Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

As readers of this blog know, the impact of EPA air rules, including in particular the Utility MACT rule, on the reliability of the nation’s electric grid has been the subject of much speculation. Last week, the Congressional Research Service weighed in, with the exciting headline: EPA’s Utility MACT: Will the Lights Go Out?” Of course, notwithstanding the sexy title, the CRS conclusion can be summarized pretty simply: the MACT rule will not cause the lights to go out. Money quote:

although the rule may lead to the retirement or derating of some facilities, almost all of the capacity reductions will occur in areas that have substantial reserve margins. Two areas that may have difficulty meeting reserve margins, Texas and New England, will experience few plant retirements and deratings, according to industry data. Furthermore, to address the reliability concerns expressed by industry, the final rule includes provisions aimed at providing additional time for compliance if it is needed to install pollution controls or add new capacity to ensure reliability in specific areas. As a result, it is unlikely that electric reliability will be harmed by the rule.

Absent some surprises, I’m done with the subject. Let me know if the lights go out.

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On Wednesday, EPA promulgated the final Utility MACT rule. I doubt that anyone reading this blog isn’t already aware of the big news.

As seems frequently to be the case with EPA rules, this one, weighing in at 2.4MB and 1,117 pages, cannot easily be summarized here. In fact, the rule is so complicated – and controversial – that EPA had to generate four separate fact sheets to summarize the rule and its impacts: (1) Costs and Benefits (or, as EPA carefully puts it, “Benefits and Costs”); (2) Summary of the Rule; (3) Clean Air and Reliable Electricity (I wonder why EPA thought this one necessary?); and (4) Adjustments from Proposal to Final.

We live in a complex world, so there is not much use in complaining about how overwhelming this rule is, and about the problems inherent in a system in which rules with costs of approximately $10B annually and benefits ranging from $37B to $90B annually are this complicated and are probably truly understood by a very small number of people. As I tell my Libertarian friends, even Jefferson wouldn’t be a Jeffersonian today. Nonetheless, it is troubling.

The issues worth noting in a blog post are probably the changes from the proposal. Significant changes include:

·         Use of filterable PM for the particulate emissions limit, rather than total PM (which would include condensables).

·         Use of work practice standards, rather than emission limits, during start-up and shut-down. This is an important change, which will make life much easier for regulated units.

·         Greater flexibility in facility-wide averaging.

Reliability has obviously been the big issue for EPA. Units will generally have three years to comply. Permitting authorities may grant a 4^th year, if necessary, and EPA has said that they expect the extra year to be “broadly available.” EPA has also provided a mechanism for “units that are shown to be critical for reliability to obtain” a 5^th year to comply – though EPA has said that it does not expect many units to require or qualify for the 5^th year.

My predictions on the rule’s fate and impact?

·         I’ll be stunned if the rule does not survive judicial review. Of course, in an 1,117 page rule, there may be some obscure provision that is struck down, but the basic provisions will be upheld.

·         The sky will not fall. Significant numbers of jobs will not be lost, and the increase in electricity prices will be smaller than predicted. Since I whack EPA often enough, I’ll defend it here – to a limited extent. I don’t think that there has been a single big rule ever promulgated by EPA where the implementation costs haven’t been less than expected. That’s been true for one simple reason. When industry has clear rules to follow (even if they are not the cost-effective rules I would prefer), industrial innovation works to bring down compliance costs in ways that were not imagined, either by EPA or industry, when the rule was promulgated.

·         Of course, if there is a Republican President and a Republican Congress, all bets are off. Of course, when Mitt Romney was Governor of Massachusetts, he supported regulations by MassDEP that were essentially a state version of the Utility MACT rule, notwithstanding his criticism today of EPA for wanting to promulgate job-killing regulations. Of course, Mitt Romney has been known to change his mind. Of course,… oh, never mind. 

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Those following stormwater issues know that EPA is overdue to promulgate a proposed rule for stormwater controls at post-construction sites. The rule has been extremely controversial, with groups such as the Associated General Contractors arguing that EPA has no authority to promulgate post-construction rules. EPA was originally scheduled to issue the proposed rule by September 30. When EPA couldn’t meet that deadline, it negotiated an extension until December 2 (while stating that the deadline for the final rule, November 19, 2012, would still be met). Well, it’s December 15, and no proposal has been issued.

E&E Daily has now reported that, in recent Congressional testimony, EPA Acting Assistant Administrator for Water Nancy Stoner (a law school classmate, I might add) has acknowledged the obvious and admitted that EPA is “behind schedule.” Stoner did not provide a new target for when the rule would be proposed. If I were a betting person, I’d be skeptical that there are any circumstances under which EPA could actually meet the November 19, 2012 deadline for promulgation of a final rule. 

