Supreme Court Hears Arguments Regarding "Absurd Results" and Permitting for Greenhouse Gases

On February 24th, the Supreme Court heard oral arguments in Utility Air Regulatory Group v. EPA- the case which challenges EPA's attempt to phase in permitting requirements for sources of greenhouse gases (GHGs).  In the end, the case may be much to do about nothing...except another example of how congressional gridlock prevents logical resolutions to complex issues.

 

 

Challenge to EPA's Tailoring Rule

In Massachusetts v. EPA, the Supreme Court upheld the ability of EPA to regulate GHGs from motor vehicles (the so called "Tailpipe Rule").  In that decision the Court determined that the term "any air pollutant" included GHGs so long as EPA determined GHGs were a threat to public health and environment.

EPA determined GHGs were a threat to public health and the environment in its "Endangerment Finding."  The Supreme Court declined to hear the case challenging EPA's finding. Following EPA's determination, GHGs officially became a regulated air pollutant under the Clean Air Act.

Following EPA's Endangerment Finding, EPA concluded that complex federal permitting requirements (PSD and Title V) would also be triggered for sources of GHG because the term "any air pollutant" was used in that portion of the Clean Air Act as well.  Pursuant to that section of the Act, any facility that emits more the 100/250 tons per year of a pollutant regulated under the Act must go through EPA's New Source Review (NSR) program. As part of NSR, new sources or existing sources that are modified must demonstrate they have installed Best Available Control Technology (BACT) to reduce emissions of each regulated air permit.

Because GHGs are emitted in much greater quantities than typical Clean Air Act pollutants, EPA was concerned that application of the 100/250 ton per year threshold to GHGs would trigger thousands of permits. EPA indicated the Agency and States did not have the capacity to process that number of permits.

To address the situation, EPA promulgated the Tailoring Rule to temporarily raise the permitting thresholds. Under the first stage of the Tailoring Rule, new facilities that emit 100,000 tons per year of carbon dioxide-equivalent and existing facilities that increase their emissions by 75,000 tons per year of carbon dioxide-equivalent will trigger NSR,

Petitioners challenged EPA's Tailoring Rule by arguing EPA did not have the authority to simply re-write the statute.  They also pointed to language in the PSD portion of the Clean Air Act which suggests PSD was meant to apply to pollutants with local impacts, not global impacts.  Industry challengers were concerned that allowing 90 different state and local permitting authorities to decide what constituted BACT for GHGs would be chaos.

Justices Highlight the "Absurdity" of EPA's Proposal

EPA justified its Tailoring Rule based on the legal theory that it would temporarily adjust the 250/100 trigger thresholds because applying those thresholds immediately to GHGs would lead to "absurd results."  

Justice Kagan noted that the purpose of the 250/100 trigger thresholds were to differentiate between large and small sources.  Justices Breyer and Alito followed that point by noting EPA's position was illogical in that EPA said the trigger thresholds led to absurd results, yet EPA would eventually work toward utilizing those thresholds for GHGs.

Clearly, the Justices were highlighting a core issue with EPA's Tailoring Rule.  Perhaps it would have been better to simply pick a more logical threshold for GHGs that would have differentiated between large and small sources of GHGs.  

EPA's attorney basically acknowledged that may have been a better approach, but EPA was concerned simply coming up with an entirely new threshold went beyond its authority.  EPA argued, rather than totally eliminating the 250/100 thresholds for GHGs, EPA would re-interpret other policy positions to try capture only larger sources.  For example, EPA could look at a source's actual emissions versus their potential-to-emit (assumed operation 24/7) when determining if the 250/100 ton threshold was exceeded for GHGs.

EPA's argument seems pretty weak.  It is not simply the administrative burden of regulating thousands and thousands of sources of GHGs.  Rather, it is the fact such approach clearly goes against the intent of the Clean Air Act PSD regulations to regulate only large sources.  The Court seemed troubled by EPA's attempt to temporarily raise permitting thresholds.

Challenge to EPA's Tailoring Rule Becomes "Much to do About Nothing"

While the Court seemed troubled by EPA's approach, even if it vacates the Tailoring Rule, the Court's decision will likely have very little impact on EPA's overall effort to regulate GHGs.

Challengers conceded in their briefs that EPA has the authority to regulate GHGs from sources of other pollutants subject to National Ambient Air Quality Standards (NAAQS) for which geographic area is in attainment (referred to as "anyway sources").  As noted by Chief Justice Roberts, this construction would allow EPA to regulate 83% of GHG stationary source emissions versus 86% under EPA's more expansive reading.

When Justices pressed why they should care about a fight over 3% of the emissions, EPA's attorney argued such an interpretation would be inconsistent with EPA's prior interpretations. However, Justice Breyer noted that such an interpretation "does less violence" to the Clean Air Act than EPA's proposed ratcheting up of the 250/100 trigger thresholds.  

Based on questioning from the Justices, the most likely outcome of the case is that only 3% of emissions will be impacted either way.  

Supreme Court Argument Highlights the Problem with an Ineffectual Congress

Virtually everyone, including EPA, concedes the 250/100 tons thresholds don't make sense when applied to GHGs.  EPA has previously admitted that the Clean Air Act, as currently constructed, is ill suited for regulation of GHGs.  However, with Congress unable to compromise, the country is left with the false choice of doing nothing to combat climate change or utilize an Act that was last amended nearly 25 years ago.

The stakes on climate change are simply too high to be left with this result.  The "do nothing" approach on climate change is a non-starter.  However, the uncertainty and "absurdity" that results from using the current Clean Air Act construct to regulate GHGs has unreasonable implications for industry.  

Climate change regulation has greater implications for the county than, perhaps, even the original issues that shaped the Clean Air Act.  Yet, the inability of Congress to reach middle ground will result in the institution of imperfect and impractical climate change regulations. 

[Photo courtesy www.TheEnvironmentalBlog.org]

Reality Check: Impact of President Obama's Climate Change Initiative on Coal Fired Power Plants

 On September 30th, the Congressional Research Service released a very interesting report titled "EPA Standards for Greenhouse Gas Emissions from Power Plants: Many Questions, Some Answers."  The report was prepared as a review of the effect of recent new Clean Air Act regulations on existing and future coal fired power plants.

How New Source Performance Standards (NSPS) Were Triggered for Coal Plants

Since the Supreme Court's decision in Massachusetts v. EPA, greenhouse gases have been considered a pollutant under the Clean Air Act.  As a pollutant, EPA has regulatory authority to reduce emissions under the existing authority provided under the Act if it determined regulation was necessary.

In December 2009, EPA followed the Supreme Court decision with its "endangerment finding" with regard to emissions of GHGs. The finding was that GHGs "may reasonably be anticipated to endanger public health and welfare" as a result of climate change.  This key finding triggered the requirement to regulated GHGs under the Clean Air Act.

According to EPA, coal fired power plants roughly account for one third of all man made GHGs emissions in the United States.  Under Section 111 of the Clean Air Act, EPA must set air emission standards for categories of sources that cause or contribute significantly to air pollution.  As the largest source of GHGs, EPA was legally required to move forward with establishing regulations under Section 111.

Once EPA establishes NSPS standards for new sources, under Section 111(d) it must then promulgate NSPS standards for existing sources.

EPA Establishes NSPS Regulations for New Coal Fired Powered Plants 

In 2012, EPA initially proposed NSPS standards for new coal fired power plants.  The EPA received a large number of comments and decided to re-propose NSPS standards in September 2013.  

The re-proposed standard would set a limit of 1,100 pounds of carbon dioxide (CO2) per megawatt-hour (MWh) of electricity generated for coal fired electric generating units (EGUs).  The EPA also set a standard of 1,000 or 1,100 lbs/MWh for new natural gas fired boilers.  The effect of the rule is that new coal fired power plants would have to basically have equivalent emissions to a natural gas plant.

EPA stated in its proposal that a new coal fired power plant produces roughly 1,800 lbs. CO2/MWh. Therefore, new plants would need to achieve a 40% reduction in emissions to be equivalent to natural gas plants.

The only technology that could possibly achieve a 40% reduction is carbon capture and storage (CCS).  However, CCS poses a number of unique challenges.  First, it roughly uses 30% of the energy a plant would generate to transport and store the CO2 below ground.  Second, industry argues that it is still not a proven technology.

The "War on Coal"

Industry believes the EPA's NSPS proposal for new coal fired power plants effectively ensures no new plants will be constructed.  Between the lost efficiency in having to transport and store C02 and the lack of reliability of CCS as a control technology, coal will no longer be competitive with natural gas for future electric generating units.  For these reasons, the industry has argued that EPA is engaged in a "war on coal."

EPA argues that the technology has been proven and the rule is necessary in order to motivate industry to improve CCS technology.  EPA cites to prior examples where the Clean Air Act spurred technological development at much less cost than anticipated.

While the fight over the NSPS standard for new plants is intense, the real issue is EPA's future promulgation of an NSPS standard applicable to existing sources.  The average coal-fired power plant is approximately 40 years old.  Requiring CCS on plants that are close to retirement seems highly unlikely.

EPA seems to be suggesting that the NSPS for existing sources will push for efficiency improvements in order to reduce emissions rather than CCS.  Even if the NSPS for existing sources is more flexible than for new plants, it will still increase compliance costs for existing coal plants.  

Key Observations in the CSR Report 

The Congressional Report regarding EPA's NSPS standards concludes that the argument over the "war on coal" is largely symbolic.  The report notes that the cheap cost of natural gas is really causing the shift away from coal power, not EPA regulations.  The report notes:

"The debate over EPA's proposed carbon pollution standard for new power plants is largely symbolic, and is characterized by exaggeration on both sides.

  • It is symbolic because this rule by itself will have little impact.  Its real significance is that without the promulgation of a rule for new sources, EPA cannot, under the Clean Air Act, proceed to regulate existing sources.  It sis the standards for those existing plants that may actually reduce the nations' GHG emissions, and in the process, could have significant impacts on coal-fired electricity.
  • It is exaggerated because both EPA and the affected industries describe the rule itself as having far more impact than it will.

"Gas is projected by most experts to be cheap and abundant for the foreseeable future.  Since the early 1990's, new coal-fired plants have accounted for less than 10% of new power-generating capacity.  In these conditions, the electric power industry is likely to continue what it has already been doing for two decades:  building gas-fired plants (or relying on renewable sources) when it needs new capacity."

"The coal industry is unhappy with this, and has tended to place the blame for its current difficulties on EPA; but, actually, the market is the key factor in coal's recent decline...The net result is that coal is simply not competitive with natural gas in most areas."

With so much intensity surrounding the debate regarding EPA's NSPS standard for new coal fired power plants, the report serves as reality check.

