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Understanding the Changing Debate
on Greenhouse Gas Regulation

David Schweikhardt
Dept. of Agricultural, Food, & Resource Economics

This article summarizes the origin and status of a lesser known policy approach on greenhouse gas regulation being considered in the federal court and monitored by EPA. Because this process is ongoing, many of the details of the final regulations are unknown. At the same time, it is possible to see some likely
directions this process could take in the
coming months.

As the debate over the phenomenon of climate change continues, the issue of a public policy response to climate change is occurring at several levels. On the one hand, international agreements on a policy response (e.g., the Kyoto Treaty or the Copenhagen Agreement) have produced relatively little in the way of actual policy decisions.

In July 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act (i.e., the “cap and trade” bill) that includes the objective of reducing U.S. carbon emissions by 17 percent by the year 2020 and 80 percent by 2050. No bill has passed the U.S. Senate.

At the same time, a lesser-noted approach to policy has been proceeding through the federal court system and now to the Environmental Protection Agency (EPA). This approach has received relatively little attention until recent months, but is receiving greater attention as an alternative that may result in a significant change in U.S. greenhouse gas emissions policy.

Origins of EPA Action
In 1999, 19 environmental organizations petitioned the EPA requesting that greenhouse gas emissions suspected of contributing to climate change be regulated by the EPA. In particular, the rule making petition requested that the EPA regulate the greenhouse gas emissions (carbon dioxide and three other gases) of new motor vehicles under the provisions of the Clean Air Act (CAA).

The EPA, after consideration of the petition, denied the petition in September 2003. In doing so, the EPA based its decision on two factors. First, the EPA determined that the CAA did not give the agency the authority to regulate greenhouse gases as air pollutants. Second, the EPA determined that even if the agency did have the authority to regulate greenhouse gases, a decision to do so would be unwise because it might conflict with other Bush administration policies on the climate change issue.

These other policies included support for technological research, voluntary programs to encourage reductions in greenhouse gas emissions, and the pursuit of international agreements on greenhouse gas emissions.

U.S. Supreme Court Decision
After the EPA’s denial of the original rule making petition, the petitioners began a series of appeals of the EPA decision in the federal court system. After a series of lower court decisions, the issue reached the U.S. Supreme Court in 2006. By the time of the decision, the 19 environmental organizations had been joined by 12 states, three cities, and one American territory in appealing the EPA’s decision.

Ten states (including Michigan) and several industry groups joined in support of the EPA’s position at the Supreme Court. The two legal issues decided by the Supreme Court were the two issues used by the EPA in its denial of the petition. First, does the CAA give the EPA the authority to regulate greenhouse gases? And second, did the EPA provide an adequate basis to justify its decision to deny the petition requesting regulation of greenhouse gases?

In a 5-4 decision in the case of Massachusetts v. Environmental Protection Agency, the Supreme Court found that the CAA requires the EPA to regulate “the emission of any air pollutant from any class . . . of new motor vehicles . . . which in [the EPA’s] judgment cause[s], or contribute[s] to, air pollution . . . reasonably . . . anticipated to endanger public health or welfare.” The CAA further defines an “air pollutant” to include “any air pollution agent . . . , including any physical [or] chemical . . . substance . . . emitted into . . . the ambient air.”

Finding that greenhouse gases (including carbon dioxide) are a physical or chemical substance emitted into the ambient air by motor vehicles, the Court cited the language of the CAA in ruling that such substances could be classified as air pollutants if such substances were found to “cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.”

Thus, on the issue of whether the CAA gave the EPA the authority to regulate greenhouse gases, the Supreme Count ruled that the EPA had erred in its decision to deny the petition and the agency did have the authority to regulate greenhouse gases as an air pollutant if such gases were found to endanger public health or welfare.

On the second issue, the question of whether the EPA had an adequate basis for denying the rule making petition, the Court returned to the language of the CAA statute. Again citing the statute’s definition of a possible air pollutant, the Court ruled that the decision whether to regulate a physical or chemical substance as an air pollutant must be based on the question of whether that substance “could be reasonably anticipated to endanger public health or welfare.” Thus, the Court concluded that the basis given by the EPA in its rejection of the petition (i.e., because it could conflict with other Bush administration efforts to control greenhouse gases), were “policy” reasons, and not reasons related to the potential endangerment of public health and welfare, as required by the CAA statute.