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Market-watchers thinking that having friends in Congress means that coal can flourish despite EPA regulation on many fronts may have a different view to ponder. Goldman Sachs predicted last week that generators will continue to switch from coal to natural gas and downgraded the prospects of the coal industry from “attractive” to “neutral.” Specifically, Goldman predicted that 51 GW of coal electric generating capacity are on their way out and that EPA Cross State Air Pollution Rule, or CSAPR, and utility MACT rule would together eliminate 160 million tons of coal production through 2018. Political winds may shift direction periodically, but cold-blooded economic analysis says that the outlook for coal is not great in the long run.

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On Friday, EPA proposed certain revisions to its rule on air emissions from boilers and commercial and industrial solid waste incinerators (CISWI). As with other major rules under development in the past few years, EPA has taken fairly substantial steps to limit the reach of the rule to those boilers and CISWI that are of greatest concern. Without engaging in formal cost-effectiveness analysis, EPA has sought to make the rule as cost-effective as possible.

As with most of EPA’s big rules, it is too complex to be summarized in a blog post. EPA’s summary fact sheet is here. Very briefly, the rule exempts 86% of industrial boilers and subjects most other boilers to work practice standards rather than emission limits. For those boilers subject to the emission limits, the new rules relaxed limits for CO, PM, and most metals, but increased the stringency for mercury and acid gases.

EPA also made one important change sought by the biomass industry. The rule will allow biomass to be combusted in boilers and CISWI, by defining it as “non-hazardous secondary material,” which can now “be considered a legitimate, non-waste fuel.”

As I have noted with other EPA rules, I expect that this rule will survive judicial challenge. Although no cost-effectiveness analysis was provided, EPA estimates that the benefits of the rules exceed the costs by a factor of more than 10. More to the point, as with other rules, much of what EPA has done is dictated by the CAA.

The real question is whether anyone will appreciate EPA’s efforts to – if I may use the term – tailor the rule as finely as possible. As Greenwire noted, there remain efforts in Congress to pass legislation both delaying and softening the rules. My sense is that we should at least give EPA credit for drafting better rules, because the agency is certainly not getting any political credit. The environmentalists criticize EPA for not having enough gumption, while EPA’s critics still call EPA “the scariest agency in federal government.” 

On this score, I’ll just note one final perspective. In today’s New York Times, David Brooks described Obama – or least Cass Sunstein, director the Office of Information and Regulatory Affairs – as a “wonky liberal.” What was the context for this comment? A discussion of the administration’s handling of costly environmental regulations. Brooks conceded that “most people in government are trying to find a balance between difficult trade-offs.” The problem for the administration is that neither the right nor the left today wants balance.

I enjoy criticizing EPA, but I would want to be trying to juggle the issues that EPA is currently statutorily mandated to address.

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Yesterday, the North American Electric Reliability Corporation, or NERC, released its 2011 Long-Term Reliability Assessment. The NERC report identified environmental regulations as one “of the greatest risks” to reliability. Much of the focus of the concern was on EPA’s MACT rule for hazardous air pollutants and its 316(b) rule for cooling water intake structures. While expressing uncertainty about these not-yet finalized rules, the NERC report took an extremely cautious approach, largely assuming the worst in terms of the stringency and inflexibility of these rules.

Appropriate caution? Not according to EPA.

In a letter to NERC, EPA Deputy Administrator Bob Persciasepe accused NERC of simply ignoring what EPA has said regarding the provisions of those rules and how they will be implemented. For example, with respect to the 316(b) rule, NERC assumes that the rule will require closed cycle cooling, even though EPA has explicitly said it will not require closed cycle cooling on all units and the rule will allow the cost of controls and potential impacts on reliability to be considered in determining appropriate technology. 

As Persciasepe summarized:

NERC’s draft report describes an extreme outcome that arises from a scenario where the most stringent and costly rules imaginable took effect, and no one at the federal, state, or local level took any steps to ensure the continued reliability of the grid.

Fortunately, the EPA’s analysis and several external analyses show that, where the EPA’s actual rules are accurately characterized, there is no adverse impact on capacity reserves in any region of the country. If isolated, local reliability challenges were to emerge due to individual plant retirements, the Clean Air Act and Clean Water Act provide flexibility mechanisms to ensure that sources can be brought into compliance over time while maintaining reliability.

In my most recent post on this subject, I noted that a comprehensive look at the reliability issue by FERC would be helpful. While I understand NERC’s approach to err on the side of caution, I agree with EPA that NERC overdid it here. Most of the old plants at risk of retirement are not going to have to install closed cycle cooling. I wouldn’t quite describe the NERC report as Chicken Little, but I don’t think the sky is falling. I’m still waiting for a more balanced and comprehensive review – and still skeptical that such a report would attain universal credibility, even if were to deserve it.

