During the first 100 days of the Obama administration the Environmental Protection Agency (EPA) has taken an important first step towards the regulation of greenhouse gas (GHG) emissions by issuing a proposed finding that GHG emissions endanger public health and welfare. The EPA has also proposed regulations that would mandate GHG reporting by thousands of facilities and fuel suppliers throughout the United States. These actions set the stage for federal regulation of GHGs, either under the existing Clean Air Act or under a newly enacted and more flexible cap-and-trade law. The threat of EPA regulation under the existing Clean Air Act has given Congress a greater sense of urgency to intervene before the EPA acts on its own.
On April 17 2009, just over two years after the Supreme Court held in MA v EPA(1) that the EPA could not avoid its statutory duty to determine whether GHGs should be regulated under the Clean Air Act, the EPA issued a draft regulation proposing to find that GHGs endanger public health and welfare. Although an advanced notice of public rulemaking issued by the EPA in July 2008 (towards the end of the Bush administration) avoided making an endangerment finding, the EPA has now confronted the issue directly and reached a blunt conclusion: "The case for finding that greenhouse gases in the atmosphere endanger public health and welfare is compelling and, indeed, overwhelming."
Relying on analysis of the Nobel Prize-winning Intergovernmental Panel on Climate Change and on the US Climate Change Science Programme, the EPA's proposed rule concludes that GHG emissions present an endangerment that is worthy of regulatory attention under the Clean Air Act. Public hearings on the EPA's proposed finding have taken place and the comment period will close 60 days after the proposed rule has been published in the Federal Register.
Just one week before announcing its proposed endangerment finding, the EPA published proposed regulations that would mandate GHG reporting for:
thousands of facilities and source categories;
suppliers of certain fuels and gases; and
manufacturers of mobile sources and engines.(2)
Previously, GHG reporting has been largely a voluntary affair. The proposed rule would require reporting from a number of sources, including:
electricity-generating facilities that are subject to the Acid Rain Programme or that contain generating units that collectively emit 25,000 metric tonnes or more of GHGs per year;
aluminium production facilities;
cement production facilities;
electronics manufacturing facilities that exceed certain annual production capacities;
certain underground coal mines; and
certain municipal landfills.
The proposed rule also would require reporting by facilities that emit 25,000 metric tonnes or more of GHGs per year. Sources with boilers that have an aggregate maximum rated heat input capacity of 30 million British thermal units per hour or more could also be subject to reporting. In addition, reporting would be required for suppliers of coal, coal-based liquid fuels, natural gas and certain other gases, and for manufacturers of certain mobile sources and engines.
Entities covered by the rule would be required to begin collecting data on January 1 2010 and to report such data to the EPA first on March 31 2011. Public comment on the EPA's proposed reporting rule closes on June 9 2009. It is anticipated that data reported under the rule will be utilized to design and implement federal GHG regulations.
Once the EPA finalizes its endangerment finding, it is widely anticipated to begin proposing regulation of GHGs under the existing Clean Air Act, starting with mobile sources (which were directly at issue in MA v EPA). The EPA is also expected to regulate GHG emissions from stationary sources such as power plants and industrial facilities. Considerable concern has been expressed about how the Clean Air Act's provisions would be made to apply to GHGs and whether the act is sufficiently flexible to permit cost-effective regulation.
For example, it is anticipated that the EPA will develop GHG-specific new source performance standards for power plants, industrial boilers and refineries. The EPA could also develop best available control technology requirements for GHGs that would be triggered by a prevention of significant deterioration permit. The EPA also might develop national ambient air quality standards for GHGs under the Clean Air Act that could trigger revisions to state implementation plans.
In late March 2009 Congressmen Waxman and Markey introduced a discussion draft of the American Clean Energy and Security Act of 2009.(3) The discussion draft represents a comprehensive effort to address climate change by promoting alternative energy and establishing a flexible cap-and-trade system for GHGs. A number of specified sources would be covered, including large stationary sources emitting more than 25,000 metric tonnes per year of GHGs, as well as certain refiners and importers of petroleum fuels. Emission caps for covered entities would start at 3% below 2005 levels in 2012 and drop to 83% below 2005 levels by 2050. The proposed legislation would largely displace the EPA's ability to impose command-and-control type regulations for GHGs under the existing Clean Air Act, and would also impose a five-year moratorium on state and regional GHG programmes. It is expected that some form of this legislation could pass the House of Representatives during the present term of Congress, although its fate in the Senate (where 60 votes are needed for enactment) is less clear. However, industry is increasingly mindful that if Congress does not act, the EPA will step into the void and may regulate in a manner that would be less desirable than a congressional legislative solution that is more sensitive to economic concerns.
The EPA's recent actions confirm that the relevant question is not whether GHG regulation can be expected, but when and in what form. Companies with significant carbon footprints will either be regulated directly through the existing Clean Air Act or be subject to a national cap-and-trade regime.
Depending on whether Congress exercises its pre-emption authority, they may also be subject to regional and state requirements. Even companies that are not ultimately subject to GHG regulation will likely be affected by higher fuel costs resulting from future regulation. As concrete proposals develop, it will be increasingly important for businesses to:
monitor the impact of proposed GHG laws and regulations on their operations;
participate in rulemakings when the anticipated impact could be material; and
begin planning for a carbon-constrained future by analyzing whether it would be prudent to invest in energy efficiency projects.
For further information on this topic please contact David Paget, Daniel Riesel or Jeffrey Gracer at Sive Paget & Riesel PC by telephone (+1 212 421 2150) or by fax (+1 212 421 2035) or by email (firstname.lastname@example.org or email@example.com or firstname.lastname@example.org).
(3) For a summary of the proposed legislation, see www.pewclimate.org.
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