee Report addresses the tax consequences of the Cap and Trade Program
under existing tax law, including analyzing analogous situations, while making recommendations
for possible legislative or regulatory action to be considered if Congress decides to alter or
specially tailor the tax conseque