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Two seemingly unrelated stories from last week suggest that EPA may have its limits in how far it is going to go to make nice with those who are opposing its regulatory agenda. The first story, reported by Greenwire, is pretty much all in the headline: “EPA official accuses Kan. department of lying over proposed plant.” The second story, also from GreenWire, reported that EPA Administrator Lisa Jackson referred to opponents of EPA’s greenhouse gas tailoring rule as “jack-booted thugs.”  She has also described Republican efforts to limit EPA regulatory authority as a “too dirty to fail” policy.

It’s difficult to interpret at least Administrator Jackson’s remarks as anything other than part of the 2012 Presidential campaign. I realize that I may be hopelessly optimistic in asking that even campaign rhetoric make sense, but these comments don’t make sense. How is it that opponents of the tailoring rule – and I actually support the rule, though I’m not sure about EPA’s authority to promulgate it – are “jack-booted thugs”? They may have misrepresented the scope of the rule, but that hardly makes them thugs, let alone jack-booted ones.

And too dirty to fail? I don’t even know where to begin. Let’s start and end with the simple point that it is not precisely because these plants are dirty that we refuse to regulate them – which is the only way the analogy to “too big to fail” could possibly make sense. This is nothing more than trying to make polluters look bad by comparing them to banks. I do feel compelled to observe that we are in a funny place when banks have a worse reputation than polluters and we have to stir up populist anger at the polluters by comparing them to the big, bad, banks.

In any case, calling your opponents liars and thugs, and describing their political strategy as supporting polluters because they are "too dirty to fail” is not going to engender a spirit of compromise. I understand EPA’s frustration with its congressional opponents. Again, I must emphasize that I support not just the tailoring rule, but may of EPA’s regulatory initiatives. I also note that EPA has taken steps – rarely noted or appreciated – to respond to the concerns of opponents. Nonetheless, aside from providing red meat to the base, this is hardly constructive. After all, it’s not as though anyone expects the Democrats to win such overwhelming majorities in the House and Senate that Lisa Jackson won’t have to deal with congressional Republicans after January 2013. Good luck with those jack-booted thugs.

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E&E Daily reported this week that Congressional Democrats are opposing the Regulatory Accountability Act of 2011. H.R. 3010 would codify a requirement for cost-benefit analysis of major regulations in the Administrative Procedures Act. According to the report, John Conyers, ranking member on the House Judiciary Committee stated that the RAA

would amend the Administrative Procedure Act in ways that would effectively halt agency rulemaking and undermine public health and safety rules.

Excuse me?

The guts of the RAA would be to:

·         Require cost-benefit analysis for all rules expected to cost more than $100,000,000

·         Require cost-effectiveness for rules going beyond statutory minimum requirements – If EPA wants to impose rules that would cost more than the minimum requirements necessary to implement a statutory requirement, it must demonstrate that the marginal cost of the increased stringency is outweighed by the marginal benefit.

·         Set some limits on agency promulgation of guidance. I am particularly taken with the provision that would authorize the Administrator of the Office of Information and Regulatory Affairs to “issue guidelines for use by the agencies in the issuance of major guidance and other guidance.” My Massachusetts readers will recall the effort by NAIOP to require that our MassDEP issue “Guidance on Guidance”, setting ground rules on the use of guidance. The NAIOP ground rules are fairly similar to those in the RAA.

I’m sorry. I am not a political consultant, but I still don’t get the Democrats’ opposition to this. There is definitely stuff in the RAA that is easy not to like. That’s fine, but when Democrats oppose cost-benefit analysis, it just sounds dumb. It plays into the anti-regulatory crowd’s hands. It suggests that there isn’t a regulation out there that Democrats don’t like and that Democrats don’t care whether regulations actually benefit society.

My advice, for what it’s worth? The Democrats should take up the mantle of cost-benefit analysis. Challenge the GOP to demonstrate that they are not simply using cost-benefit analysis as a cudgel to stop all regulations, by making clear that the Democrats regard cost-benefit analysis, not as a way to end regulation, but as a valuable tool to make sure the regulatory process works as it should.

I remain an optimist.

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Following EPA’s decision last week to scrap its reconsideration of the 2008 ozone National Ambient Air Quality Standard, the parties to the litigation challenging the 2008 standard are back in court. This week, EPA submitted a brief to the Court of Appeals, which was pretty much a six-page version of Roseanne Roseannadanna’s “Never mind.” After telling the Court for years that it should defer to EPA’s reconsideration process – a decision on which was always just around the corner, until EPA decided it wasn’t – EPA has now told the Court that it is time to brief the merits of the challenges to the 2008 standard of 0.075 ppm.

