Last week, two distinct paths clearly emerged for addressing climate change. The first, legislation that would put in place a market mechanism to reduce emission over time- the Kerry-Lieberman Bill. The second, EPA’s use of its existing regulatory authority under the Clean Air Act to reduce greenhouse (GHGs) emissions (EPA Tailoring Rule)
EPA Regulation Under the Clean Air Act
One road-regulation under the Clean Air Act-we know very well. We may not be able to see how it exactly will fit with reducing GHGs, but we know all the familiar mechanisms-
- New Source Review– slow permitting process for new facilities. An ever evolving mandated technology standard. Poorly designed rules that lack clarity for when NSR is triggered. Lots of litigation.
- Title V permits– a program originally designed to make air permitting more easily understood, has led to permits that are hundreds of pages long.
- NAAQs and SIPs– It is totally unclear how these mechanisms would fit with climate change. Its issues maybe, by themselves, prompted former Administrator Johnson to comment the Clean Air Act is "ill suited" to regulated GHGs. What we do know about the NAAQS process in relation to climate change is it will require State to utilize complex planning processes to reduce GHG emissions. An inefficient mechanism to achieve your goal of reducing GHGs.
- NSPS– ill-defined command and control technology standards for GHG reductions.
Cap and Trade- A Market Mechanism for Reducing Emissions
Kerry-Lieberman (otherwise known as the American Power Act) sets up a sector based cap and trade mechanism. Each sector (power, manufacturing and transportation) has its own cap.
The concept is to set an overall cap for total emission from the sector that is gradually reduced over time. Each regulated unit must have an allowance for each ton of emissions.
The big difference from the command and control approach of EPA regulation is that the market will help drive innovation and reduce emissions. Each allowance will have a price associated with it. If projects that reduce emission can generate reductions cheaper than that price, project developers will make money by selling the credits to the regulated entities who need the allowances.
Right now there is a tremendous amount of hesitancy to move forward with the cap and trade approach. A myriad of issues are used as reasons for not supporting the proposal:
- The financial metldown- has led to disdain for Wall Street, many are unwilling to support a "trading" proposal that will allow big banks and investment companies to participate in the process.
- Europe’s cap-and-trade has experience major issues. Fraud with credit generation. A verification system that is seen as cumbersome and ineffective. A cap that is accused of "leaking."
- BP Oil Spill- the President tried a horse trade- he would support off-shore drilling in exchange for passage of an energy bill. After the spill, this horse trade no longer works. What compromises are left that could move the legislation forward.
Embarking on the "Well Traveled Road"
Most give the Kerry-Lieberman Bill almost zero chance of passing this year. Many are calling it a "discussion draft" that will be used as a starting point next year when the legislation is revisited.
With little chance of passage in the next year and possibly beyond, we default to the "well traveled road" of EPA regulation. Those who think its likely Congressional amendments introduced to block EPA from exercising its authority have a chance of passing, are placing their faith in a false hope. There will never be enough support to pass this type of amendment.
With no Legislative relief, we are left with EPA regulations. Its really time to start understanding the regulatory approach that has been unveiled and identify the pitfalls. The largest pitfall is EPA belief it has legal authority to phase in NSR regulation by raising the triggers for federal air permits. We will watch how this plays out, but a disaster could truly ensue if EPA’s Tailoring Rule is struck down.
As we move forward, we hopefully will revisit Legislation because it truly offers the best solution. Just as Robert Frost wrote, the road less traveled can make all the difference.
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference. Robert Frost