Thus, the Supreme Court ruled that (a) the EPA did have the authority to regulate greenhouse gases as air pollutants under the CAA and (b) under the CAA, the decision to regulate greenhouse gases as air pollutants must be based solely on the issue of whether such substances endanger public health and welfare, and not on unrelated policy considerations.

Consequently, the Supreme Court returned the petition to the EPA with an order to base its decision on the proper considerations identified under the CAA statute (i.e., whether greenhouse gas emissions endanger public health or welfare).

Subsequent EPA Action
In December 2007, the EPA sent a draft report of an endangerment finding (i.e., its report on whether greenhouse gas emissions endanger public health or welfare), as required by the Supreme Court’s decision in Massachusetts v. EPA, to the Office of Management and Budget (OMB).

The OMB refused to consider the report, leading the EPA to withdraw the report and issue an advanced notice of rule making to seek public comment on the endangerment issue.

In December 2009, the EPA issued its final ruling on whether greenhouse gases were classified as an air pollutant under the CAA and based on the Supreme Court’s ruling in Massachusetts v. EPA. In doing so, the EPA found that (a) emissions of greenhouse gases from motor vehicles cause or contribute to greenhouse gas pollution and, (b) that such air pollution endangered public health and welfare.

Based on this endangerment finding, the EPA announced in February 2010 that greenhouse gas emission standards will be phased in for light vehicles during the 2012 to 2016 model years. It also announced that greenhouse gas emission standards for large (greater than 25,000 tons of emissions per year) “stationary” sources (e.g., utility plants, refineries, etc.) would be phased in beginning no earlier than the latter half of 2011, while standards for smaller stationary sources would be phased in beginning no earlier than 2016.

Implications and Outlook
The EPA’s endangerment finding provides the basis for the EPA to issue regulations on the greenhouse gas emissions on light duty motor vehicles. In addition, the ruling could also provide the basis for EPA regulations on other sources of greenhouse gas emissions.

Thus, though the EPA’s endangerment finding and any regulations based upon it could face additional legal challenges, the Supreme Court’s decision is likely to withstand any attempt to permanently prevent the issuance of greenhouse gas regulations. There have also been Congressional proposals to ban the use of EPA funding for greenhouse gas regulation or other legislation that would limit the EPA’s power to regulate greenhouse gases. None of these proposals have yet passed either house of Congress.

Assuming the EPA retains its authority to regulate greenhouse gases, what form would such regulations take? On the one hand, the EPA would likely have the authority to choose among a wide range of regulations, including regulations that are much stricter than the regulations contained in the cap and trade bill passed by the House of Representatives.

Such regulations could require larger reductions in greenhouse gases or could require the use of “command and control” regulations (i.e., technical specifications) that would likely be more costly than the cap and trade approach adopted by the House bill.

In addition, the House bill contains several provisions that are specifically designed to reduce the cost of cap and trade legislation for agricultural producers. The EPA would not be required to include such provisions in any regulations that it promulgates in the future.

On the other hand, the cap and trade system included in the House bill is seen as a lower cost regulatory method by many economists and interest groups (i.e., lower cost than a command and control system). With this in mind, the EPA might choose to establish a cap and trade system as the method of regulating greenhouse gases.

Once again, however, it must be noted that the EPA would not be required to adopt the exact language of the House bill, including the provisions in the House bill that are favorable to agricultural producers. As a final comment, it should be noted that if a bill does pass the Senate and gain the president’s signature, such a bill would likely preempt the EPA’s action under the CAA and establish its own regulatory framework for greenhouse gas regulation (as does the House bill).

U.S. Supreme Court. Massachusetts v. Environmental Protection Agency. Available at: http://www.supremecourtus.gov/opinions/06pdf/05-1120.pdf

U.S. Environmental Protection Agency. Endangerment and Cause or Contribute Findings for Greenhouse Gases under the Clean Air Act. Available at: http://www.epa.gov/climatechange/endangerment.html




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