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Cap & trade or command & control: Hobson's choice for US=20 industry

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Sunday, 13 December 2009

By Scott D.=20 Deatherage

The 15th Conference of the Parties of the United = Nations=20 Framework Convention on Climate Change in Copenhagen continues as a = lively and=20 contentious debate about the future of an international climate treaty = after=20 Kyoto. The debate in the United State about a federal program to = reduce=20 greenhouse gas emissions has hit a new high as well. On December = 7, the US=20 Environmental Protection Agency (EPA) issued its finding under Section = 202 of=20 the Clean Air Act that the emissions of greenhouse gases (GHGs) = =E2=80=9Cthreaten the=20 public health and welfare of current and future = generations.=E2=80=9D While=20 to most of the public and certainly the national academies of sciences = of the=20 major developed and developing countries this may sound like a = non-event, in the=20 United States this finding is the foundation of a regulatory program = being=20 developed by EPA in the event the Congress, namely the US Senate does = not adopt=20 a climate bill. EPA is attempting to put pressure on the = Senate to=20 act and on industry groups to seek a Senate bill more to their liking = than an=20 EPA developed climate change and greenhouse gas regulatory = program.

To=20 understand the confusing nature of developments in the United States, = one first=20 has to understand the legal lay of the land. First, states are = allowed,=20 generally, to adopt their own environmental regulations, or other = regulations,=20 unless =E2=80=9Cpreempted=E2=80=9D by a statute passed by = Congress=E2=80=94meaning a statute has been=20 passed by Congress that prohibits a state from regulating a specific = area. =20 States have not been preempted in the climate area, although they may be = to some=20 extent if a federal climate law is passed, and have been developing = their own=20 laws.

The next level of understanding is the federal Clean Air = Act,=20 provides broad authority to the EPA to regulate =E2=80=9Cair = pollutants.=E2=80=9D It is=20 this authority that was the basis of a US Supreme Court decision in 2007 = considering a refusal of the EPA under the Bush Administration to = regulate=20 greenhouse gas emissions under the CAA. The Court ruled that = greenhouse=20 gases were an air pollutant under the CAA=E2=80=99s definition and EPA = had the authority=20 to regulate greenhouse gases under that Act.

Fast forward to 2009 = and the=20 Obama Administration=E2=80=99s EPA has issued or proposed regulations = that would form a=20 greenhouse gas regulatory system. First, EPA issued a final GHG = reporting=20 rule that goes into effect on January 1, 2010. All major emitters = and any=20 other source of 25,000 tons of carbon dioxide equivalent will be = reguired to=20 monitor and report their GHGs to the EPA and they will be available on = the=20 Internet.

The Endangerment Finding serves as the scientific and = policy=20 basis for the EPA=E2=80=99s other two proposed rules. One would = require reductions=20 in GHG emissions from cars and trucks and other =E2=80=9Cmobile = sources=E2=80=9D in the=20 transportation area. The other would require the regulation of = =E2=80=9Cstationary=20 sources=E2=80=9D such as oil refineries, coal-fired power plants, cement = plants, and=20 manufacturing facilities. Again, the main threshold for many = sources would=20 be 25,000 tons of CO2e per year.

As a result Congress and the = regulated=20 industry have to consider the impact of an EPA-developed program in = terms of the=20 means and mechanisms of regulation. Already some companies with = high=20 emissions are calling on the EPA to develop a form of cap and trade=20 program. The problem is whether the EPA would do that or just rely = on the=20 old style =E2=80=9Ccommand and control=E2=80=9D system. This how the = proposed rule now stands -=20 and would require that companies reduce their greenhouse gas emissions = without=20 any ability to offset their emissions or utilize a cap and trade = program. =20 Industry definitely does not want that approach.

Time will tell = whether=20 EPA and the Obama Administration=E2=80=99s approach will push the Senate = to act or give=20 the Senators a chance to not take action and let the Obama = Administration face=20 any political risk in an election year for Congress in 2010. For = industry,=20 it does present a bit of a Hobson=E2=80=99s choice=E2=80=94EPA=E2=80=99s = approach with potentially no=20 cap and trade or actually pushing for a negotiated bill that industry = can live=20 with from the Congress. The first quarter of 2010 will prove to be = a=20 fascinating period in climate change history and one with significant = impact in=20 the United State and around the world.

Scott D. Deatherage is the leader of Thompson & = Knight law=20 firm=E2=80=99s Climate Change and Renewable Energy Practice Group. = He is writing a=20 book entitled Carbon Trading Law in Practice to be published by Oxford=20 University Press. He also authors the blog The=20 New Carbon Cycle.

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