The U.S. Environmental Protection Agency (USEPA) and the Congress are moving multiple initiatives to address the problem of climate change. The last few weeks have brought at least five key developments that will bring the Clean Air Act (CAA) into play as a major factor in greenhouse gas emission reduction. This E-Update will discuss the most prominent recent Congressional development: the release by Representatives Waxman and Markey of the discussion draft of a comprehensive climate change program for the United States. The American Clean Energy and Security Act of 2009, in four titles and over 600 pages, sets forth a proposed approach on every significant aspect of climate change policy.

Title I, “Clean Energy,” would establish: 

  • a renewable energy generation requirement that would reach 25% in 2025,
  • an aggressive program to develop carbon capture and sequestration technology to control emissions from coal-fired power plants, and
  • a low carbon fuel standard to reduce greenhouse gases from transportation activities. Achievement of these goals would be furthered by deployment of a “smart” electric transmission grid to get renewable energy to load centers and facilitate other technologies to increase energy efficiency.

Title II, “Energy Efficiency,” would:

  • establish programs and requirements for improving efficiency of new and existing buildings, appliances and manufactured homes,
  • authorize federal agencies to enter into long-term contracts to purchase renewable energy, and
  • require USEPA to adopt greenhouse gas emission standards for mobile sources under the existing CAA, discussed in more detail below.

Title IV, “Transitioning to a Clean Energy Economy,” would establish: 

  • programs designed to keep U.S. manufacturers from suffering competitive disadvantage due to the cost of additional emission controls, including possible imposition of a “border adjustment” program to account for the carbon content of imported products.
  • programs to promote training for “green jobs,”
  • a consumer assistance program, and
  • a program to encourage deployment of clean technologies to developing countries.

Proposed Clean Air Act Amendments

The centerpiece of the Waxman-Markey bill, however, is its proposal in Title III of the bill to establish two new CAA titles: Title VII, “Global Warming Pollution Reduction Program,” and Title VIII, “Additional Greenhouse Gas Standards,” in addition to its inclusion of new provisions in Title II, Mobile Sources, to require greenhouse gas emission standards for all classes of mobile sources. The proposed new CAA programs include:

Economy-Wide Cap and Trade. Greenhouse gas cap and trade program with reductions from 2005 levels as follows:

    • 3% by 2012,
    • 20% by 2020, and
    • 83% by 2050

Covered entities would include electricity sources, chemical, petrochemical and other industrial sources, and fuel producers that emit 25,000 tons of carbon dioxide equivalent in 2008 or any future year, as well as natural gas local distribution companies that deliver over 460 million cubic feet of gas to non-covered customers. In the case of fuel producers, the emissions measurement is based on what would be emitted from combustion of fuels produced.

Emission allowances also include offset credits which could be used to offset emissions at a ratio of 5 offset credits to 4 emission credits, limited to 2 billion tons per year.

The bill is silent, pending committee markup, on two issues that will be at the center of the debate on a final bill: the portion of emissions allowances to be allocated and/or auctioned, and the use of the proceeds from an auction. This aspect of cap and trade legislation determines the timing and level of costs that will be imposed on covered entities, and the final result will likely reflect complicated compromises set forth in detailed allowance allocation language. 

  • Standards of Performance. USEPA would:
    • develop a list of categories of sources that emit over 10,000 tons of greenhouse gases and that collectively emit at least 20% of “uncapped” greenhouse gases, and
    • promulgate standards for new and existing sources for these categories according to a progressive schedule that extends ten years from the bill’s enactment. The standards must be set so that the marginal cost of compliance is not expected to exceed projected allowance prices in the cap and trade system.

The bill prohibits promulgation of greenhouse gas standards for sources subject to the cap and trade program, but does require that standards set or revised for other air pollutants from capped sources consider their impact on greenhouse gas emissions when determining best demonstrated technology.

  • Mobile Sources Standards. USEPA would be required: 
    • to adopt greenhouse gas emission standards for new motor vehicles under its existing CAA authority. The standards must be achievable, be harmonized with the Corporate Average Fuel Economy (CAFE) standards and the California motor vehicle standards, and be at least as stringent as the California standards.
    • to promulgate greenhouse gas emission standards for: heavy duty vehicles and engines (2010), marine vessels and locomotives (2012), other nonroad engines (as USEPA deems appropriate), and aircraft engines (2012).

USEPA would be authorized to allow banking and trading of emission credits among categories of mobile sources on a broader basis than in the past.

  • Title VI and Hydrofluorocarbons (HFCs). The bill would:
    • add HFC greenhouse gases to the program under existing CAA Title VI (Stratospheric Ozone Protection), and
    • establish a phase-out schedule for HFCs. The reduction schedule would continue to 2039, and ultimately require reductions of 85% from current baseline emissions.  
  • Other CAA Programs Not Applicable. The bill contains multiple exclusions of greenhouse gas emissions from limitation under other CAA programs:
    • National Ambient Air Quality Standards (NAAQS). A greenhouse gas would not be allowed to be listed as a criteria pollutant based on its effect on climate change, and thus would not be the subject of the NAAQS program.
    • New Source Review (NSR). The NSR construction permit program would not apply to a greenhouse gas “solely” because of its effect on climate change or by its being regulated under the new CAA Title VII.
    • Title V Operating Permits. Greenhouse gas emissions would not be considered in determining whether a source requires a Title V operating permit.
    • Hazardous Air Pollutants (HAP). A greenhouse gas could not be listed as a HAP under CAA Section 112, unless it meets the listing criteria apart from its effect on climate change.

The Waxman-Markey discussion draft is a comprehensive and detailed proposal for a climate change program for the United States. At the same time, the authors left open the provisions that will undoubtedly require careful compromise during the committee markup process.

While the Senate considered and did not enact a comprehensive climate change bill last year, the Senate committee this year has issued some broad guidelines for climate change legislation, and appears to be awaiting the results of the House deliberations before working on its own bill. The Waxman-Markey bill therefore appears to be the framework for the federal government’s upcoming climate change program.