EPA Maintains Tailoring Rule Thresholds for Greenhouse Gas Permitting...But the Clock is Ticking

Last month, the D.C. Circuit Court of Appeals rejected challenges to U.S. EPA's Tailoring Rule which establishes the permitting threshold for greenhouse gas (GHG) pollutants.  On July 3rd, EPA issued a rulemaking that will maintain the current GHG thresholds for the immediate future.  The question is how long before environmental groups push EPA to lower the thresholds?

Tailoring Rule

Pursuant to the Clean Air Act, any facility that emits more the 100/250 tons per year of a pollutant regulated under the Act must go through EPA's New Source Review  (NSR) program.  As part of NSR, new sources or existing sources that are modified must demonstrate they have installed Best Available Control Technology (BACT) to reduce emissions of each regulated air permit.

Once EPA promulgated the Tailpipe Rule to control GHG emissions from vehicles, GHG's became a "regulated pollutant" for purpose of NSR.  Once GHGs became a  "regulated pollutant" any source that emits GHGs above applicable thresholds would trigger NSR.

Because GHGs are emitted in much greater quantities than typical Clean Air Act pollutants, EPA was concerned that application of the 100/250 ton per year threshold to GHGs would trigger thousands of permits. EPA and the States did not have the capacity to process that number of permits. 

To address the situation, EPA promulgated the Tailoring Rule to temporarily raise the permitting thresholds.  Under the first stage of the Tailoring Rule, new facilities that emit 100,000 tons per year of carbon dioxide-equivalent and existing facilities that increase their emissions by 75,000 tons per year of carbon dioxide-equivalent will trigger NSR.

EPA Must Eventually Lower GHG Thresholds

In the July 3rd action, EPA said that the States and EPA did not have the capacity to process additional NSR permit that would be required if it lowered the threshold.  Therefore, it kept the trigger thresholds at 100,000 and 75,000 tons per year. EPA pointed to the economy's impacted on federal and state budgets as one reason that permitting authorities lacked additional capacity to process a greater number of permits.

EPA has announced that it will study the burdens associated with lowering GHG thresholds by April 30, 2015.  EPA has said, following completion of the study, that it will review the permitting thresholds and determine if they should be lowered by April 30, 2016.

The EPA must eventually lower the thresholds.  The 100/250 ton per year trigger threshold for NSR is in the Clean Air Act.  EPA amend the trigger threshold through rulemaking (i.e. the Tailoring Rule).  To support the Tailoring Rule, EPA relied on legal precedent that EPA says provides it authority to adjust the statutory thresholds through rulemaking temporarily.

How Long Before EPA is Pressured to Lower the Thresholds?

In their comments to EPA's proposed rule, environmental groups urged EPA to lower the permitting thresholds.  In an article appearing in BNA, David Doniger, policy director for the Natural Resource Defense Council's (NRDC) Climate Center, indicated the organization would support EPA position...for now.

“Certainly, this holding things level knocks the legs out from under the feverish claims that EPA was on the march to get to hotdog stands,” Doniger said. “This signals that there's great reluctance on EPA's part to get beyond the largest sources.”

While the NRDC and other groups are willing to hold off for now, its clear that their expectation is EPA will lower the thresholds in 2016.  It will be very difficult for EPA to maintain that there is no ability to process additional permits by that date. 

EPA Applies Plantwide Applicability Limits (PALs) to GHGs

A PAL is a site-specific plantwide emission level for a pollutant that allows the source to make changes at the facility without triggering the requirements of the PSD program, provided emissions do not exceed the PAL level.  Instead of a facility having to analyze each emission unit as a potential modification that may exceed NSR thresholds, the PAL says as long as overall plant emissions form all sources do not exceed the PAL, the facility will not trigger NSR.

In the July 3rd rulemaking, EPA is  revising the PAL regulations to allow for GHG PALs to be established on a CO2e basis.  This should provide more flexibility and reduce the number of permits that would otherwise be triggered through plant modifications.

 

Court Validates EPA's Approach to Regulating Greenhouse Gases....What is next?

In perhaps the biggest environmental decision in decades, the D.C. Circuit Court of Appeals upheld all aspects of EPA's complex regulation of greenhouse gases under the Clean Air Act.  Each piece of EPA regulation was controversial, yet the Court validated the overall approach paving the way for future action by EPA. 

Flashback several years ago, when the Obama Administration stated its preference was to enact cap-and-trade legislation to address climate change.  The Administration it preferred Congressional action rather than using the authority under the Clean Air Act which it saw as ill-suited for regulation of GHGs.  In an attempt to encourage a reluctant Congress to act on the controversial legislation, EPA threatened that it would proceed with enacting regulations under its existing Clean Air Act authority.   

Congressional efforts to pass cap-and-trade failed, while EPA continued to march forward with regulations.  Like a series of dominoes, once the initial regulations were promulgated successive regulation followed capturing more sources.  Here is a brief re-cap of EPA's actions:

  • Endangerment Finding- before regulating greenhouse gases (GHGs) from motor vehicles, the Supreme Court told EPA in Massachusetts v. EPA that the Agency must first determine whether GHG emissions "endanger public health;"
  • Tailpipe Rule-  After making the determination GHG motor vehicle emissions did endanger public health, EPA enacted standards for emissions from motor vehicles under the Tailpipe rule;
  • "Regulated Pollutant"-  Under the CAA's structure, once a pollutant becomes "regulated" from any source, stationary sources must comply with New Source Review (NSR) requirements.  The CAA establishes a permitting threshold of 100/250 tons per year for any "regulated pollutant."  EPA issued the "timing rule" to clarify that GHGs from factories and other so called "stationary sources" would be covered by NSR once the Tailpipe standards were effective.
  • Tailoring Rule-  EPA determined that automatic application of the 100/250 ton threshold for stationary sources would overwhelm regulatory agencies,  The Agency estimated federal permit applications would jump from 280 per year to 81,000 per year. To soften the blow of inclusion of GHG emissions in NSR permitting, EPA enacted the Tailoring Rule.  Through the rule, EPA temporarily raised the permitting trigger thresholds from the CAA 100/250 tons up to 75,000 tons per year.

Industry and some States filed challenges to each of the rules discussed above.  The Court consolidated those challenges and on June 26th, the D.C. Circuit issued its opinion in Coalition for Responsible Regulation, Inc. v. EPA, No. 09-1322 (D.C. Cir. June 26, 2012).   The Court rejected all of the Coalition's challenges to each of the EPA rules. 

While an appeal to the Supreme Court is likely, the D.C. Circuit often cited to the Supreme Court's decision in Massachusetts v. EPA to support upholding the EPA rules.  Therefore, it is quite possible the Supreme Court will reject a petition to hear an appeal.

Notable Findings of the D.C. Circuit

The importance of Court's decision cannot be overstated.  The most fundamental finding was the Court upheld every aspect of EPA's overall regulatory strategy for GHGs.  Here are some other key findings of the Court:

  1. Science v. Policy-  The Court said that EPA's was directed by the CAA to make its Endangerment finding based purely on science, not policy.  Petitioners wanted EPA to consider other factors, such as: implications on the economy; whether GHG regulation would be effective in mitigating climate change; and whether society would simply adapt to climate change. The Court held EPA was limited to making a determination as to whether GHGs from motor vehicles endanger public health and welfare based  purely upon science.  The Court noted that EPA relied upon reviews of some 18,000 peer reviewed scientific studies in concluding GHG emissions do endanger public health.
  2. Precautionary Principle-  The Petitioners challenged EPA's Endangerment Finding because it did not specifically determine the level of atmospheric concentration of GHGs that endanger public health (i.e. the safe levels of GHGs).  The Court found the CAA is "precautionary and preventive" in nature.  In other words, EPA need not establish with certainty that climate change is occurring and will cause specific harms.  EPA only needed to find that the scientific evidence show its reasonable to anticipate dangers to public health if GHGs are not controlled.
  3. Those Who Benefit from Reduced Regulation Don't Have Standing to Challenge the Reduction-  Of all the EPA climate change rule-making, the Tailoring Rule seemed to be the most susceptible to legal challenge.  EPA, in essence, re-wrote a statue through rule-making.  This is typically not a power granted the executive over the legislative branch of government.  Perhaps to avoid confronting the issue, the Court held the petitioners had no standing to challenge the relaxation of the 100/250 ton per year permitting threshold in the Tailoring Rule because petitioners only benefit from the rule.  The Court questioned why Petitioners would want the rule struck down triggering thousands of federal permits.
  4. Court Says Congressional Action Unlikely-  In commentary, the Court said it hat "serious doubts" that Congress will ever enact legislation addressing Climate Change. 

What's Next?

If the decision stands, it paves the way for EPA to proceed with stricter regulation using its existing CAA authority. EPA could proceed without any Congressional action.

Even though EPA's Tailoring Rule was upheld, the Agency will be forced to slowly ratchet down over time the permitting threshold.  Unless Congress acts, EPA will be forced to require permits from more and more sources, including smaller commercial buildings.

EPA is also likely to follow with additional GHG regulations.  EPA will likely adopt new GHG emission threshold standards for major source categories.  It is even possible that EPA will implement National Ambient Air Quality Standards (NAAQS) for regulation of GHGs.  Use of the NAAQS could force each of the states to adopt there own GHG regulations on sources.

While EPA marches forward with complex GHG regulations, as things stand, it appears the Court is right in its prediction that Congress will not take action.    Any sort of  cap and trade bill appears dead. With the division between Republicans and Democrats over the issue, it appears Congressional reform of the CAA to better fit GHG regulation is highly unlikely.

EPA Decides Not to Ratchet Down Federal Permitting Thresholds for Greenhouse Gases

On February 24th, U.S. EPA announced that it would keep in tact the greenhouse gas (GHGs) thresholds for when federal permitting requirements would be triggered.  In announcing that it would not ratchet down the trigger thresholds, EPA said state permitting authorities need more time to develop proper infrastructure as well as expertise in GHG permitting.

Under EPA's Tailoring Rule, EPA put in place much higher thresholds for when federal permitting would be triggered than appear in the Clean Air Act.  The Act says any source with emissions of a regulated pollutant of 100/250 tons per year (tpy) should obtain a federal permit.  This threshold would apply to GHGs but for the Tailoring Rule.

EPA said that applying 100/250 tpy triggers would result in hundreds of thousands of federal permits.  Therefore, to avoid these "absurd results" EPA relaxed the standard through the Tailoring Rule.  Step 1 of the Tailoring Rule applied to sources that trigger federal permitting anyway.  Step 2 instituted a 100,000 tpy threshold for GHGs emitting from new sources and existing sources and any increase of 75,000 tpy of GHGs from existing sources would trigger permitting.

