The Road Ahead PDF
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Institute for Policy Integrity New York University School of Law The Road Ahead EPA’s Options and Obligations for Regulating Greenhouse Gases Inimai M. Chettiar Jason A Schwartz Report No. 3 April 2009 Copyright © 2009 by the Institute for Policy Integrity. All rights reserved. Cover photograph by: Michal Zacharzewski. Printed in the United States of America. Institute for Policy Integrity New York University School of Law 245 Sullivan Street, Suite 472 New York, New York 10012 ii Contents Foreword............................................................................................v Executive Summary......................................................................vii Introduction......................................................................................1 Part One: EPA’s Obligations Under the Clean Air Act and Massachusetts v. EPA 1. The Current Legal Landscape ................................................9 2. Mobile Source Obligations ...................................................20 3. Stationary Source Obligations .............................................33 Part Two: EPA’s Options to Create Effective and Efficient Greenhouse Gas Regulations 4. Cap-and-Trade Is the Best Strategy ..................................61 5. Best Options for Replicating Cap-and-Trade ...................71 6. Best Options for Mandatory Obligations ..........................92 7. Supplemental Discretionary Options ...............................108 Conclusion...................................................................................119 Appendix.....................................................................................120 iii Acknowledgments This report benefited from the invaluable guidance of Richard L. Revesz and Michael A. Livermore, and it expands upon the ideas expressed in their book, Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health (Oxford University Press, 2008). Thanks are also due to Edna Ishayik, as well as to Junyeon Park. iv Foreword There is broad consensus among scientists, economists, and policymakers that climate change is a significant threat that must be addressed. Most of the scientific community believes that climate change poses significant risks that could impose large welfare costs on future generations. While the costs of reducing greenhouse gases may be high, the risks of doing nothing are much higher. While climate change will require a global response, it has become clear that the United States must provide leadership in the creation of a successful international regime. Domestic efforts to address climate change are also significant on their own; the United States is the second largest greenhouse gas emitter and is likely to drive the technological changes needed to reduce aggregate global emissions. Developing domestic climate change policy in the United States is therefore a key linchpin necessary to make progress in addressing global greenhouse gas emissions. In this report, Inimai M. Chettiar and Jason A Schwartz—fellows at the Institute for Policy Integrity—provide an in‐ depth analysis of a particularly important aspect of domestic greenhouse gas policy: the relationship between the Environmental Protection Agency (EPA) and Congress. The U.S. Supreme Court held two years ago that EPA has the power under the Clean Air Act to regulate greenhouse gases as pollutants. This ruling creates a timeline of obligations that will require the agency to act soon in some manner, though EPA retains a good deal of discretion to choose its regulatory strategy. At the same time, Congress has begun addressing the issue in earnest, and we may see the adoption of economy‐wide greenhouse gas legislation in the near future. Avoiding conflicts between regulation under the Clean Air Act and future legislation, while crafting the best policy to begin addressing climate change, is therefore an important priority. Chettiar and Schwartz look into the labyrinthine structure of the Clean Air Act to identify EPA’s obligations under the law and the variety of regulatory options available to the agency. They examine how both required and optional regulatory actions would interact with a legislative cap‐and‐trade system—the most likely candidate for congressional approval. They also examine how closely EPA could approximate a cap‐and‐trade system using only the regulatory tools in the Clean Air Act. Importantly, they find that the broad powers given to EPA by the Act allow the agency to construct a very close approximation of an economy‐wide cap‐and‐trade system, with a few small but important caveats. This finding is extremely important because it indicates that congressional deadlock—a very real possibility—need not result in inaction. In fact, because EPA has the power to create a v regulatory cap‐and‐trade system, it is possible that the United States could join a global regime through an executive agreement, forgoing the difficult treaty ratification process that halted adoption of the Kyoto Protocol. This report is an important contribution at a critical time. Several environmental law scholars and policy experts have examined the myriad challenges of using the Clean Air Act to address greenhouse gas emissions. The Road Ahead synthesizes and expands on this work to provide a map for EPA through this legal minefield. The political and social consequences of missteps on the part of the agency are grave. But it is even more dangerous for the agency to remain paralyzed. With this report, Chettiar and Schwartz have given us reason to hope that we can navigate this perilous ground successfully. Richard L. Revesz Michael A. Livermore Dean, NYU School of Law Executive Director Faculty Director vi Executive Summary What are EPA’s obligations under the Clean Air Act, and how far can and should the agency go to regulate greenhouse gases? With the anticipated finalization by EPA of its “endangerment finding” for greenhouse gases, the agency has triggered action to regulate CO and other heat‐trapping gases under 2 the Clean Air Act. With this move, President Obama has created a set of responsibilities and obligations, as well as a range of options and powers to control emissions. The questions now are: What road will he take? Will he be met by success or setbacks? If EPA pursues traditional “command‐and‐control” regulation under the Clean Air Act, it may set itself on a collision course with Congress, which has been moving quickly to design “cap‐and‐trade” legislation. If EPA adopts mandatory control regulation and Congress later enacts a cap‐and‐trade system, there will be significant and unnecessary transition costs for the American economy. Under the Clean Air Act, however, EPA has a great deal of flexibility to design regulatory programs. It must use that flexibility wisely to avoid a conflict with Congress. If Congress