Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

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. 

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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.
 

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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)

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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?

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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.   

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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 sour 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) 

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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:
 

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.

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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.

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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.

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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.

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