In Step 3 of the Tailoring Rule EPA was to examine the progress the states made in implementing the new trigger thresholds for GHGs.  EPA said it would consider whether to lower the threshold to 50,000 tpy. 

EPA's Step 3 Keeps 100,000 TPY and 75,000 TPY Triggers in Place

Under EPA's proposed Step 3 rule, new facilities with GHGs emissions of 100,000 tons per year (tpy) of carbon dioxide equivalent (CO2e) will be required to obtain a federal air permit (known as a "PSD permit").  Existing facilities that emit 100,000 tpy of CO2e and make changes that increase the GHG emission by at least 75,000 tpy CO2e will also trigger a PSD permit. Facilities that must obtain a PSD permit anyway in order to include other regulated pollutants, must also address GHG emission increases of 75,000 tpy or more of CO2e. New and existing sources with GHG emissions above 100,000 tpy CO2e must also obtain operating permits.

The proposal is in the 45 day public comment period after it is published in the federal register.  There will also be a public hearing on March 20, 2012.

EPA's Walks Tightrope in Administering the Tailoring Rue

In my last post, I discussed the current legal challenge to EPA's climate change regulations, including the Tailoring Rule.  I pointed out that the challenge to the Tailoring Rule is the most likely to succeed because EPA claims it can re-write a statute (the Clean Air Act) through regulation.

In arguing it has the authority to change the trigger standards in the Clean Air Act through rulemaking, EPA points to the legal theory that applying the statutory thresholds (100/250 tpy) would result in absurd results- thousands of permits that would flood both EPA and the states. 

The tightrope EPA is walking is that, even if it has the legal authority to support the Tailoring Rule, it must still eventually ratchet down the GHG triggers to 100/250 tpy.  In an election year, it was highly unlikely EPA would have moved the thresholds down to 50,000 tpy of CO2e in Step 3 of the Tailoring Rule as EPA previously suggested it might do. 

EPA made the right choice.  However, EPA action comes at the same time when the Tailoring Rule is being challenged in federal court.  The Court may be less likely to buy EPA's argument that it will get to the 100/250 thresholds eventually when it decided to keep in place the initial thresholds and not demonstrate progress toward reaching the statutory thresholds.. 
 

Court Hears Two Days of Oral Argument over the Future of Climate Change Regulation

The future direction of climate change regulation in the United States will turn on the decision of the U.S. Court of Appeals for the District Court of Columbia (D.C. Circuit) following two days of oral argument.  A decision is expected as soon as this June..  There is no doubt that this may be the most significant environmental decision since the Supreme Court's ruling in Massachusetts v. EPA in which the Court determined CO2 and other greenhouse gases (GHGs) were a "pollutant" under the Clean Air Act.

EPA Climate Change Strategy

Following the Supreme Court's decision, EPA launched a major regulatory effort pertaining to control and reduction of greenhouse gases. Those regulations include:

  • Endangerment Finding-  EPA's determination that GHGs are a threat to public health and welfare and, therefore, should be regulated under the Clean Air Act
  • Tailpipe Rule- establishes GHG emission standards for light-duty vehicles
  • Application of GHG to federal permitting requirements- inclusion of GHGs as a pollutant to be considered in federal permitting such as New Source Review (NSR)
  • "Tailoring Rule"-  EPA's attempt to reduce the number of sources covered under the federal permitting requirements for GHGs by raising the trigger thresholds

All of the industry challenges to U.S. EPA's major rulemaking efforts were consolidated into a single appeal- Coalition for Responsible Regulation Inc. v. EPA.  The coalition includes oil & gas, manufacturing, construction, chemical industry, other industry and select states. 

The two most significant challenges relate to the Endangerment Finding and EPA's Tailoring Rule.

Argument Involving the Endangerment Finding

In order for EPA to regulate GHGs through tailpipe emission standards, the Agency first had to make the determination that GHGs threaten public health and welfare. (i.e. the "Endangerment Finding").  The Coalition challenged EPA finding which goes to the core of whether EPA should be regulating GHGs under the Clean Air Act.

Comments from the Judges during the argument would suggest that industry has an uphill battle in successfully challenging EPA's decision. 

The attorney representing the Chamber argued that EPA should have considered the fact that people will simply adapt by migrating to cooler climates.  He argued that if people migrate there may be no danger to public health. 

Judge Tatel responded "How can the they [EPA] predict that migration patterns would be sufficient to overcome danger."  He also suggested that under the theory offered, EPA shouldn't regulate pollutants as a carcinogen because some day there may be a cure for cancer.

 It seems unlikely the Court is going to second guess the Agency's evaluation of the science behind the endangerment finding.

Arguments over Tailoring Rule

 If the challenge to the Endangerment finding goes at the science behind EPA's regulations, the challenge to EPA's tailoring rule goes to how the Agency proposes to implement its regulations.  As discussed on this blog before, while the challenge to EPA Tailoring Rule may be strong, it is a high-stakes gamble due to the uncertainty if the Coalition wins.

The argument is strong because the Clean Air Act itself contains the trigger for when a emissions of a pollutant are high enough to fall under federal air permitting regulations such as NSR.  The standard is 250 tons per year.

If 250 tons per year were to be applied to GHGs, thousands of sources would be regulated.  Even office buildings could require a federal air permit due to their energy use. 

EPA recognizing the "absurd" results of using the 250 ton per year threshold for GHGs, tailored the trigger level through rulemaking.  EPA said it will only initially regulate sources that emit between 75,000 to 100,000 tons per year of GHGs.  EPA said overtime it would slowly ratchet down the trigger level through rulemaking until it is in sync with the 250 tons per year standard appearing in the Clean Air Act.

The Coalition lawyers argued that EPA's attempt to re-write the Clean Air Act was clear evidence the Act was not suited to regulate GHGs.  The Coalition argued the EPA re-write was illegal and should be thrown out.

Judge Sentelle said in response " The harm you allege is regulatory burden.  The remedy you seek is a heavier regulatory burden.  That doesn't even make good nonsense."

High Stakes Gamble

The Coalition may be on the right side of the law when it says EPA does not have the power to rewrite the Clean Air Act.  However, they are gambling that this will force Congress to Act to address the Supreme Court's decision in Massachusetts v. EPA.  The Coalition wants Congress to remove GHGs as a pollutant under the Clean Air Act.

With gridlock in Washington it just seems very unlikely that this will happen.  What could be left if the challenge to EPA's Tailoring Rule is successful, is a 250 ton per year standard that applies to GHGs.  This is something even the EPA was desperately trying to avoid.

 

Next Round of EPA Rules and Litigation Involving Regulation of CO2

In early November, the EPA sent to OMB the next significant regulation governing greenhouse gas emissions.  Under the latest rule, EPA would establish CO2 emission standards for new and modified coal-fired power plants. 

The new rule is titled the Greenhouse Gas New Source Performance Standard (NSPS) for Electric Utility Steam Generating Units.  The NSPS standards are based on the best demonstrated technology (BDT) that has been demonstrated to work in a given industry, considering economic costs and other factors. The standard can vary from source to source. It could be a numerical emission limit, a design standard, an equipment standard, or a work practice standard.

The proposal will clearly be the next in an ongoing debate regarding EPA regulations and jobs. 

EPA States:

“EPA will work with OMB throughout the interagency review process and will issue the proposal when this review is complete,” said EPA spokeswoman Betsaida Alcantara. “EPA has engaged in an extensive and open public process to gather the latest and best information.”

In a story in the LA Times, the Heritage Foundation attacked the latest EPA proposal:

"We don’t believe that unelected bureaucrats should be doing what Congress was elected to do," said Nicolas Loris, policy analyst at the Heritage Foundation, which has battled the EPA regulation of carbon from the outset. “The economic costs of regulation by the EPA or by a cap-and-trade system far outweighs any environmental benefit we would get from these measures."

Asked how the Heritage Foundation would like to see this problem addressed, he added: "First we need to step back and look at what the real problem is: CO2 isn’t black smoke that is emitted from factories; it’s a colorless, odorless gas. Does it contribute to global warming and climate change? Sure. But it’s the role of Congress to figure out the best way to address those effects in a way that protects our economy."

Inability of Congress to Act Leave Void EPA Has Authority to Fill

In Congress, there appears to be no pragmatists anymore, especially when it comes to EPA regulatory authority.  The approach from either side tends to be all or nothing..

With Congress deadlocked the policy vacuum will be filled.  In this case, EPA has the authority under the Clean Air Act to regulate greenhouse gases (GHGs).  The Supreme Court in Massachusetts v. EPA already declared CO2 and the other GHGs a "pollutant" under the Clean Air Act that can be regulated.

In fact, EPA has been sued multiple times to exercise this authority.  As long as the Clean Air Act remains unchanged, the Court cases are generally going to support EPA's authority.  While the Heritage Foundation is correct that CO2 is much different than the other "pollutants" regulated under the Clean Air Act, unless Congress acts to change the law to treat it differently EPA will and is legally obligated to implement new regulations. 

D.C. Circuit Panel Selected to Hear Challenges to EPA's Existing GHG Rules

While EPA is poised to issue its NSPS to control CO2 from power plants, its earlier GHG regulations have been challenged.  There are two main GHGs rules being challenged:

  1. EPA's "endangerment finding"- a prerequisite to regulating GHGs from motor vehicles.  In making the finding, EPA was required to review the latest science and determine whether GHGs endanger human health and the environment. 
  2. EPA's "Tailoring Rule"- EPA recognizes that CO2 is emitted in orders of magnitude greater quantities compared to other Clean Air Act pollutants.  In an effort to make the existing structure of the Clean Air Act fit GHGs, EPA issued the tailoring rule which raised the trigger thresholds for certain federal permitting requirements (i.e. New Source Review) even though the triggers appear in the Clean Air Act itself.

The panel in the D.C. Circuit that will be hearing these challenges was recently announced.  An excellent article on Greenwire discusses the three judges on the D.C. Circuit panel.  The judges are Chief Judge David Sentelle, a conservative appointed by President Reagan, and two Clinton appointees: Judge Judith Rogers and Judge David Tatel. From the article:

All three had some involvement when the court tackled Massachusetts v. EPA, the case that -- once it went up to the Supreme Court -- ultimately gave EPA the authority to regulate carbon emissions.

Lawyers familiar with the litigation over the rules say the panel probably favors EPA based on each judge's record in environmental cases and regulatory cases in general.

Overall, the panel "will examine the arguments fairly but rigorously," said Jonathan Adler, who heads the Center for Business Law and Regulation at Case Western Reserve University School of Law.
"This may appear to be a panel predisposed to support the EPA, but it is also a panel that is not likely to let the EPA get away with slipshod arguments," he added.