As I noted last week, EPA has already made the argument that the Court of Appeals does not have jurisdiction in this case. If that argument fails, I cannot wait to see what argument EPA will make on the merits. The Clean Air Science Advisory Committee said that 0.075 ppm was not sufficiently stringent, the Court of Appeals has said that EPA cannot willy-nilly ignore CASAC, and EPA itself pretty much said in 2010 that the standard cannot be any higher than 0.070 ppm. I don’t envy the DOJ lawyers who will be writing that brief.

The problem for the environmental group challengers is whether there is any practical remedy at this point. The Court cannot promulgate its own NAAQS. All it can really do is impose a schedule on EPA to correct the 2008 standard. It doesn’t take much analysis to conclude that there is likely no reasonable deadline the Court could impose that would result in a new ozone standard any earlier than the 2013 date towards which EPA is already pointing. I foresee some awkward moments for the DOJ lawyers and some very firm finger-wagging by the Court, to the effect of “We really, really expect you to issue a new standard in 2013.”

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As the deadline passed last week for submitting comments on EPA’s Utility MACT rule, it’s worth taking a big picture look at how the commenters line up. Big utility groups, such as the Edison Electric Institute and the American Public Power Association are looking for EPA to delay the rules. The basic argument is that it is going to take a long time to comply. EEI states that so many facilities will require extensions that the number of requests will create a backlog that will itself essentially create compliance problems.

However, it is not just environmental and public health groups that filed comments in support of the MACT rule. Exelon, which has a large nuclear fleet, submitted comments in support of the rule. In fact, Exelon referred to the “overblown critique” of the Utility MACT proposal, stating that the “lack of a national standard for toxic emissions continues to be a barrier to investment in new, cleaner generation capacity.” Industry supporters are not limited to Exelon. The Clean Energy Group, which includes PG&E, Calpine, and other generators with large gas fleets, also focused on the “business certainty the electric sector needs to move forward with capital investment decisions.” 

In looking at these comments, it is worth keeping in mind that the Utility MACT rule is only one of nine rules under development by EPA that would impose costs on coal-fired power plants. This confluence of rules is has been referred to as the “train wreck” for coal-fired power plants. While the Utility MACT rule may impose the greatest costs – and achieve the greatest benefits, according to EPA – many are concerned about the cumulative impact on coal-fired capacity. Earlier this week, the Congressional Research Service attempted to debunk the train wreck perspective:

The primary impacts of many of the rules will largely be on coal-fired plants more than 40 years old that have not, until now, installed state-of-the-art pollution controls. Many of these plants are inefficient and are being replaced by more efficient combined cycle natural gas plants, a development likely to be encouraged if the price of competing fuel – natural gas – continues to be low, almost regardless of EPA rules.

In any case, what’s the argument against promulgation of these rules on the same time frame? Isn’t that a good thing? There may be coal-fired plants which could sustain the capital investment required to comply with Utility MACT, but not the added cost of cooling water intake improvements to comply with new Clean Water Act requirements or the added cost of new disposal requirements if coal ash is regulated as a hazardous waste. Isn’t it better to know about all of these rules up front, so that facilities can plan for the total cost of all the rules? Wouldn’t a facility have legitimate cause to complain if the rules were instead issued seriatim, so that the facilities did not know about the full range of regulatory compliance costs when they make the decision whether to invest to comply with the first rule or instead to shut down?

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After the death of Waxman-Markey, and given the current political climate, cap and trade is the Legislation Which Shall Not Be Named. Instead, there is discussion of either a renewable electricity standard (RES) or clean electricity standard (CES), and the talking points for supporters concern energy security and the growth of a clean energy economy, not climate change (also known as the Reality Which Shall Not Be Named). 

Either an RES or an CES would spur use of alternatives to fossil fuels in electricity generation and would lead to decreases in CO₂ emissions. However, as a report issued yesterday by the Congressional Budget Office highlighted, neither an RES nor a CES could reduce carbon emissions in as cost-effective a manner as could a cap and trade system. Moreover, a cap and trade program would ensure a certain level of GHG reductions, while the GHG impact of any particular RES or CES program would be uncertain.

I still don't understand how a market-based regulatory approach that originally had to be sold to skeptical environmentalists because it was seen as a "license to pollute" has become the poster child for government overreaching. 

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What is it with Texans and light bulbs lately?  The gradual increase in energy efficiency requirements of light bulbs required under the Energy Independence and Security Act of 2007 survived Congressman Joe Barton’s (R-Texas) challenge last week when the Better Use of Light Bulbs (BULB) Act, which would have repealed the standards, failed to pass the House by a vote of 233-193.  But on Friday, an amendment attacking the same requirements, introduced by another Republican Texan, Michael Burgess (representing my old hometown), was added to the House bill governing the Department of Energy’s 2012 fiscal budget. The amendment strips funding for enforcement of these standards, but is unlikely to survive the Senate’s consideration of HR 2354 (which also funds the Army Corps of Engineers and the Interior Department Water Programs).  

