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.