Sweeping U.S. Environmental Protection Agency proposal regarding greenhouse gas emissions control could affect many sectors of the economy.

The intergovernmental debate about the future of climate change regulation in the United States was clear in an Advanced Notice of Proposed Rulemaking (Notice) and related documents released by the U.S. Environmental Protection Agency (EPA) on July 11, 2008. The Notice sets forth dozens of ways in which the EPA potentially could regulate greenhouse gas (GHG) emissions in a wide variety of industries using the provisions of the Clean Air Act. The EPA seeks comments from the public on whether it should impose such regulations and how it should do so. Comments are due mid-November 2008.

Despite the extensive analysis put forth in the 564-page Notice, the EPA Administrator stated that the analysis showed that the Clean Air Act was not well suited to impose such a regulatory regime and called upon Congress to enact new legislation to regulate GHG emissions. He stated that pursuing the policies outlined in the draft could result in a relatively ineffective regulation that could have a potentially damaging effect on jobs and the U.S. economy. He acknowledged that the regulations would take decades to implement and inevitably would result in a very complicated and likely convoluted set of regulations. The White House also issued a press release stating its agreement with the Administrator and highlighting the problems with expanding agency power so broadly.

EPA’s Obligation to Publish the Notice

EPA stated that it was publishing its Notice because it had to respond to its legal obligations as set forth in Massachusetts v. EPA. In that case, the Supreme Court of the United States held that the GHGs could be regulated under the Clean Air Act and that EPA had to make a determination as to whether GHGs endangered public health or welfare. For more information, see McDermott On the SubjectTwo U.S. Supreme Court Rulings Pave the Way, Maybe,” published April 6, 2007. If such a finding were made in the affirmative, EPA would have an obligation to promulgate regulations to decrease emissions. One year has passed since the Massachusetts v. EPA decision and EPA remains under increasing pressure to demonstrate the steps it is taking to making the endangerment decision.

The Proposal

The Notice seeks comment on dozens of issues. As a threshold matter, it seeks comment on whether or not EPA should, in fact, make a finding that GHGs cause or contribute to the air pollution which endangers public health or welfare. It notes that EPA could view each GHG, such as CO2 or methane, in isolation, or it could group them all together and make a finding that, collectively, the chemicals create such an endangerment.

If EPA makes a finding that GHGs either individually or collectively cause or contribute to the air pollution which endangers public health or welfare, it must then take steps to minimize emissions of such pollutants. EPA’s proposal details numerous different proposed regulatory schemes to minimize such pollutants from different industries. EPA seeks comment on numerous aspects of these schemes including the following proposed policies.

Mobile Sources

Mobile sources include automobiles, trucks, aviation, railroads, power equipment and other mobile engines.

  • EPA suggests that it could set increasingly stringent performance standards relating to emissions reductions from automobiles and other mobile sources, similar to the way it has already regulated such sources.
  • It also could set up a cap and trade system for reducing emissions that would provide for increased flexibility for automobile manufacturers. Such a cap and trade system could be integrated with other markets, such as CO2 emissions from stationary sources, or could operate solely through the vehicle sector.
  • If a CO2 emissions allowance (carbon trading) market integrating both automobiles and stationary sources were set up, it could conceivably account for emissions from the entire life cycle associated with transportation fuels. This would involve reducing emissions associated with transportation fuels, including both upstream fuel production and the downstream vehicle GHG emissions.
  • EPA also seeks comment relating to potential regulation in numerous other industry sectors including marine engines, aircraft, nonroad engines, railroads, and fuels.

Stationary Sources

Stationary sources include refineries, utilities, chemical plants, buildings, etc. Similar to the section of comments on mobile sources, EPA also seeks comment on potential regulation of stationary sources to implement a reduction of GHGs. It posits whether to set up a regulatory system under the National Ambient Air Quality Standards whereby EPA regulates the ambient air quality of metropolitan areas and sets standards for criteria pollutants. This would create individualized state plans whereby states would submit their own strategies for reducing GHG pollution in their states.