The "tailoring" rule, which interprets the Clean Air Act in such a way that only major polluters are required to obtain permits for greenhouse gas emissions, is the one that is viewed to be most vulnerable. Critics say it essentially rewrites the Clean Air Act.

Given the scientific foundation that supports the conclusions climate change is real and humans are contributing to the problem, it is unlikely that the Court will overturn EPA's Endangerment Finding.  However, as discussed in the article and in prior posts, EPA "Tailoring Rule" is based on a house of cards.  A fundamental axiom of the law is you cannot rewrite a statute through rulemaking.

 

Supreme Court Bars Federal Nuisance Climate Change Suit

Today, the U.S. Supreme Court released their opinion in AEP v. Connecticut  in which the Court held that the Clean Air Act ("CAA") and the EPA actions on regulating greenhouse gas emissions displaced any federal common-law right to seek greenhouse gas emission reductions.  The suit was filed by Eastern States and non-profit land groups against coal-fired power plants in an attempt to have court order emission reductions. Businesses were deeply concerned that if the Court allowed the nuisance case to proceed, the courts would be flooded with climate change litigation.

Legal Ruling

The States had argued their nuisance claims were not displaced because EPA had not yet established final emission standards.  The Court stated the displacement test is simply "whether the statute speaks directly to the question at issue." In other words, if the statute give authority to act that is enough to displace federal common law.

The Court noted that in  Massachusetts v. EPA it had previously held:

  • Emissions of carbon dioxide qualify as air pollution subject to the CAA. 
  • CAA Section 111 gives authority to EPA to list categories of stationary sources that cause or contribute significantly to air pollution that "endangers public health and welfare"  (categories would include coal-fired power plants)
  • Once a category is listed under Section 111, EPA must establish performance standards for new or modified sources within that category
  • CAA also will require regulation of existing sources in the category
  • If EPA fails to act in setting standards, States and private parties may petition for a rulemaking on the matter, and EPA’s response will be reviewable in federal court.

For these reasons, the Court held it was clear the CAA "speaks directly" to the emission of carbon dioxide from the defendant's coal-fired power plants.

Implications of Today's Ruling

  1. Prevents "Flood" of Federal Nuisance Claims- Obviously today's ruling is very good news for those who feared the courts could be flooded with climate change litigation under federal common law. 
  2. Possible State Nuisance Claims-  The Court notes that the issue before them was limited to actions under federal nuisance, it does not address nuisance claims based upon state law.  The Supreme Court sent the case back to the Second Circuit to determine if state nuisance claims are pre-empted by the CAA.  This leaves open a huge issue that could likely result in yet another Supreme Court ruling.
  3. EPA v. Courts-  In its opinion the Supreme Court stated its preference for EPA to decide appropriate emission reductions, not the courts.   The Court said EPA, with all its expertise, is in a better position to balance competing interests and establish standards. 
  4. Tacit Endorsement of EPA Regulatory Authority- The key battle right now are EPA's regulatory actions to move forward with emission standards for greenhouse gases.  Some have asserted EPA's actions demonstrate the Agency is "out of control."  The Supreme Court's decision makes clear, once again, EPA has the authority to regulate greenhouse gases.  Also, the Court notes repeatedly, if EPA fails to act in establishing those standards it can be compelled to act by private parties. 

 

Congressional Dance on Greenhouse Gas Regs Appears Pointless Without Compromise

The AP is reporting that the Republican controlled House is expected to introduce legislation shortly that will strip all authority from U.S. EPA to regulate greenhouse gases (GHGs) under its existing authority in the Clean Air Act.  This would specifically target the EPA's endangerment finding and could possibly go as far as saying GHGs are not a "pollutant" under the Clean Air Act.

The soon introduced legislation will be very aggressive according to a recent AP article:

Officials said the House bill, which was to be offered Wednesday, would nullify all of the steps the EPA has taken to date on the issue, including a finding that greenhouse gases endanger public health.

In addition, it seeks to strip the agency of its authority to use the law in any future attempts to crack down on the emissions from factories, utilities and other stationary sources.

The House bill joins similar efforts in the Senate:

Republicans are attempting similar restrictions in the Senate, where the political situation is more complicated. Sen. John Barrasso of Wyoming has introduced a more sweeping measure than the one House Republicans are drafting. At the same time, Sen. Jay Rockefeller, D-W.Va., has proposed a two-year moratorium on EPA attempts to regulate greenhouse gases, a plan that already has attracted a handful of Democratic supporters.

It will be very difficult to pass through the Senate the aggressive measures that will likely be included in the House bill.  Only the proposed 2 year delay of implementation is likely to pass the Senate.  Even if something does pass, the legislative efforts appear futile based on comments in an article appearing in Politico from Lisa Jackson, U.S. EPA Administrator:

“What has been said from the White House is that the president’s advisers would advise him to veto any legislation that passed that would take away EPA’s greenhouse gas authority,” Jackson told reporters on Capitol Hill. “Nothing has changed.”

Any Room for Real Compromise?

During the State of the Union, President Obama announced a plan to mandate 80% of the nation's electricity from renewable sources by 2035.  The President signaled a willingness to consider an expansive definition of "renewable energy" that would include nuclear, clean coal and natural gas.  The President suggested financing energy projects by slashing $4 billion annually in government subsidies to oil and gas companies.

Many see the President's proposal of a national renewable energy standard as a switch in strategy now that cap and trade is dead.  While there was no mention of climate change in the President's speech, the renewable standard is seen as, perhaps, less distasteful means of reducing GHGs.  More importantly, it has some possibility of getting a few Republicans on board.

Republicans and the U.S. Chamber seem cool to the President's plan.  However, reality is that U.S. EPA has moved forward and will continue to implement new GHG regulations under its existing authority.  The convoluted and complex rules need to prevented. (See, prior post Regulation under CAA "Absurd")

Perhaps a bill implementing a renewable energy standard offers a mechanism in which the Administration would find palatable a reduction or prohibition on EPA's GHG regulatory authority.  Before dismissing the President's plan, similar to the tax deal, Republicans should see what they could get as part of a broader compromise.  Because without compromise, EPA will continue to issue GHG regulations through 2012.

Congress Attempts to Block EPA GHG Power; Ohio Moves Forward

As discussed in the Wall Street Journal, it didn't take long before a flurry of bills were introduced in Congress to stop EPA from moving forward with its controversial greenhouse gas (GHGs) regulations.  After passage of the deal to extend Bush era tax cuts, halting EPA efforts is seen as the next major action needed to continue the nation's economic recovery.

All the bills are aimed at either stripping or delaying EPA's ability to regulate GHGs under the Clean Air Act.  Here is a summary from the Wall Street Journal:

It has been just one day since the start of the new Congress and lawmakers have already introduced at least four bills to cripple or altogether block the administration from working on greenhouse-gas standards.

Sen. Jay Rockefeller (D., W.Va.) got the ball rolling in the U.S. Senate Thursday with a bill that prevents the Environmental Protection Agency from enforcing its greenhouse-gas requirements for two years.

Meanwhile, in the House, Marsha Blackburn (R., Tenn.) proposed a bill Wednesday that blocks the EPA from regulating carbon dioxide and other greenhouse-gas emissions under the Clean Air Act.

Rep. Ted Poe (R., Texas) introduced legislation that same day that prevents the EPA from receiving funding for any type of cap-and-trade program for greenhouse gases.

On Thursday, Rep. Shelley Moore Capitol (R., W.Va.) announced a bill to suspend the EPA's work on greenhouse gases for two years.

Ohio Signs Emergency Rules to Prevent Regulation of Small Sources

While Congress tries to block EPA, Ohio has moved forward with implementation of the EPA rules at the State level.  On December 30th, Governor Strickland signed emergency rules which will be effective for 90 days to essentially adopt U.S. EPA's Tailoring Rule.  The Tailoring Rule raises the trigger level for federal permitting as a result of GHG emissions from levels in the Clean Air Act of 100/250 tons per year to 75,000 tons per year for GHGs.

Strickland and Governor-Elect John Kasich received letters of support for this rule package from major Ohio employers, such as: Ohio Chemistry Technology Council, Procter & Gamble, BASF Chemical Company, Lubrizol, AEP, INEOS ABS Corp., GFS Chemicals, Capital Resin Corporation, Americas Styrenics, Dover Chemical Corp., and ISP. 

By enacting the rules, the trigger threshold has been raised so that only very large sources of GHGs face the new permitting requirements.  Without the rules, Ohio would arguably have had more stringent standards and could potentially have required to seek federal permits from thousands of sources.

To read the executive order, emergency rules or the industry support letters click here.

Federal Court Rejects Industry Plea to Delay EPA Greenhouse Gas Rules

The D.C. Circuit Court of Appeals has rejected an industry request to delay implementation of U.S. EPA's greenhouse gas permitting requirements.  Industry had requested a stay on the effectiveness of the rules while it proceeds with its full legal challenge to the Agency's Endangerment Finding. 

(Prior Post Discussing Lawsuit and Industry Arguments for Blocking the Effectiveness of the EPA GHG Rules)

Beginning in a matter of weeks, large new and modified sources of greenhouse gases will be required to analyze available methods for reducing emissions of GHGs as part of the federal permitting process- New Source Review Program.

Attention will now most assuredly turn to Congress which will debate legislative proposals to place either a temporary or permanent hold on implementation of the EPA rules.  However, there is no doubt such legislation is not going to happen quickly.  Therefore, implementation of the EPA requirements will commence in January.

Best coverage of the story appeared in the Washington Post.  The article offered these two perspectives on the Court's decision:

Scott Segal, a lobbyist at Bracewell Giuliani, a firm that represents utilities, refiners, cement companies and manufacturers, said that if companies can't meet requirements, then "the court may have ensured an effective construction moratorium for industrial and power projects. Given the state of the economy, the decision is certainly not a welcome holiday present."

But Nilles said that companies were exaggerating the difficulty of meeting EPA standards. He said that years ago when regulations about acid rain were imposed, "industry promised that the sky would fall, and it didn't."

 

Cap and Trade or Command and Control?

With prospects dead for federal cap and trade climate change legislation, the focus for market mechanisms to reduce greenhouse gas (GHG) emissions shifts to the states.  Meanwhile, as discussed in my last post,  EPA is left moving forward with its command and control regulations to reduce GHGs under the Clean Air Act.

After the defeat of Proposition 23, California's climate change programs are moving forward including cap and trade which is planned to start in 2012. California is in talks to link their carbon trading market with New Mexico, British Columbia, Ontario and Quebec.  There is even a possibility of linking the market to the 10 Northeast states already operating a trading program for power plants- RGGI. 