The challenged provisions in the 2007 energy law require manufacturers to make new bulbs that use approximately 27% less electricity by 2014. That’s all.  As reported in recent stories, manufacturers rose to the challenge, already putting incandescent bulbs into stores that are 30% more efficient than the traditional models and sell for only slightly more.  Such bulbs will save the average family – including Texans – about $100 per year.  What’s more, the lighting industry supports the new standards.

The recent supposed controversy over an energy efficiency measure that easily passed Congress with wide bipartisan support, was signed into law four years ago by President Bush (yet another Texan), and now bears the support of not only environmentalists and consumer groups but also the regulated industry itself, is more than a bit surprising, even in today's highly partisan Congress.

But not as surprising as what’s going on in Texas itself. In late June, Governor Rick Perry signed into law HB2510, a bill that overrides the federal mandate for incandescent bulbs made and sold in Texas, so long as they have “Made in Texas” clearly stamped on them.   The law requires the attorney general to defend citizens of Texas from prosecution by the federal government for manufacturing or selling such light bulbs in the state. It is difficult to see how the Texas legislation could survive constitutional challenge, though the bill analysis prepared for state legislators states that,  “whatever the outcome, protecting the rights of Texas manufacturers is well worth the constitutional fight.” 

Which begs the question: are there actually any manufacturers of incandescent light bulbs in Texas?  As it turns out, No.  But there are LED light bulb manufacturers.

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Last week, AEP announced that it was putting on hold its plans to develop commercial scale carbon capture and storage technology at its Mountaineer plant in New Haven, West Virginia. As explanation, AEP cited the uncertain status of U.S. climate policy. More specifically, AEP CEO Michael Morris noted that it is difficult to get regulatory approval to recover CCS capital costs until GHG reductions are required. 

Well, duh. 

It’s understandable that, in a world where putting a price on carbon emissions has become The Policy Which Shall Not Be Named, those who are trying to move technology forward look to other policy instruments, such as federal grants or subsidies, or tax provisions. A robust clean energy standard would provide increased incentives for technologies covered by the standard, but it is hardly the most efficient approach economically.

To this simple country lawyer’s mind, it’s not really that complicated. I can’t expect those who doubt the reality of climate change to support climate policy. For those who do, at some point we’ve got to recognize that there is no way to reduce carbon emissions, protect industry, and hold consumers harmless. The whole point is that carbon emissions are a negative externality – a cost that no one has been paying. Until we make someone pay those costs, its unrealistic to think that we can really encourage the technologies we need to develop to reduce carbon emissions.

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Last week, in Center for Biological Diversity v. EPA, Judge Henry Kennedy reminded us that, in thinking about whether the existing Clean Air Act requires EPA to address climate change, the actual words of the statute matter. The scope of the climate problem does not obviate the need to parse individual provisions of the CAA and Massachusetts v. EPA did not resolve all issues. 

CBD petitioned EPA to regulate GHG emissions from nonroad engines and vehicles, under § 213 of the CAA, and from aircraft engines, under § 231 of the CAA. EPA did issue advanced notices of proposed rulemakings in response to the petitions, but CBD sued, arguing that EPA has not gone far enough. 

The court rejected CBD’s claims regarding nonroad engines, because § 213 provides only that

If the Administrator determines that any emissions not referred to in [a prior paragraph] from new nonroad engines or vehicles significantly contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, the Administrator may promulgate (and from time to time revise) such regulations as the Administrator deems appropriate . . . .

To the court, the “if” and “may” language, combined with the overall structure of § 213, mandates a conclusion that EPA does not have an obligation to make an endangerment finding with regard to nonroad engines. Even so, as the court noted, EPA does have an obligation to respond fully to CBD’s petition, and EPA’s ultimate action on the petition will itself be subject to judicial review.

With respect to the petition under § 231 regarding airplane engines, the different language of that section compelled a different conclusion.  

The Administrator shall, from time to time, issue proposed emission standards applicable to the emission of any air pollutant from any class or classes of aircraft engines which in his judgment causes, or contributes to, air pollution which may reasonably be anticipated to endanger public health or welfare.

Again looking at the specific language of the statute, including the use of the mandatory “shall,” the court concluded that EPA cannot refuse to make endangerment findings.

The simple lesson from the case? The specific language of the statute matters. The bigger lesson? Unless Congress acts, the courts are going to be requiring EPA to take action with respect to GHG emissions under existing CAA authority. 