fails to act, President Obama has the power under the Clean Air Act to adopt a cap‐and‐trade system that auctions greenhouse gas allowances. President Obama also has the power under the Clean Air Act to implement an executive agreement at the international level, rendering Senate approval of a climate treaty unnecessary. EPA’s first priority must be to meet its legal obligations without impeding the work being done in Congress. But if Congress fails to act decisively, then putting those powers to use will be an essential stop‐gap to avoid complete inaction on climate change. vviiii respond to these petitions—while EPA has some discretion in how it ultimately regulates, it is EPA’s likely that the petitions will require regulation. Because many of the petitions have been pending for several years, EPA must move quickly to respond within a reasonable timeframe. Obligations Greenhouse Gas Standards for New Motor Vehicles The proposed finding that greenhouse gas emissions from motor vehicles are a threat to On the basis of the U.S. Supreme Court’s public health and welfare will ultimately require decision in Massachusetts v. EPA, petitions EPA to establish greenhouse gas emissions currently pending before EPA, and EPA’s standards for new motor vehicles. Because the responsibilities to implement the provisions of Supreme Court specifically addressed the issue of the Clean Air Act in a reasonable manner, EPA greenhouse gases from motor vehicles, EPA must move quickly to adopt regulations, or else it risks can no longer delay creating new greenhouse future confrontations with the courts. gas regulations in many areas. Aircraft Engines Public petitions have already been filed that will require the agency to issue a positive finding that Legal Urgency to Act aircraft contribute to greenhouse gas pollution that endangers public health or welfare. Once the In April 2007, the Supreme Court issued its landmark positive endangerment finding is made, EPA will ruling in Massachusetts v. EPA, thus beginning a series be required to issue emissions standards for of steps that, barring congressional intervention, will aircraft engines. lead ineludibly to regulation of greenhouse gases Marine Vessels under the Clean Air Act. The Court made three key holdings that will trigger a mandatory response from There are also pending petitions before EPA to EPA: (1) that the definition of “air pollutant” in the regulate emissions from marine vessels, and EPA Clean Air Act includes greenhouse gases; (2) that any will have to issue a positive finding that marine justification not to regulate must “conform to the vessel emissions of greenhouse gases endanger authorizing statute”; and (3) that “[t]he harms public health or welfare. To avoid regulating associated with climate change are serious and well marine vessel emissions, EPA will be required to recognized.” Together, these holdings give EPA very articulate a reasoned explanation for its refusal to little wiggle room to avoid regulation. act, which will be difficult or impossible given the threat posed by greenhouse gas emissions from Following through on its obligations under the marine vessels and the numerous potential Supreme Court’s ruling, EPA has now made a regulatory options available to the agency. proposed finding under the Clean Air Act that greenhouse gases pose a danger to public health and welfare. EPA has also found that emissions from motor vehicles contribute to greenhouse gas pollution, setting the stage for motor vehicle regulations in the near term. Finally, several petitions currently pending before the agency are very similar to the petition that led to the Supreme Court’s decision. Given the Court’s findings in that case, EPA is constrained in how it can iiviii Fuels required to consider the environmental costs of climate change Petitions will also constrain EPA’s discretion in the area of marine fuels. Pending petitions place EPA on a course to issue a positive endangerment finding that marine fuels contribute to greenhouse gas Avoiding a pollution that endangers public health or welfare. On the basis of that finding, EPA will likely be required to act to regulate marine fuels, but will have the option to integrate marine fuels regulation into a broader Collision regulatory approach for fuels for all mobile sources. EPA May Be Obligated to Issue Nationwide Standards for Greenhouse Gases Current legal precedent suggests that EPA may be with forced to issue national air quality standards for greenhouse gases. While it may be possible to use these standards in a creative way to construct a cap‐ and‐trade program, command‐and‐control Congress regulations would be costly and potentially unworkable. However, more recent changes to the Clean Air Act make the relevance of older case law unclear, and it may be within EPA’s discretion to While EPA is required by law to move delay issuing “air quality” standards, especially if it is moving forward with regulations on other fronts. forward with greenhouse gas regulations under the Clean Air Act, Congress has Consider Climate Change Effects for Existing taken steps toward adopting cap-and- Pollutants trade legislation. EPA and Congress are on While EPA may be able to avoid listing greenhouse parallel tracks for now, but there is the gases as “criteria” pollutants and creating national air quality standards, where currently listed potential for redundancy and conflict that pollutants—like particulate matter—have climate will drive up the cost of greenhouse gas change effects, EPA will be required to consider reduction. climate change costs when revising standards for those pollutants. New Source Review While there may be some delay, EPA will eventually CommandandControl Regulations Are be required to list greenhouse gases as “regulated Costly, But Some May Be Required pollutants” under the New Source Review program, For decades, economists have generally agreed meaning that all new or modified major sources will that whenever possible, it is better to use market‐ be required to install “best available control based regulations—like cap‐and‐trade systems— technology” for their greenhouse gas emissions. EPA to achieve environmental goals rather than will be required to treat many greenhouse gas command‐and‐control regulations. Market‐based sources as “major emitting facilities” under the New regimes give greater flexibility to businesses by Source Review program, meaning that demanding economy‐wide reductions, but preconstruction permits will be required for many allowing firms to reduce pollution in the cheapest facilities, including many relatively small sources of possible manner. Command‐and‐control pollution. Finally, whenever issuing permits under regulations, however, require central regulators the New Source Review program, EPA will be to prescribe conduct for huge classes of economic iiiix
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