Now an interesting concept is being proposed that would allow states using market mechanisms to reduce GHGs to be exempt from EPA's command and control regulations. The following appeared in article in Reuters,

U.S. states with cap-and-trade laws want the Obama administration to add their carbon markets into new federal greenhouse-gas regulations, a California environmental official said.

State-run carbon-trading programs should be "treated as equivalents or substitutes" for Environmental Protection Agency regulations for emissions tied to global warming from power plants, oil refineries and factories, Mary Nichols, Chairman of the California Air Resources Board, said yesterday in a telephone interview.

This is an interesting proposition.  Would EPA allow state cap and trade programs to replace regulations under the Clean Air Act such as New Source Review (NSR) or New Source Performance Standards (NSPS)?

It may set up an interesting dynamic where states that have adopted market mechanisms for reducing GHG emissions are put at an advantage to states subject to the myriad of EPA command and control regulations.  While cap and trade has recently received a very bad name, putting these two regulatory approaches side-by-side may breathe new life into cap and trade as a more business friendly means of reducing GHG emissions.

Target Date of Climate Legislation- 2014?

While the political and policy focus is clearly on the Country's struggling economy, caught within that debate is U.S. policy on climate change.  As the economy continued to languish this summer, any hope of a cap and trade bill emerging from Congress died. 

The bill was a victim of a Congress that created a Christmas tree of regulation out of a basic market-based concept.    In the end the bill was labeled  "cap and tax."  And who raises taxes during the middle of a recession?

In fact, who passes any major piece of environmental legislation during a bad economy?  While I don't subscribe to all the viewpoints of the organization, a fascinating chart featured in an article by Daniel Weiss appearing on the Center for American Progress website paints a vivid historical picture that ties the state of the economy to the prospects for passage of major environmental legislation. 

This from the article:

"The first Clean Air Act, Clean Water Act, Endangered Species Act, and Resource Conservation and Recovery Act (hazardous waste disposal) were all enacted when unemployment was 6 percent or lower. Unemployment is 50 percent higher now. Only four major environmental laws were enacted with annual unemployment over 7 percent, and none with unemployment greater than 7.5 percent. Unemployment averaged 9.3 percent in 2009 and 9.7 through September 2010."

The Congressional Budget Office provided testimony in August 2010 that the economy faces a slow recovery.  Some have coined the phrase a "jobless recovery."  The CBO says the unemployment rate, currently at 9.5 percent, will not fall to around 5 percent until 2014.

Coupling the CBO forecast with the historical track record on passing environmental legislation, climate change legislation may not have a serious hope of passing until 2014 or later. 

With no legislative alternative, EPA will continue move its climate regulatory agenda forward.  Environmentalists will continue to push nuisance claims in the courts.  Unfortunately, the inefficiencies of "command and control" regulation and litigation will be the U.S. policy on climate change for the foreseeable future.

[Note:  The New Yorker's, Ryan Lizza, has an very interesting article on the inside the beltway politics regarding cap and trade legislation.  A grand bargain between environmental groups and industry was scuttled by poor timing, unfortunate events and political infighting] 

Business Groups Seek Stay of EPA Climate Change Rules for Stationary Sources

A coalition of business groups, including the National Association of Manufacturers, have filed a request to block the effectiveness of EPA's climate change rulemaking.  The business groups have filed a motion seeking a stay of the effectiveness of EPA regulations that will soon require stationary sources (factories, utilities and boilers) to reduce greenhouse gas (GHGs) emissions from those sources beginning in 2011.

There are two interesting strategic decisions that emerge from the brief filed seeking a stay of EPA's GHG rules:

  • Business groups are not trying to block the mandatory GHG rules pertaining to motor vehicles; and
  • The stay would not be of EPA's Tailoring Rule, but would seek to block any legal ability to begin regulating GHGs from stationary sources

The Clean Air Act requires all sources emitting above 100/250 tons per year of a regulated pollutant to go through federal permitting- EPA's New Source Review Program.  EPA adopted the Tailoring Rule to raise those thresholds that EPA asserts would otherwise apply once it finalized its regulation of GHGs from vehicles.

It is the premise that the vehicle rules trigger regulation of stationary sources that the business groups are challenging in this motion.  This from the brief filed seeking a stay:

Movants offer a distinct request for a partial stay that would enable EPA to
realize its goal of imposing GHG emission limits on cars while preserving the status quo for stationary sources. Specifically, Movants request the Court stay the effects of the Tailpipe Rule, Tailoring Rule, and PSD Interpretive Rule on stationary sources, such that GHG emissions are not subject to PSD and Title V pending this appeal.  Movants do not request a stay of the Tailpipe Rule as applied to cars.

Business groups challenge EPA assertion on two separate grounds:

Emissions of a pollutant triggers PSD permitting if, and only if, the pollutant is subject to a NAAQS and the source is located in an attainment area for that pollutant. GHGs are not such a pollutant, so GHG emissions alone cannot trigger PSD permitting.

The very impetus for the Tailoring Rule’s revision of statutory thresholds was EPA’s recognition that requiring sources to obtain PSD permits solely based on GHG emissions is “absurd” and inconsistent with Congress’s vision for the PSD program. Congress did not enact the CAA to bring any part of the American economy to a dead stop, and EPA’s interpretation of the CAA threatening that result is unreasonable, arbitrary, and capricious. In addition, EPA’s view that GHGs are subject to regulation under the PSD program—which is plainly focused on local air quality—is unreasonable. Congress never intended the PSD program to regulate pollutants like GHGs.

Business groups had no alternative but to seek a stay given the ramifications of EPA embarking on this regulatory path.  Typically, you would ask to stay the effectiveness of a specific rule.    However, delaying the legal effectiveness of the Tailoring Rule would arguably subject all businesses to the ridiculously low permitting thresholds 100/250 tons in the Clean Air Act. 

As result, business group are challenge the very premise the EPA had to enact the Tailoring Rule because otherwise the 100/250 ton thresholds would take effect after enactment of the vehicle tailpipe rule.

The only concern is if the Court agrees, in part, with the business group's arguments.  First, the Court may say a stay can only be granted of a specific rule.  Second, the Court may agree EPA went too far but provide a different result.

Let's remember no one was asking the Court to throw out the Clean Air Interstate Rule (CAIR).  What happens if the Court agrees EPA has no authority to change the statutory thresholds in the Clean Air Act (100/250 tons per year), but agrees the vehicle rule automatically triggers PSD regulation of GHGs?

While litigation is necessary with so much at stake, it is also very unpredictable.  Let's hope the Court gets this one right by looking at the real world implications of its decision.

Midterm Election Fallout for Climate Change

By all accounts, Republicans are set to enjoy major gains in both the House and Senate following midterm elections.  Speculation is that the Republicans could likely regain control of the House and could even get close in the Senate.

What implications could this change in the political landscape have for climate change regulation?

We have already seen the Senate scrap all efforts at a cap and trade bill this summer.  Based upon Senator Reid's comments that a "piecemeal" approach is on tap, its more than likely cap and trade is off the table for the foreseeable future.

With cap and trade's dim future, all eyes have been shifting toward U.S. EPA promulgation of climate change regulations.  EPA has already finalized greenhouse gas standards for vehicles and will require consideration of greenhouse gases from major stationary sources beginning in 2011 (Tailoring Rule). 

Congressional Efforts to Stop EPA

With renewed focus on EPA's efforts, Republicans made lead the charge toward blocking EPA's actions through budget maneuvers or by directly blocking the effectiveness of the EPA regulations. (See Reuter's article)

  • Budget Bill Prohibition-  Republicans could include in an appropriations bill a ban on the use of EPA funds to administer climate change regulations. 
  • Block EPA Authority or Delay it- Earlier this year, the Senate debated legislation that would directly block EPA from implementing its rules by undermining its Endangerment finding.  Another alternative was floated by Senator Rockefeller- delay EPA's implementation for two years which would take us to the next Presidential Election. There were 47 out of 100 votes in the Senate supporting a delay in implementation of EPA's climate change regulations.  Its hard to imagine this issue will not be revisited after the midterm elections.

Effectiveness of an Appropriations Blockage 

The utility of a budgetary blockage of EPA's authority to implement the climate change regulations should be seriously questioned.  As discussed below, a budget provision prohibiting expenditures doesn't remove the requirements from the books.  Industry will still have to comply with the Tailoring Rule even if EPA can't use funds to enforce it.

The strategic limitations on use of the appropriations tool was pointed out in a Congressional Research Service in an extensive report:

The regulatory restrictions in appropriations bills that have been enacted during the last 10 years illustrate that Congress can have a substantial effect on agency rulemaking and regulatory activity... These appropriations provisions can prevent an agency from developing a proposed rule, from making a proposed rule final, or from implementing or enforcing a final rule. However...these appropriations provisions cannot nullify an existing regulation (i.e., remove it from the Code of Federal Regulations) or permanently prevent the agency from issuing the same or similar regulations. Therefore, any final rule that has taken effect and been codified in the Code of Federal Regulations will continue to be binding law — even if language in the relevant regulatory agency’s appropriations act prohibits the use of funds to enforce the rule. Regulated entities are still required to adhere to applicable requirements (e.g., installation of pollution control devices, submission of relevant paperwork), even if violations are unlikely to be detected and enforcement actions cannot be taken by federal agencies.
 

Such an appropriations maneuver could mean businesses must prepare PSD permit applications that address greenhouse gases only to have those permits sit at EPA because it is legally prohibited from paying staff to review them.

Hopefully the real world implications of Congressional efforts to block EPA will be considered.  There is no doubt a strong effort will be made after the midterms to block EPA climate change regulations.  Without passage of legislation that directly addresses the issue, maybe...just maybe litigation is a better alternative than tricky legislative tactics. 

 

Obama Administration Opposes Use of Nuisance Claims to Address Climate Change

A group of eight states and conservation groups ("Plaintiffs") have been pushing a massive federal nuisance claim against utilities. The Plaintiffs claim that major emitters of carbon dioxide in twenty states have created, contributed to, or maintained a common-law public nuisance by contributing to global warming thereby injuring States and landowners feeling the impacts of climate change. (See prior post discussing 2nd Circuit decision to let nuisance action stand) .

The Plaintiffs claims were dismissed by the district court.  Their suit was reinstated when Plaintiffs won their appeal in the Second Circuit Court of Appeals.  The Appeals Court determined the Plaintiffs had a right to seek relief under federal common law nuisance doctrines.  Now the utilities are requesting the Supreme Court reverse the Appeals Court.