We’re thus left in the same bind we’ve been in since Waxman-Markey collapsed. EPA does not have the authority that it and the environmental community want and it cannot regulate GHG efficiently. At the same time, EPA does have authority that conservatives wish it did not have. True climate skeptics may never be convinced, but it still seems that a deal should be possible among environmentalists and conservatives who acknowledge the reality of climate change.

Hope springs eternal.

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Yesterday, EPA finalized the Cross-State Air Pollution Rule, or CSAPR, which was the Transport Rule, which had been the Clean Air Interstate Rule. (EPA must have decided that CSAPR results in a more mellifluous acronym.)

The rule is almost too big to describe, except in its broadest terms. EPA has provided a summary of costs and benefits, but even EPA’s summary does not really explain how the rule will be implemented.

The rough numbers at least give some idea of the scope of the rule and the problem it is addressing. EPA estimates that the rule will reduce SO₂ emissions by 73% from 2005 levels starting in 2012 and will reduce NO_x emissions by 54%. These reductions will eliminate more than 10,000 premature deaths annually, according to EPA’s analysis. Total monetized economic benefits are up to $280 billion annually. EPA estimates annual compliance costs to be only $800 million, though that does not include $1.6 billion in annual costs already being incurred to comply with CAIR. Nonetheless, EPA is going to be able to show any court reviewing this rule an extremely favorable cost-benefit analysis.

I’d be shocked if this rule doesn’t survive judicial review, assuming it is challenged. The D.C. Circuit opinion striking down CAIR pretty much told EPA what to do – it has to implement a rule that ensures that each state meets its own emissions limit. EPA has done that, allowing basically free trading within states, and allowing interstate trading – so long as each state lives within its cap. Given the requirements of the Clean Air Act, it’s hard to see how EPA isn’t required – let alone permitted – to issue at least something very like this rule.

The irony is that the Republicans in Congress who oppose all of EPA’s rules – Representative Mike Simpson (R. ID.) called EPA the “scariest agency in the federal government” – had it in their power to allow EPA to regulate in a more cost-effective manner. Three pollutant legislation that would have allowed interstate trading was on the table in 2009 and 2010. It even had some Republican support. However, now the approach seems to be that it’s better to oppose all environmental legislation, even if that includes legislation that would be unambiguously better than what’s on the books today. 

Oh, well.

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Yesterday, the Supreme Court announced its decision in American Electric Power v. Connecticut, holding that EPA’s authority to regulate greenhouse gases under the Clean Air Act displaced federal common law nuisance claims. I have always thought that the displacement argument was correct, so the decision is not really a surprise (and the 8-0 decision and crisp opinion only confirm that view). The decision is nonetheless important and, notwithstanding a few limitations, rather sweeping.

The Court’s analysis was straightforward. The creation of federal common law by courts is “unusual” and

[W]hen Congress addresses a question previously governed by a decision rested on federal common law,” the “need for such an unusual exercise of law-making by federal courts disappears.”

Next, displacement of federal common law is not the same as preemption of state law, because there are no federalism issues. Thus, the test for displacement is “simply whether the statute ‘speak[s] directly to [the] question’ at issue.” Therefore, what EPA does in response to the congressional mandate is irrelevant to displacement. It is the CAA that matters. As the court noted, if EPA does not set emission limits, the CAA allows the plaintiffs to petition EPA to do so and EPA’s response to that petition is subject to judicial review. In short,

the relevant question for purposes of displacement is “whether the field has been occupied, not whether it has been occupied in a particular manner.”

The Court also provided a forceful argument for judicial restraint in these kinds of cases:

            It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions. The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions. Federal judges lack the scientific, economic, and technological resources an agency can utilize in coping with issues of this order.

The decision did not address whether these or other plaintiffs could bring actions under state nuisance law, but I would not put a lot of money on those cases succeeding. The decision also does not address cases such as Kivilina v. ExxonMobil, in which the plaintiffs do not seek regulation, but only damages. However, I’m skeptical about the survival of those cases as well.

The real question following yesterday’s decision is whether Republicans in Congress will read it carefully. Will they continue to press to eliminate EPA’s authority to regulate greenhouse gases? Doing so would revive public nuisance suits, unless the legislation also barred federal courts from hearing such cases.

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After a relatively quiet period, there were a number of items of interest on the air/climate front this week. First, AEP announced that upcoming pollution controls would result in shutting down 6,000 megawatts of coal-fired capacity, or 25% of its coal fleet. AEP also announced that it would spend $6 billion to $8 billion in bringing the rest of its fleet into compliance.

On the flip side of this issue, the Bipartisan Policy Center issued a report concluding that compliance with the various EPA rules in the works (Clean Air Transport Rule, Utility MACT Rule, coal combustion ash rule, Clean Water Act intake structure rule, and NSPS for GHG) would not have a significant impact on electric system reliability. The quick summary is that most of the plants that will close are uncontrolled, older, smaller, plants that already don’t run much, particularly with natural gas prices low. The report acknowledges that some of these small plants are important in addressing peak loads in some areas, but concludes that concerns in those areas can be addressed with appropriate planning.

