Inability to build consensus doomed efforts, at both the U.S. and international levels, to establish comprehensive climate change regulatory programs in 2010. While greenhouse gas emissions will, particularly in the U.S., be more highly regulated in 2011 than they were in 2010, the immediate future of climate change regulation appears to lie in an assortment of largely uncoordinated regional and piecemeal programs.
On the international level, the United Nations' efforts to broker a global treaty to replace the Kyoto Protocol, which expires in 2012, deadlocked over a fundamental disagreement between developed nations (most notably, the United States) and developing nations (most notably, China).
Noting that China has eclipsed the U.S. as the world's largest greenhouse gas emitter and that developing countries will account for two-thirds of global emissions by 2035, developed nations argue that future emission reduction obligations must apply to both groups. However, China and other developing nations argue in response that they should not be required to restrict their economic growth while their per capita GDP still lags far behind those of the developed world.
As a result, the U.N.'s annual climate treaty summit, held in Cancun, Mexico in December 2010, failed to produce even a framework for a new treaty. As the prospects for achieving unanimity among the more than 190 countries participating in the U.N. process dim, such discussions are increasingly shifting to bilateral and smaller multilateral forums, such as meetings of the G-20 nations.
Comprehensive climate change legislation was equally unsuccessful in the U.S. Congress. Although the House of Representatives narrowly passed the Waxman-Markey bill in 2009, neither that bill nor a Senate alternative made it to the floor of the Senate in 2010. In fact, the Senate's only noteworthy climate change vote in 2010 was on a resolution to bar EPA from regulating greenhouse gases under the Clean Air Act. The measure failed by six votes.
However, as President Obama observed, there is more than "one way of skinning the cat" when it comes to climate change regulation. In contrast to the U.N. stalemate, legislative gridlock in the U.S. did not prevent the executive branch from aggressively pursuing a broad regulatory agenda in 2010 across an array of federal agencies.
Most notably, the U.S. Environmental Protection Agency adopted rules to regulate greenhouse gas emissions from new vehicles, as well as from some new and modified facilities, beginning this month. In December 2010, EPA entered into proposed settlements with a group of states, cities, and environmental groups in which it agreed to finalize in 2012 additional regulations for emissions from new and existing power plants and petroleum refineries. Thousands of U.S. facilities have completed the first year of mandatory greenhouse gas emissions monitoring under a new EPA program, and they are now preparing to submit their first annual reports in March 2011.
The administration's 2010 portfolio of climate change initiatives extended well beyond EPA. For example, the White House Council on Environmental Quality issued draft guidance in February on assessing the climate change impacts of new construction projects under the National Environmental Policy Act. The Department of Energy continued to distribute billions of dollars from the 2009 stimulus bill for a wide range of "clean energy" projects, while the Federal Energy Regulatory Commission moved to implement its Smart Grid Policy and to eliminate transmission-related barriers to wind power and solar energy development. The Securities and Exchange Commission issued interpretive guidance in January on the application of corporate disclosure requirements to climate change issues, and in October the Federal Trade Commission proposed guidance on permissible marketing claims related to renewable energy and "low carbon" products.
Although Congress, particularly one that's gridlocked, has a limited ability to overturn agency actions, the federal courts have jurisdiction to review new regulations for compliance with procedural and substantive law. As EPA promulgated rules in 2010, a wave of challenges—close to 100 separate actions to date—were filed with the U.S. Court of Appeals for the District of Columbia Circuit. Those lawsuits may start to produce judicial opinions in 2011. Moreover, one category of climate change litigation is already on pace to produce a Supreme Court opinion by mid-2011. The Court has agreed to review a Second Circuit holding that common law public nuisance claims may be asserted against greenhouse gas emitters.
Regional climate change initiatives are also poised to take on greater importance in 2011 and beyond. Despite gridlock on a global treaty, the European Union intends to extend and expand its greenhouse gas cap and trade program, including regulation of the aviation industry, which led to a slight increase in EU carbon market prices in 2010. In the U.S., California voters rejected a ballot initiative to delay that state's implementation of a broad cap and trade program, Massachusetts has adopted a plan to reduce greenhouse gas emissions by at least 25 percent by 2020, and the Regional Greenhouse Gas Initiative, a group of northeastern states that already have a cap and trade program for electric utilities, are considering establishing a regional low-carbon fuel standard. However, in contrast to the EU, carbon market prices on U.S. exchanges declined more than 10 percent in 2010.
At the corporate level, climate change—part of the broader issue of environmental sustainability—is increasingly viewed as a matter entitled to senior executive or board level attention. Voluntary disclosure of greenhouse gas emissions information continues to grow, and the investor group Ceres reported a new record in the number of climate change resolutions submitted by shareholders during the 2010 proxy season. As companies and auditors were digesting the SEC's disclosure guidance, ASTM International finalized its "Standard Guide for Financial Disclosures Attributed to Climate Change," and Standard & Poor's was reportedly working on a methodology for incorporating climate change risks into corporate credit ratings.
Entering 2011, businesses seeking to manage climate change risks face a complex and expanding "patchwork quilt" of regulation under which what they emit may be no more significant than how and where they emit it.