Two critical legal questions at issue throughout the litigation have been:

  1. Political Question- Resolution of the issue is best suited for Congress and not the Court because the relief sought would raise complex issues balancing economic, environmental, foreign policy, and national security.
  2. Whether common law has been displaced by Congressional or Executive Branch actions regulating greenhouse gases.

The 2nd Circuit Court of Appeals determined the claims did not raise a "political question" and were not displaced by the mere presence of regulatory authority in the Clean Air Act. ( Federal common law claims are "displaced" whenever Congress establishes a mechanism to address the problem.)   Now the utilities have petitioned the U.S. Supreme Court to hear their appeal of the lower Appeals Court decision. 

In a surprise to environmentalists, the Department of Justice (DOJ) filed a brief in support of the utilities appeal to the Supreme Court.  In its brief, DOJ argues that EPA, since the 2nd Circuit Court of Appeals decision was rendered, has issued a series of regulatory actions thereby displacing the common law claims of the plaintiffs.  These include:

  • Finalization of the "endangerment finding"
  • Regulation of greenhouse gas emissions (GHGs) from motor vehicles- light duty vehicle standards
  • Issuance of the "Tailoring Rue" which will subject new or expanded major emitters of GHGs to federal permitting requirements
  • U.S. EPA is developing New Source Performance Standards for existing major emitters

While EPA regulatory actions is not completed, there actions may be sufficient for the Supreme Court to ultimately determine common law rights have been displaced.  However, industry has also filed challenges to every regulatory action cited above.  Those challenges may give the Court pause in dismissing the Plaintiffs claims.

DOJ's brief in support of the utilities came as a major surprise to some environmental groups.  This from the Mother Jones website:

This is cold comfort to environmentalists, who are anxious that the administration isn't moving fast enough on those regulations. "It reads like a Bush administration brief," Matt Pawa, an environmental lawyer representing the plaintiffs in this case, told Mother Jones. "It felt like being stabbed in the back. The Obama administration claims to care about global warming, so why is it opposing an effort curtail greenhouse gas emissions from coal-fired power plants?"

Why is the Obama Administration opposing this effort?  Because having the Courts establish climate change regulation would be chaotic.  Here are some good quotes from the DOJ brief:

[Plaintiffs] are but a tiny subset of those who could allege they are injured by carbon-dioxide emissions that have contributed or will contribute to global warming...Moreover, global warming's effect will not be limited to landowner; they will also be felt by governments, individuals, corporations, and interest groups throughout the Nation and around the world.

...Any potential plaintiff could claim to have been injured by any (or all) of the potential defendants.  The medium that transmits injury to potential plaintiffs is literally the Earth's entire atmosphere--making it impossible to consider the sort of focused and more geographically limited effect characteristic of traditional nuisance suits targeted at particular nearby sources of water or air pollution.

The practical reality is that Courts are ill-equipped to address climate change.  How could they possibly be in the best position to address issues such as:

  • What percentage of reductions should be required and over what time period?
  • What sources should be required to reduce emissions?
  • What technologies are viable and should be employed?
  • How does forcing reductions by select emitters balance with similar emitters elsewhere in the country or the world?
  • When are the costs of compliance too significant?
  • How will reductions be monitored and enforced?

While the pace of Congressional action by be slow, turning to the Courts to develop perhaps the most complex, costly and extensive environmental regulatory scheme ever contemplated would not be wise. 

US EPA Attempts to Ease Transition to Greenhouse Gas Regulation for Large Sources

On August 12th, the U.S .EPA released two proposed rules to address the potential gap that exists while States adopt rules to regulate greenhouse gases (GHGs) from large stationary sources. What U.S. EPA is really doing is making sure all fifty states will be regulating GHGs beginning January 2011.

On May 12, 2010, U.S. EPA finalized its controversial Tailoring Rule, which raised the trigger level for federal permitting associated with GHG emissions.  Unless the U.S. EPA raised the trigger levels from 100/250 tons per year, very small sources would have required federal permits. The Tailoring Rule is U.S. EPA's attempt to phase in GHG, beginning with only very large sources.

Beginning 2011, very large stationary sources of GHGs (like power plants and oil refineries) will need to address GHGs emissions when seeking permits for expansion or new facilities. For the first time, these sources will need to meet Best Available Control Technology (BACT) standards under the Agency's New Source Review Program to control or reduce GHG emissions.

Thirty-Seven (37) states, including Ohio, operate U.S. EPA approved air permitting programs.  State approved programs cannot be "less stringent" than U.S. EPA regulations.  Therefore, when U.S. EPA adopts new standards, States are required to incorporate those standards into their programs. 

However, each State has its own rulemaking process.  U.S. EPA recognized that some states may not be able to complete the rulemaking process to incorporate GHG regulations prior to 2011. Therefore, the August 12th proposal is EPA's attempt to create a backstop rule should states fail to complete their rulemaking process.  The backstop is referred to as a "federal implementation plan" or FIP.  It really means U.S. EPA would temporarily take over permitting functions for sources above the GHG trigger levels in the Tailoring Rule. 

Ohio doesn't like the prospect of U.S. EPA imposing the FIP.  If the FIP is imposed U.S. EPA would temporarily issue PSD permits in Ohio until the State finalizes its rules.  Ohio has released its proposed modifications to incorporate the Tailoring Rule into Ohio EPA's regulations to try and avoid U.S. EPA direct involvement in its permitting program.
 

Energy Bill: No Caps, No RES- Yes to EPA and States

There was a lot of anticipation this summer about the scope of the energy bill coming out of the U.S. Senate.  Would the Senate try and tackle climate change?  Would it develop a national renewable portfolio standard? 

The bill was released yesterday and the answer was "no" on both accounts. 

The White House kept a glimmer of hope that climate change provisions- Cap & Trade- could be added back in at a later date.  This from Reuters:

But the White House indicated on Tuesday that climate provisions could be added back into a bill once negotiators from the Senate and the House of Representatives hammer out differences between their respective versions during "conference" talks.

The House bill, passed last year, includes climate provisions to cut greenhouse gas emissions.

White House spokesman Robert Gibbs, when asked whether the administration would seek to do a separate climate bill later after getting a narrow energy-focused bill first, said: "No, I think the process is you get an energy bill through the Senate then you can conference that legislation with the House."

Also absent from the bill was a proposed national renewable energy standard (RES) that would have mandated 15% of electric generation from renewable sources.   Some Democrats claimed there were 62 votes in favor of an RES.  They pointed to the urgency of restoring incentives for construction of renewable energy sources noting wind development dropped 72% in the first half of 2010 compared to last year.  This from the N.Y. Times:

Many see an RES as an achievable goal that could spark construction of manufacturing plants for wind turbines and drive the development of clean energy. Several senators, including Mark Udall (D-Colo.) and Byron Dorgan (D-N.D.), said yesterday that support for a modest RES that requires utilities to find 15 percent of their power by 2020 exists in the Senate.

"It seems to me that would be logical to include that [RES] in the energy bill that was going to be brought to the floor," said Dorgan, whose state stands to be a key generator of wind power. "I hope maybe there's a way to be found to do that."

Udall said there are about 62 senators who would support the 15 percent standard.

EPA and States Maintain Center Stage

The prospects for cap & trade and an RES diminish rapidly.  It seems hard to imagine the Democrats trying to cram such major provisions through reconciliation.  Though it appears that is being left open as an option.

What has become clear is that EPA's greenhouse gas regulations are center stage.  EPA's Tailoring Rule will kick in at the end of 2010 on new sources.  Mandatory monitoring and reporting already exists for other sources.  With legislation seemingly forever stalled in the Senate, pressure will mount on EPA to adopt more climate change regulations.

As to renewable energy standards, the states' have been on center stage for several years.  Thirty-seven states have adopted some form of a renewable or alternative energy standard.  Some are stronger than others, but there are strong incentives at the state level for development of alternative sources of power. 

However, there is inconsistency among the states in defining renewable sources, the % required, and marketability of production credits.  A federal bill could have addressed these inconsistencies.

However, the price of addressing those inconsistencies in mandating renewable energy generation in every state, including the Southwest which has resisted the standards.  Southern states don't feel there is a much opportunities for renewable energy development.

Like cap & trade, prospects have dimmed for a national RES.  Incentives for development will be left primarily to the states.

(For more information on each states specific programs, click on the map above)

Last Ditch Effort for a Climate Bill Before the Midterm Election

President Obama is convening a meeting tomorrow to explore all possible alternatives that would lead to passage of a climate bill before the midterm elections.  The most likely alternative that will receive consideration is a much narrower cap that would only be applied to utilities.  Under this approach, the provisions covering large industrial emitters and the transportation sector set forth in Senator Kerry's American Power Act would be cut out.  This from Climatewire:

"I think the chances of a comprehensive bill are abysmal," Eileen Claussen, president of the Pew Center on Global Climate Change, said in an interview last week, referring to legislation offered by Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.).

"Do I think there is a chance of something that is narrower for carbon, like the pricing of utilities? I think that's possible," she added. "If all we can get is utilities, it's not bad."

A handful of crucial senators are planning to attend, including Richard Lugar (Ind.), Judd Gregg (N.H.), Susan Collins (Maine) and Lisa Murkowski (Alaska), all Republicans whose support Obama will seek to eventually secure. Democrat Sherrod Brown (Ohio), another undecided senator, will also be there, according to a survey of offices by E&E.

A deal on just utilities looks unlikely.  However, it has the best chance of any current proposal.  The key will be whether utilities will view this as an opportunity to secure "certainty" with regarding to the greenhouse gas requirements.  The ability to establish the regulatory landscape does have major benefits in making big capital investments associated with large scale facilities.

An interesting bargaining chip will be EPA's authority to regulate all sources of greenhouse gases under the Clean Air Act.  The Senators attending, especially Murkowski, are highly motivated to block EPA regulatory program.  Would the President be willing to foreclose or delay EPA regulations in exchange for a bill?

 

Murkowski Attempt to Block EPA Climate Change Regulations Narrowly Defeated

In a very close vote 53-47, the U.S. Senate defeated a resolution designed to block U.S. EPA's regulation of greenhouse gases utilizing its existing authority under the Clean Air Act.  Six Democrats supported the Republican effort to block EPA.  Republicans needed 51 votes to effectively block or delay EPA's efforts. Now everyone is offering their opinions as to what the vote truly means.

Background on Resolution

Last year, EPA issued its scientific based finding that greenhouse gases endanger public health.  The EPA determined that man made greenhouse gases (GHGs) significantly contribute to rising global temperatures and climate change ("endangerment finding").

Following the Supreme Court's ruling in Massachusetts v. EPA, the so called "endangerment finding" was a required precursor to regulation of GHGs from motor vehicles.  EPA finalized emission standards for trucks and cars earlier this year. 

