Energy and Commerce Committee Chair John Dingell (D-Mich.) and ranking member Rick Boucher (D-Va.) released a “discussion draft” of their long-awaited climate change legislation today.

“This draft is the culmination of nearly two years of intensive work on climate change by the Committee and marks an important step in our ongoing efforts to address this increasingly serious problem,” wrote Dingell and Boucher in a memo to fellow committee members [PDF] today.

“Politically, scientifically, legally, and morally, the question has been settled: regulation of greenhouse gases in the United States is coming,” the legislators continued.

The 461-page draft [PDF] calls for emissions reductions of 6 percent below 2005 levels by 2020, 44 percent below 2005 levels by 2030, and 80 percent by mid-century. The emissions cap would cover approximately 88 percent of all emissions in the United States, including power plants, large industrial facilities, and the producers and importers of fossil fuels. (Here’s the executive summary [PDF] for those who don’t want to slog through the 461-page version.)

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But, as Dingell promised months ago, this is a comparatively fossil-industry-friendly bill. It promises to provide “flexibility to emitters” by including cost-containment mechanisms and allowing polluting entities to “bank and borrow” emissions allowances. (Borrowing entails using emissions allowances from future years to cover higher emissions in the present; banking entails setting emissions credits aside for future use.) Emitters would also be allowed to meet a certain percentage of their reductions through offsets. For the first five years of the program, 5 percent of the compliance obligation could come through offsets, scaling up to 35 percent by 2024.

The draft offers four different options for the initial period of credit allocations, rather than calling for one specific system. Here’s a graph [PDF] of how the allocations would be broken down under the four proposals.

The first option is to distribute 100 percent of the credits to regulated entities “without charge.” The second would allocate a portion of the offsets to covered sectors while giving more offsets to other programs that reduce emissions. The third would auction the credits and direct the funds of the auction to adaptation and international programs. The fourth would return the majority of the revenue from auction in the form of a “rebate to consumers” (approaching a so-called “cap-and-dividend” program).

Regardless of what method is selected, after 2026 all allowances would be auctioned and all funds would be returned to taxpayers in the form of a rebate. A portion of the funds under all the systems would be used for “low-income protection” under all the schemes.

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The draft also calls for a “bonus allowance system” rewarding emitters that use carbon capture and storage technology: “The discussion draft would establish a bonus allowance system in which power plants and other large emitters would be rewarded for carbon capture and storage, but at the same time would limit excess subsidies to emitters and provide greater certainty for project financing.”

The draft also includes two options for how to deal with states that have already put in place emissions regulations. The first would allow for the consideration of California’s petition for a waiver from the EPA to put in place their own tailpipe emissions standards. The second option would preempt any state standards already in place at the time the federal emissions regulations go into effect.

This is just a draft of potential legislation, meaning House members will have the winter to mull over its contents. The proposal is the most recent from House members — we can expect jostling between different committees on who gets to markup and advance a climate bill. Ways and Means Committee members Lloyd Doggett (D-Texas), Earl Blumenauer (D-Ore.), and Chris Van Hollen (D-Md.) introduced their “Climate MATTERS Act” in June, asserting that their committee properly has jurisdiction over the issue.

Ed Markey, chair of the Select Committee for Energy Independence and Global Warming, also introduced a bill this year, but his committee doesn’t have the power to mark up and advance legislation. Markey is, however, also a member of the Energy and Commerce Committee, which does have that power. Henry Waxman (D-Calif.) has also floated his own Safe Climate Act.

Last week, Markey, Waxman, and Jay Inslee (D-Wash.) announced that 152 representatives have signed on to their statement of principles for climate legislation. The principles in that statement are considerably stronger than the proposal out of Energy and Commerce today. They call for emission reductions of 80 percent below 1990 levels by 2050, for the majority of credits to be auctioned, and for states to be allowed to set higher standards than federal regulations. Neither Dingell nor Boucher was among the 152 representatives who supported those principles.

Markey issued a statement today welcoming the Dingell-Boucher bill and the debate it’s likely to spark in the House.

“This draft recognizes that, to combat global warming and unleash a clean energy revolution, America needs to set long-term targets, protect consumers, and invest in energy efficiency and clean technologies,” said Markey. “The draft legislation lays out a range of options for structuring a cap and trade system that are likely to trigger a vigorous and healthy debate about how best to reduce global warming pollution.”

“In the next year, I look forward to working with Chairmen Dingell and Boucher, our Energy and Commerce colleagues, and a new, climate-friendly administration as we put the American economy on a green road to recovery and finally solve the greatest challenge the planet has ever faced,â€� Markey continued.