Next came news that EPA has reached agreement to delay its second round GHG NSPS proposal from July 26, 2011 to September 30, 2011 – though the final rule is still targeted for May 26, 2012. EPA has received extensive comment on this issue and my take is that there is no hidden agenda here; EPA is just trying to take those comments into account and be responsive, where possible.

Finally, former Representative Bob Inglis, whose support for action on climate change was sufficient to get him defeated by a Tea Party Candidate in the GOP primary in 2010, has announced formation of what is described as a “conservative coalition” to address climate change. Money quote:

Conservatives typically are people who try to be cognizant of risk and move to minimize risk. To be told of risk and to consciously decide to disregard it seems to be the opposite of conservative…. What I hope to do is be part of an effort that calls conservatives to return to conservatism and to turn away from the populist rejection of science.

All I can say is that I wish former Representative Inglis the best of luck in that endeavor.

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Only this week did I catch up to a letter to HHS Secretary Sebelius by more than 60 members of Congress asking that HHS perform further review of the National Toxicology Program’s 12^th Report on Carcinogens before it is formally released. The specific concern is the conclusion in the draft RoC that styrene is “reasonably anticipated to be a carcinogen.” I readily confess that I don’t know enough about styrene to have a view whether the draft’s conclusion is appropriate. 

According to the Congressional letter, styrene has many important uses, including a number that contribute to environmental protection. I’ll plead ignorance on the benefits of styrene, as well as the risks. 

What I do know is that the structure of environmental regulation in the United States causes these debates to be fought out in the wrong arena, over the wrong questions. The problem is that we have basically an all or nothing approach to chemical regulation in the United States. If something is toxic or carcinogenic, it gets lumped in with all other compounds that are toxic or carcinogenic, and regulated without regard to its benefits. One result is that those who want to use the substance are forced to make gatekeeping arguments to keep the compounds out of the system altogether.

Wouldn’t it make more sense to have a regulatory system that took into account the benefits of substances in determining how they are regulated? I want to be clear that I am not suggesting that economically valuable compounds should be given a regulatory pass, but a system that is not capable of incorporating the value of substances being regulated is inherently flawed. In fact, a system which considered the benefits of compounds in their regulation could in some cases result in more stringent regulation – even if a compound is of only marginal risk, if it provides no benefit as compared to safer alternatives, I would be perfectly happy to see such compounds regulated out of existence.

Regulatory agencies have no choice; they have to regulate under uncertainty. On many compounds, we are not going to be certain how significant the risk may be. Let’s remember that the lead industry fought the phase-out of leaded gasoline, arguing that the risks had not been clearly established. That being the case, the agencies are going to have to make judgments, such as whether styrene is “reasonably anticipated to be a carcinogen.” Moreover, I think it is appropriate that the agencies’ scientific judgments be given some level of deference by courts. 

Let’s have the debate where it belongs. If styrene is reasonably anticipated to cause cancer, what are its benefits and, given those benefits, what level of regulation is appropriate?

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E&E Daily reported today that Senate Republicans are preparing legislation to combine EPA and the Department of Energy. The list of Senators identified as supporting the proposal is a virtual who’s who of conservatives, including Jim DeMint, a favorite of the Tea Party. Accordingly to Richard Burr (R. N.C.), the measure would reduce waste by eliminating duplicative programs in EPA and DOE.

Why is this even a story? Perhaps because Democratic Governor Deval Patrick did the same thing in Massachusetts in 2007, forming what has been considered a very successful Executive Office of Energy and Environment. Perhaps because newly elected Democratic Governor Dannell Malloy recently did the same thing, creating the Department of Energy and Environmental Protection in Connecticut (and naming my friend and law school classmate Dan Esty to be first Commissioner of the combined agency).

So, is this a progressive idea to ensure that energy development, which is a very big part of our economy, is considered together with environmental protection, or is this a regressive idea, intended to eliminate spending? 

Perhaps, just perhaps, it’s simply a good idea.

Politics would determine whether the combined agency leadership would pursue an aggressive environmental protection and clean energy agenda or whether it would instead avoid new regulatory programs in order to facilitate an aggressive program of developing traditional energy resources. Either way, it makes sense to house these two functions under one roof.

For those of us who follow politics as the blood sport it’s become, it will be interesting to see if this idea gets any traction and, if so, where Congressional Democrats line up. Are they going to try to tar this as a simple-minded conservative idea? If so, will the President’s friend Governor Patrick be caught in a Mitt Romney-like dance, trying to argue that it was a good idea for Massachusetts but would not be a good idea nationally? 