By establishing mandatory GHG emission limits for motor vehicles, regulations of GHG emissions from factories and power plants was automatically triggered.  Regulations of both vehicles and stationary sources is set to commence next year.  Businesses have warned that higher costs and job losses will result from EPA's regulations.

Test Run for Climate Change Resolution

There had been speculation in the weeks preceding yesterday's vote, that it would serve as a test of the Senate's determination to pass comprehensive climate change legislation.  Some argue a close vote signified a lack of support for taking action this year. 

Senator Kerry took the opportunity to immediately challenge Republicans who during the debate on the resolution stated they supported addressing climate change, but feared EPA regulation was the wrong method. Sen. John Kerry, a co-author of the American Power Act (APA), the cap-and-trade bill introduced in the Senate in May, challenged his Republican colleagues: 

"This is going to be the 'Great Hypocrisy Test' resolution," Kerry said. "We're going to see how many of these folks who are here on the floor saying we need to leave it to Congress ... are actually going to show up and vote ... to restrain greenhouse gases."  (from Solve Climate)

Despite Senator Kerry's comments, the close vote means that Senators are reluctant to adopt comprehensive climate change legislation.

Senator Rockefeller Alternative- Temporary Delay of EPA

Some argue that the close vote signifies support for a water downed version of the resolution.  Senator Rockefeller has proposed a resolution that would simply delay the effectiveness of EPA's regulations for two years. 

In reading the tea leaves of the Senate votes and speeches, some are suggesting that there are enough votes to support the Rockefeller proposal.  There Democrat Senators (Sens. Dorgan, Webb and Conrad) have already indicated support for the Rockefeller proposal.  This from the Wall Street Journal on prospects of the Rockefeller resolution:

Mr. Webb signaled the intensity of his position on the Senate floor, announcing that he would "regretfully" oppose the Murkowski resolution.

It wasn't clear whether Senate Majority Leader Harry Reid (D., Nev.) has agreed to bring such an alternative up for a vote. "I don't know if Harry has made any promises along those lines," Sen. Dick Durbin (D., Ill.), the No. 2 Democrat in the Senate, told a reporter Thursday.
 

"Uncertainty" Will Persist Going Forward

What the close vote really means is that nobody really knows what this means for the prospects of comprehensive climate change legislation.   Some argue the close vote means no bill.  Some argue that defeat of the resolution puts a ticking clock on impending EPA regulation set to commence in 2011.  EPA regulation could put pressure on Congress to act.

Here is my take-  Congress doesn't have the will to push forward Legislation before the mid-term elections.  In addition, EPA regulations will be phased in gradually over time which removes the pressure to act prior to 2011.  By default, we will operate under EPA regulations for the foreseeable future.   

Phasing in Greenhouse Gas Permitting- EPA's "Tailoring Rule"

Greenhouse Gas Regulation Commences January 2, 2011 without Legislation

On May 13, 2010, EPA finalized its regulatory approach for control greenhouse gases (GHGs) from large stationary sources.  As discussed in prior posts, the statutory thresholds for triggering EPA's New Source Review program (NSR) are 100/250 tons per year of a regulated Clean Air Act pollutant. 

As its name implies, EPA's NSR program requires emission reductions from new or modified sources that emit pollutants above the 100/250 TPY threshold in the Clean Air Act.  This trigger level works reasonably well for typical Clean Air Act pollutants, but not for CO2 which is emitted in much larger quantities.  If the 100/250 threshold were applied for GHGs, EPA indicates thousands of sources would be required to obtain federal air permits under NSR. 

To prevent what EPA calls would be an "absurd" result if the statutory thresholds were applied, EPA is proposing to phase the thresholds in over time.  EPA claims they have the authority to temporarily raise the statutory thresholds based on seldom used legal doctrines known as the "absurd results" doctrine and "administrative necessity."  Whether EPA truly has that authority remains to be seen.

However, the so called "Tailoring Rule" finalized on May 13th is the mechanism that raises the statutory thresholds thereby bringing in only the largest sources of GHGs.  Here is how EPA is phasing in NSR requirements for sources of GHGs:

Phase 1:  January 2, 2011 to June 30, 2011

New Sources (Construction Permits)-  Only sources that trigger NSR due to their non-GHG emissions would be required to address GHG emissions in their permits if GHG emissions exceed 75,000 tons per year.  If GHG's exceed that threshold they must meet the Best Available Control Technology (BACT) standard to minimize GHG emissions.

Existing Sources-Must incorporate GHG related requirements into their operating permits (Title V).  Right now those requirements are limited to the GHG reporting rules previously established by EPA (40 CFR Part 98- reporting rule fact sheet)

Phase 2:  July 1, 2011 to June 30, 2013

New Sources (Construction Permits)-  Expands beyond just those sources trigger NSR for other pollutants and with 75,000 tons per year of GHG emission.  Any source that emits 100,000 tons per year of GHGs would trigger NSR permitting, even if they don't require an NSR permit due to other pollutant emissions. 

Existing Sources-  Any modification to a source that would increase GHG emission by more than 75,000 tons per year triggers NSR.  Also, existing sources with emission of 100,000 tons per year, even they have not modified their facility in any way, will be required to obtain an operating permit (Title V) based solely on their GHG emissions.  (EPA estimates the universe of source covered is about 550- mostly landfills and industrial manufacturers.)

Phase 3  Second Rulemaking by July 1, 2012

EPA has stated it will complete a second phase of rulemaking by July 1, 2012 that will further reduce the trigger thresholds below those established in Phase 2.  EPA states it will evaluate a possible threshold of 50,000 tons per year.   Smaller sources would not be covered until April 30, 2016.

Continual Duty to Reduce the Thresholds

Legally, EPA is under a duty to reduce the trigger thresholds as soon as practicable to be in line with the statutory triggers of 100/250 tons per year.  The key question is- How long will the courts allow them to delay implementing what is expressly stated in the Clean Air Act?

(Photo: everystockphoto- cjohnson7

Expansive Pre-emption in Climate Bill is Right Focus

Last week, Senator Voinovich drew attention and criticism for proposing a significant expansion of the preemption language in the forthcoming bi-partisan climate bill to be introduced by Senators Kerry, Lieberman and Graham.  Failure to carefully consider the preemption language and possible additional limits on other regulatory authority would be short-sighted. 

One of the main reasons for Congress to pass climate legislation would be to remove the morass of uncertainty and mounting litigation in relation to climate change regulation.  If the bill has narrowly drawn preemption language, the certainty the businesses need will simply be non-existent.

The whole point of climate legislation should be to develop a national strategy to address the issue.  A narrow preemption would mean creation of new regulatory authority that just adds to the current chaos surrounding climate regulation. 

Here is a quick summary of what Senator Voinovich is proposing as reported in the New York Times :

Voinovich is circulating a proposal (pdf) that would go beyond Clean Air Act pre-emptions to block the federal government from regulating greenhouse gas emissions under laws including the Endangered Species Act, the Clean Water Act and the National Environmental Policy Act. The amendment would fully prohibit states from regulating greenhouse gases based on their effects on climate change and would prohibit public nuisance litigation related to climate change.

Notably, Voinovich's measure would also prevent EPA from moving forward with its part of a joint rulemaking finalized this month with the Transportation Department. The rules seek to raise the fuel economy of the nation's passenger fleet while imposing the first-ever greenhouse gas standards on cars and trucks.

The bi-partisan bill was supposed to be released today.  However, political issues over immigration have "temporarily" delayed introduction of the new measure.  Without viewing the new legislation, its difficult to make a comparison between the Voinovich proposal and the bi-partisan legislative proposal.  From what is anticipated, here is the break down of pre-emption language:
 

Regulations Preempted
Regulatory Authority Senator Kerry's Bill Senator Voinovich Language
EPA's New Source Review and other Clean Air Act Authority Yes Yes
Vehicle CO2 Emission Standards No Only Transportation would have authority
Endangered Species Act No Yes
Public and Federal Nuisance Actions No Yes
State and Regional Regulations (Ex: RGGI) Maybe Yes

 

EPA's Clean Air Act and New Source Review Regulations

EPA's Tailoring Rule is perhaps the best example of vague climate change regulatory authority.  EPA admits that regulation of CO2 like any other pollutant would lead to absurd results.  The Tailoring Rule is meant to phase in regulation of CO2.  However, no one knows whether EPA has the authority to phase-in those regulations.  Is that something we really want to leave to chance?

Public Nuisance Lawsuits

The pre-emption language must include public nuisance claims.  Courts across the country have had a influx of suits filed against large greenhouse gas emitters seeking redress for their contribution to climate change.  Right now the Courts are split over whether the suits "raise a political question" which is outside the review of the judiciary.  Also, if Congress acts in passage it may pre-empt some of the federal nuisance authority Plaintiffs rely upon. However, it is very difficult to see how that legal question shakes out if the Kerry Bill initially only covers utilities. 

Even if Senator Kerry's bill uses a phased in approach, the bill should explicitly pre-empt nuisance lawsuits.  Expensive litigation that often leads to inconsistent Court rulings is no way to develop a common sense regulatory policy. 

Regional and State Regulations

If the bi-partisan bill fails to pre-empt State and regional climate change regulations we will be left with a patchwork regulatory scheme across the country.  Avoiding such a patchwork regulatory scheme was one of the major reasons the Obama Administration decided to push the compromise on vehicle emission standards.  Otherwise, California and other states would have established separate vehicle standards only applicable in their states.

Conclusion

With the bills anticipated narrower focus, expansive preemption may be much more difficult.  It is anticipated that the bi-partisan bill will start with limits on the utility sector and possibly phase in other sectors of the economy over time.   If a bill passes, what remains as legal authority becomes even more important if the bill has a narrow focus. 

Environmental groups will be looking to press for action in all areas where authority would remain. The logical argument for Congressional action is to remove the uncertainty and develop a national regulatory approach to addressing climate change.  This can only be accomplished if the focus is on the bill as THE approach, not just one new regulation to add to the existing patchwork of regulations.

President Tries to Jump Start Climate Legislation as Public Support Dwindles

The President called together key Senators and members of his cabinet in hopes of re-invigorating stalled discussions in the Senate over climate change legislation.  This summer the House of Representatives passed a bill that would require greenhouse gas reductions of 17 percent by 2020 compared with 2005 levels.  Since legislative debate moved to the Senate, a viable bill has yet to emerge.

Senators Kerry, Lieberman and Graham have been attempting to hammer together a compromise that they feel could garner the 60 votes needed in the Senate.  At yesterday's meeting Senator Kerry stated he expects a bill to emerge from their discussions by the end of the month. 

The renewed effort comes as a recent Gallup polls shows Americans with the highest level of skepticism for global warming:

 

 The poll notes the highest skepticism is among Republicans.  However, there is has been a general trend upward.

