During President Obama’sState of the Union address on January 28th, he made his intentions clear that he would use his authority to continue to push forward new standards and regulations that would curb the amount carbon pollution US power plants are allowed to dump into the air. Further still, Obama stated that the United States must “act with more urgency” citing continuing climate changes which have seen droughts and floods affect North American cities in recent years.  Canadians must watch these developments for potential implications for business.

In furtherance of these positions, Obama has directed the EPA to issue a draft of a regulation that would set new national standards for carbon pollution by June 1st of this year. It appears the brunt of these changes will target coal-fired power plants, likely forcing hundreds of plant closures throughout the country, and, as such, coal-heavy states have lobbied the EPA extensively with respect to the stringency of the standards to be set in the impending regulation.

Early impressions seem to indicate that the regulation will delegate the responsibility of creating and carrying out plans to meet these standards to each state independently, a move which could bring forward a myriad of approaches ranging from closing coal-fired plants and investing in other renewable sources of energy, to instituting “cap and trade” programs which would cap carbon pollution and create a market for buying and selling pollution permits.

The exact options available will be largely dictated by how the new rule is eventually written, the language of which will almost certainly be challenged if the EPA attempts to be too aggressive in its attempts to cut emissions. Various organizations and associations have made known their intention to fight any rules that would target the coal industry and the EPA’s legal authority to set national standards on climate change has been a battleground ever since a 2007 US Supreme Court decision first found that the Clean Air Act gives the EPA the authority to regulate tailpipe emissions of greenhouse gases as pollutants.

In December 2013, hearings began in the US Supreme Court on key cases challenging the EPA’s authority to deal with air pollution and climate change, specifically including whether the EPA can set limits on air pollution that originates in one state, but directly affects the air quality of another, as well as a challenge to be heard in early 2014 regarding the EPA’s plans to limit greenhouse gas emissions from power plants.

As the due date for the EPA’s new regulation draws near, it will be interesting to continue to monitor the US Supreme Court’s findings with respect to the scope of the EPA’s authority as well as any developments in the standards being targeted or how these standards are intended to be implemented. If the EPA does delegate the implementation of these standards to each state, it will be particularly interesting from a Canadian perspective to see the how many various approaches are taken to reduce carbon emissions and which approaches are most successful.