  • Alternatively, EPA considers whether to regulate GHG emissions from stationary sources through its New Source Performance Standards system or through its National Emissions Standards for Hazardous Air Pollutants system. The choice of appropriate regulation under these scenarios would vary, but major plants with significant emissions such as public utilities that own fossil generation, refineries, chemical plants, incinerators and other major sources of emissions would likely be heavily affected with new, more stringent controls.
  • As noted in the comments from the other agencies, depending on the implementation of these regulations, other industries that are not presently regulated would also be regulated. These could include virtually any emissions source of GHGs, including farms, schools, office buildings and residential homes.

Stratospheric Ozone

Finally, EPA seeks comment on whether it would be appropriate to use the Stratospheric Ozone provisions of Title VI of the Clean Air Act to regulate GHGs. This section of the Clean Air Act regulates Ozone Depleting Substances (many of which are GHGs) used in many products including refrigeration, building and vehicle air conditioning, solvent cleaning, civil aviation and other uses.

Ramifications of the Rule and Agency Comments 

Along with the Notice, EPA published letters from several other federal agencies raising numerous questions about the rule and expressing opposition to many of the proposals. The breadth of those comments indicate the breadth of the potential scope of the industries affected by the Notice, and the potential conflicts between this proposed regulatory scheme and existing regulations. The comments included the following.

Department of Transportation

The Department of Transportation (DOT) raised concerns that the attempt to regulate GHGs under the Clean Air Act will harm the U.S. economy while failing to actually reduce global GHG emissions by driving U.S. production, jobs and emissions overseas, with no net improvement in GHG concentrations.

  • Cars and trucks : DOT also questioned the overlap and possible inconsistencies between the proposed regulation and the Energy Independence Security Act.
  • Marine vessels : DOT stated a preference for participation in the International Maritime Organization’s discussions surrounding the addition of GHGs to the voluntary standards adopted globally.
  • Aviation : DOT stated that the EPA failed to acknowledge (1) the overwhelming market pressures on commercial airlines to reduce fuel consumption and carbon dioxide emissions; (2) the expected cooperative results from the Next Generation Air Transportation System program; (3) the role of the International Civil Aviation Organization in environmental matters; (4) the limits on the EPA’s ability to impose operational controls on aviation emissions; and (5) the lack of scientific certainty regarding airplane GHG emissions.

Department of Energy

The Department of Energy (DOE) commented on three issues: (1) the inadequacy of Clean Air Act provisions for controlling GHG emissions from stationary sources as a method of affecting global GHG concentrations and addressing global climate change; (2) the potential costs and effects of Clean Air Act regulation of GHG emissions on the U.S. electric power sector; and (3) considerations for U.S. action to address GHG emissions from stationary sources in the absence of an effective global approach for addressing climate change and worldwide GHG emissions.

Department of Commerce

The Department of Commerce (DOC) expressed concern with the potential costs to U.S. workers, consumers, producers and competitiveness that the Clean Air Act would impose without actually producing a meaningful reduction in global GHG emissions. It raised concerns that many of the proposed regulations would probably shift production to non-regulated countries and that would harm U.S. competitiveness.

The DOC also noted that applying tariffs to imports from non-carbon-regulated countries would have significant repercussions, including exposing the United States to World Trade Organization challenges by trading partners, retaliatory measures against U.S. exporters and undermining the existing trade policy of tariff reduction.

Department of Agriculture

The Department of Agriculture (DOA) questioned the potential effects the proposed regulation would have on reducing domestic food supplies while increasing the price of food because of increased energy and transportation costs. It also pointed out that a number of the proposals would potentially require aggressive standards for small agricultural operations that could drive many of them out of business.

Other commenters included the Council on Environmental Quality, the Small Business Administration, the Executive Office of the President, and the office of Science and Technology Policy.

Comments and Future Legislation

Given the position of the White House and the Administrator that Congress should pass new legislation regulating GHGs rather than requiring EPA to use the Clean Air Act to do so, it is highly unlikely that any action will be taken until after the presidential election in November. However, industries should review the Notice and consider commenting, as many of the controls suggested in the Notice will likely provide a starting point for discussion in future legislation or regulation next year.