The poll results come after months of mounting criticism of the United Nations climate science panel's findings regarding the likelihood of climate change.  Fact checks revealed some of the more drastic impacts claimed in the UN's report appear to have been exaggerated by the authors.  This from the Times:

The latest criticism of the IPCC comes a week after reports in The Sunday Times forced it to retract claims in its benchmark 2007 report that the Himalayan glaciers would be largely melted by 2035. It turned out that the bogus claim had been lifted from a news report published in 1999 by New Scientist magazine.

Turns out the more likely date for melting the glaciers is a few hundred years away.  Just yesterday the UN announced it would perform an independent review of the the study in the face of mounting criticism.  This from the U.K. Guardian

In an announcement at the UN in New York Ban Ki-moon, the UN secretary general, and Rajendra Pachauri, the much-criticised head of the Intergovernmental Panel on Climate Change, said the InterAcademy Council, which represents 15 national academies of science, would conduct the independent review.

The announcement follows months of controversy which, while not altering the scientific consensus on climate change, has given fresh ammunition to opponents of action on global warming.

The latest polling and issues at the UN form the backdrop to efforts to pass climate legislation and their influence should not be under appreciated.  Some Senators are pushing for dropping cap and trade entirely from the bill leaving a national mandate on renewable energy.  The President has commented he is not in favor of this approach and still believes a price on carbon is the way to go.

Senator Kerry made comments that the proposed bill to appear at the end of the month will look much different than anything which has been revealed to date.  Most likely it will be much narrower in scope than the House passed bill.  It may take a sector approach versus the much broader cap proposed in the House bill.   Emissions from the utility sector could be the only regulated pollutants.

Regardless, with criticism mounting on the key UN report and public opinion showing reduced support, it will be tough to pass any climate legislation.  At the same time, it appears the bills designed to prohibit the EPA from moving forward with greenhouse gas regulations under existing Clean Air Act authority are for show only.  

Best guess is that all this political maneuvering will leave us with EPA regulations beginning this month and no climate legislation in 2010.   Word to the wise...we will be revisiting this approach down the line.

 

EPA Provides Quick and Detailed Response to Senators on Climate Regulations

 

On February 19th, eight Democrat Senator's wrote a letter to EPA regarding its plans for issuance of greenhouse gas regulations for vehicles, factories and power plants.  This from the Wall Street Journal:

The lawmakers, including prominent Senators Max Baucus, (D., Mont.), Carl Levin, (D., Mich.) and John Rockefeller, (D., W.V), warned EPA chief Lisa Jackson in a letter that "ill-timed or imprudent regulation of [greenhouse gases] may squander critical opportunities for our nation, impeding the investment necessary to create jobs."

The letter could boost a Republican effort led by Sen. Lisa Murkowski, (R., Alaska), to prevent the EPA from regulating stationary greenhouse gas emitters such as power plants, refineries, steel mills, chemical plants and cement kilns.

The Senators letter also showed there is still a basic misunderstanding of how regulation of GHGs emissions from vehicles are tied to stationary source regulation. 

The Senators suggest EPA move forward only with the Light Duty Vehicle rule setting GHG standards for vehicles so that there can be one national standard.  However, based on this comment, it appears the Senators did not understand that issuance of the Light Duty Vehicle rule will automatically trigger regulation of stationary sources without any additional EPA rulemaking.

EPA Responds

In perhaps the quickest response in history, EPA Administrator Jackson has already released her written response.  The response is notable not only for its timeliness, but the key insights it provides into EPA's greenhouse gas (GHG) rulemaking strategy.

The fact the letter provides so much valuable information about EPA's strategy only days after the Senator's letter was sent can only mean EPA's has decided on its path.  Now EPA is floating a trial balloon of its strategy in its response letter.  There are several key developments in the letter:

  1. No final GHG standards in 2010.  EPA will finalize the Light Duty Vehicle GHG rule in late March. However, the first vehicle GHG standard will be effective in 2011 (Model Year 2012).   EPA explains that its legal view is that GHG do not become a "regulated" pollutant under the Clean Air Act until the Model Year 2012 standards are effective in 2011.  By adopting this legal interpretation, EPA is effectively buying itself a year before GHG emissions from large stationary sources will be regulated.  Of course, its an open legal question as to whether future vehicle standards amount to "regulation" sufficient to trigger stationary source regulation of GHGs immediately. 
  2. EPA is planning major changes to its proposed Tailoring Rule. In the draft Tailoring Rule, EPA proposed federal permit triggers for GHGs of 10,000 or 25,000 metric tons of CO2. Based upon this letter, EPA is proposing to go higher, thereby bringing in even fewer large stationary sources of GHGs in the short term. For example, in 2011 only sources that already trigger federal permitting for non-GHG emissions will have to evaluate their GHG emissions for controls. After 2011, the letter suggests much higher triggers than 25,000 metric tons from 2012-2016.
  3. EPA is buying time on BACT.  Major sources triggering federal permits must install Best Available Control Technology (BACT) to reduce emissions.   A major issue has been EPA's determination of what will constitute BACT for GHGs.  Especially concerning was the fact some possible controls, like carbon sequestration for power plants is not yet ready for implementation.   By tying the date for regulation of GHGs from stationary sources to the 2012 model year vehicle regulations, EPA has bought itself a year to work through these issues. 

A couple of final points. EPA discusses the implications of Sen. Lisa Murkowski's proposed amendment to disapprove of EPA's "endangerment finding." EPA states the immediate result will be revival of the California Waiver for regulation GHGs from vehicles. EPA warns there will be no national standard for motor vehicle emissions.

Also noteworthy is the fact the letter simply waives off claims that EPA may not have the legal authority to set higher trigger thresholds for stationary sources that the 100/250 tons triggers in the Clean Air Act.  Administrator Jackson simply claims EPA has the authority and criticizes business groups for suggesting they would appeal the Tailoring Rule.

Finally, EPA Administrator concludes the letter by making the rather harsh statement that passage of the proposed Senator Murkowski resolution would put the U.S. behind China and more like Saudi Arabia its treatment of the issue of Climate Change. No doubt, that type of rhetoric is designed to discourage Democratic support for the resolution.

Very interesting response from EPA.  It is written in such a way to suggest..."no need for immediate legislative action, nothing it really going to happen for at least a year if not longer."  However, this assumes EPA has the legal authority to implement the strategy suggested in its response letter.

Climate Update: SEC Guidance, EPA and Cap & Trade

The twists and turns in the saga of regulation greenhouse gases (GHGs) continue.  After the State of the Union and release of the President's budget, there is speculation that President Obama has abandoned Cap & Trade legislation. 

Meanwhile, businesses face greater risk as a result of new and impending regulatory action.  The Securities and Exchange Commission (SEC) has issued guidance telling companies they must disclosure risks to investors related to the company's exposure to effects of climate change and potential regulations. Finally, EPA is moving ahead with its plans to regulate GHGs using existing authority under the Clean Air Act.

Is Cap & Trade Dead or Alive?

The President only made vague references in the State of the Union to a "comprehensive energy legislation" that will include measures to address climate change.  Speculation was that the Obama Administration had made the decision to drop its plans for Cap & Trade.  The speculation increased with the release of the proposed federal budget, which dropped $646 billion in anticipated revenue from Cap & Trade.  The President only included a "placeholder" for that revenue.

Carol Browner, the President's Climate Adviser, pushed back on the notion Cap & Trade is dead.  This from Politico:

The top White House climate adviser pushed back against reports that a climate bill would be scaled back — but shied away from giving an exact time frame for when the Senate should take up the legislation.

“I think predictions about when something is going to happen in the legislative process are very, very hard to make you have to just continue working at it,” Carol Browner told an audience assembled for a climate and energy forum. “We’re encouraged by what we are seeing, and we’re going to continue working at it.”

In hopes of keeping a bi-partisan compromise alive in the Senate, the President put more nuclear power on the table in State of the Union.  There is also discussion of a scaled back Cap & Trade proposal that would be limited only to utilities. 

Even with a scaled back proposal or other compromises, I see it very hard to get to 60 votes in the Senate.  Which makes the next update the critical issue.

EPA Rulemaking

While some businesses think the reduced prospects of a Cap & Trade bill means they have escaped potential climate change regulation, they may have a major wake up call this March.  EPA is planning on moving forward with a series of regulations that will have dramatic impacts on businesses that emit CO2 and other greenhouse gases.

EPA has finalized its "Endangerment Finding."  This paves the way for the Agency's release of the Light Duty Vehicle Rule which will establish GHG emission standards for vehicles.  As previously discussed in prior posts, finalization of mandatory emission limits for vehicles raises GHGs to "regulated pollutant" status under the Clean Air Act.  

Once GHGs are considered "regulated pollutants", other provisions of the Clean Air Act are automatically triggered, most notably Title V permitting and New Source Review (NSR).  EPA is proposing to finalize its "tailoring rule" simultaneously with the Light Duty Vehicle Rule in order to substantially raise the thresholds for triggering Title V permits or NSR.

The likelihood of regulations was further evidenced by the President's proposed budget, which includes significant increase funding to pay for new EPA regulatory initiatives on climate change. (Summary of EPA proposed budget)

  • $47 million more the EPA in the 2011  budget to pay for greenhouse gas regulation
  • $4 million would go to the EPA's mandatory greenhouse gas reporting rule.  Major emitters of greenhouse gases must start tracking their emissions this year under EPA's reporting rule.
  • $25 million to States to aid in processing new permits that will be required as a result of greenhouse gases becoming a regulated pollutant under the Clean Air Act.
  • $7 million is allocated to development of new performance standards including determining what constitutes Best Available Control Technology (BACT) for greenhouse gases.


SEC Interpretative Guidance

On January 27th, the SEC voted to issuance guidance requiring companies to disclose certain risks associated with climate change. The 3-2 vote was highly controversial. 

While some saw the SEC action as an political endorsement of climate change regulation, others believe its the job of the SEC to require disclosure of business risks.  The NY Times, in an editorial, supported increased information on corporate risk associated with climate change-"The S.E.C. action is simply one more incentive for investors and managers to better understand the risks — and the opportunities — out there for publicly traded businesses. "

 From the press release, here is a description of the requirements in the forthcoming guidance:

  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

While the prospects for Cap &Trade legislation have dimmed dramatically over the last few months, this is by no means the end of the story.  Significant new mandatory regulations will be finalized as early as March. 

While there are issues with the House version of the Cap & Trade bill, it would at least create a market mechanism for reducing emissions.  Business opposing Cap & Trade may soon learn that the alternative- regulation under the Clean Air Act- is a far worse proposition.