July 16, 2015

The Cold, Hard, Truth about EPA & Greenhouse Gas Regulation

As EPA’s plan to regulate CO2 emissions from existing power plants—the “Clean Power Plan” or “CPP”—gets closer to being finalized, we’ve been hearing a lot of talk about how Congress should rein in EPA, by either specifically stopping the CPP or revoking EPA’s CO2 regulatory authority under the Clean Air Act. Once again, we’re in the sad position of having to explain the obvious: a sufficient majority in Congress will not do so unless and until that authority is replaced by some other mechanism for reducing CO2 emissions. Period.

Between now and the next administration, there would have to be a 2/3 majority in both the House and Senate to override the inevitable veto, and the same holds true if a Democrat wins in 2016. And if a Republican were to win in 2016, the electoral map suggests getting even 60 such votes in the Senate—the Republicans will be defending the seats they won in the 2010 landslide—is unlikely.

Three other points come to mind:

  • Even if Congress were to eliminate EPA’s Clean Air Act authority over CO2, it would not affect state CO2 regulation, which is far more pervasive than anything EPA has done,
  • The Supreme Court barred common-law claims against power plants for the damage caused by their CO2 emissions based on EPA’s Clean Air Act CO2 authority; revoking that means a return of such cases and potential liability, and
  • Whatever your opinion of the CPP or any other specific EPA regulation – in regulating CO2, EPA is doing what Congress has ordered it to do.

State CO2 Authority

Compared to the states, EPA’s CO2 regulatory authority is relatively modest. EPA can only regulate one category of smokestacks at a time, and its regulations must meet the relevant Clean Air Act criteria, e.g. “the best system of emission reduction which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” States have no such limits on their authority. In one fell swoop, they could impose a 90% reduction in CO2 emissions for every industrial source in the state.

Currently, states with almost 30% of the U.S. GDP (California plus the nine northeastern states in the Regional Greenhouse Gas Initiative) are already pricing their CO2 emissions and may be joined by other states. In fact, two Canadian provinces—Ontario and Quebec, representing 56% of Canada’s GDP—have joined California’s cap & trade program. Thirty states have renewable portfolio standards requiring increasing amounts of renewable power generation (and eight more have renewable “goals”). Despite recent pushback in some states, that mandate is likely to continue to gradually increase. Other states (Oregon, Washington and Minnesota, another 6% of U.S. GDP) have banned their utilities from signing new power purchase agreements with coal plants.

If Congress were to not only eliminate EPA’s regulatory authority, but take CO2 completely out of the Clean Air Act, it would still be up to the courts to decide whether or not that would eliminate state authority over vehicle tailpipe emissions. Several states have already enacted Low Carbon Fuel Standards to reduce the carbon content of what goes into the tank – in effect double regulation.

The bottom line is that the issue of how the United States deals with CO2 is far more multi-dimensional than just the Federal regulatory picture.

Common Law and the Clean Air Act

In 2004, eight states sued a group of power plant owners for common law damages caused by their CO2 emissions. After the Second Circuit Court of Appeals affirmed their right to do so, in AEP v. Connecticut, the Supreme Court reversed on the grounds that such claims were “displaced by the federal legislation authorizing EPA to regulate carbon-dioxide emissions.” Eliminating that regulatory authority would revive those claims and raise the specter of both unknown financial liability and, eventually (the wheels of justice may grind slowly but they do grind on), potential judicial determination of the appropriate emissions levels for all of the nation’s power plants. Although many hard-core libertarians have long claimed that common law suits are the best means of addressing harmful air emissions, many libertarians today (e.g., Case Western Law Prof. Jonathan Adler and the Cato Institute) would seem to disagree. For our part, a worse way to deal with CO2 at present can scarcely be imagined. The Clean Air Act looks relatively benign in comparison.

The Clean Air Act, EPA and CO2

As for what EPA is doing, it’s really pretty simple. In 2007, the Supreme Court affirmed that CO2 is a “pollutant” under the Clean Air Act, which—in and of itself—did not result in any regulation. The Act required EPA to then determine whether CO2 “is reasonably anticipated to endanger health or welfare,” otherwise known as an “endangerment finding.” That finding was a certainty given that the Act defined “welfare” to include “effects on weather and climate.

The Obama EPA made the endangerment finding in 2009. When challenged, it was upheld by the D.C. Circuit, and the Supreme Court declined to review that decision. That’s saying something because the Supreme Court has taken every greenhouse gas issue that has come before it except that one. The endangerment finding was so unexceptional that not even the four justices who said in the 2007 decision that CO2 was not a pollutant were interested in it. If a pollutant endangers the climate, the Clean Air Act requires EPA to regulate it, which is what EPA is doing.

EPA has, accordingly, regulated CO2 emissions from cars, trucks, smokestacks as a whole under certain general circumstances (via a particular program called “Prevention of Significant Deterioration” that you do not want to know any more about) and is about to start—with power plants—issuing specific regulations for each individual “category” of smokestacks. Industrial facilities of various types will be the next in line in what is likely to be a series of sectoral regulations.

Our point:

  • Congress wrote the definition of “pollutant” that the Supreme Court found to include CO2,
  • Congress mandated that EPA has to decide whether a pollutant endangers “health or welfare,”
  • Congress defined welfare to include “effects on weather and climate,” and
  • Congress said that if a pollutant so endangers the climate, then EPA must regulate it.

Do we think there are significant flaws in EPA’s power plant rules? Absolutely: EPA’s proposed Carbon Capture and Storage requirement for future coal plants is one of the dumbest ideas we have ever seen. For existing plants, EPA requires a significant reduction in emissions and has taken a very aggressive position as to what will have to be done to meet the standards.

Does EPA have this authority? Good question: The Supreme Court will answer it, probably in 2019.

Is the Clean Air Act the best way to reduce CO2 emissions? Of course not. It is a piecemeal, slow, unwieldy, inefficient, and expensive engine of mitigation. But it’s the system Congress has given us.

Could Congress replace this with something better? Absolutely. No one—on any side of the issue—disputes that a federal carbon tax would reduce emissions much faster and far more cheaply than via the Clean Air Act. A handful of Senators and Representatives who understand this have introduced several such bills in recent years, all of which were sent off to die quietly in committee.

So the next time you hear a member of Congress or a conservative activist complaining about EPA’s greenhouse gas regulations, ask them how they intend to fix that problem.