Serious kudos to the first liberal Democrat who unambiguously supports this proposal.

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The issue of guidance v. regulation has been in the news a lot recently. Recently, the anti-guidance side got what some might consider unwelcome assistance from John Graham, who reviewed regulations in the Bush White House. Graham was quoted as saying that:

The whole idea of guidance not being a rule -- there has to be an arrow shot right through the heart of that. [Congress should pass legislation] to make sure that things that look like a duck and quack like a duck are a duck.

Of course, I agree with John Graham about guidance. The only problem is that most observers think that Graham would like to put an arrow through the heart of the real ducks as well. It’s one thing to oppose guidance, because guidance is almost always an effort to impose further regulations without the protections inherent in the regulatory process. It’s another matterif you oppose the regulatory process as well.

Regulations masquerading as guidance? I’m opposed. Regulations imposed that aren’t as cost-effective as they could be? Let’s do better. Throw out the baby with the bathwater? Probably not a good idea.

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Last month, in discussing the Administration’s brief in the American Electric Power case, I praised the nuanced and persuasive approach that the Administration took in seeking reversal of the 2^nd Circuit opinion allowing the states' public nuisance climate litigation to go forward. The states seeking to prosecute the law suit have now filed their brief and it turns out that they also do nuance. I still think that the Supreme Court will reverse, however.

I’m not going to get into the standing issue. I don't believe that the states should have standing, but it’s not obvious, given the result in Massachusetts v. EPA, that the Supreme Court will agree.

I find the displacement issue more interesting. The 2^nd Circuit held that the Clean Air Act had not displaced federal common law, because EPA wasn’t actually regulating GHG. Of course, EPA has reversed course and, at least until the GOP in the House has its way, it does now regulate GHG under the CAA. As a result, as the Administration put it in its brief:

Although EPA has not yet done precisely what plaintiffs demand here…, that is not the relevant test. … The question is whether the field has been occupied, not whether it has been occupied in a particular manner.

The plaintiff states disagree. In what is probably a shrewd concession, the states acknowledge that, were EPA to issue new source performance standards for GHG, such standards would displace federal common law, because, while they would not directly subject existing facilities to controls, they would lead to follow-on regulation by EPA requiring states to impose GHG standards on existing plants. Until existing plants are regulated, according to the states, common law has not been displaced. Thus, the states argue, the Supreme Court should either affirm the 2^nd Circuit or simply dismiss the appeal – the states further acknowledge that, on remand, the District Court could reasonably stay the nuisance case to see if EPA in fact issues NSPS for GHG.

Shrewd and nuanced, but I’m still not buying it. I think that once EPA’s GHG regulatory program came into effect, federal common law was displaced. Of course, I don’t get a vote, so we’ll have to wait for the Supreme Court to decide the case.

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While EPA remains under attack by the GOP-majority House, that doesn’t mean that coal is off the hook. To the contrary, coal remains under attack itself. A number of recent stories demonstrate the multi-pronged effort by those who want to reduce or eliminate use of coal. For example, the Environmental Integrity Project and two Texas-based NGOs just filed suit against the Lower Colorado River Authority's Fayette Power Project, alleging violations of NSR/PSD requirements and exceedances of particulate limits in the plant’s permit. There is no doubt that there is a concerted effort by NGOs to make life difficult for coal. Thus, even if Congress succeeds in muzzling EPA to some extent, citizen suits will only proliferate, unless Congress also amends the CAA and other environmental statutes to eliminate citizen suit provisions.

Next up? A report that TransAlta Corp. has reached an agreement with the State of Washington to shut down Washington’s last coal-fired power plant. The agreement gives TransAlta until 2020 and 2025, respectively, to shut the two boilers at the plant. The story serves as a reminder that, even aside from NGOs, some states are looking to phase out coal-fired generation.

Let’s not forget that coal mining is under attack as well. Here too, notwithstanding Congressional efforts to protect coal mining, NGOs remain active. Daily Environment just reported that a federal judge issued a temporary restraining order against Highland Mining Co., ordering it to stop work on its 635-acre Reylas Surface Mine in Logan County, West Virginia. The suit alleges violations of NEPA and § 404 of the CWA.

Finally, we have the economic side of the issue. One factor coal has always had on its side – until recently – was its cost advantage over natural gas. With that cost difference eroded, simple economics may do what years of environmental enforcement couldn’t. Thus we have John Rowe of Excelon, which, of course, has almost no coal assets, asserting that EPA regulation will not kill coal, but only drive out old, inefficient plants. Heck, we even have the Wall Street Journal asking whether coal is “The Energy of the Past.”

Time will tell, but it is at least plain that the current GOP ascendancy has not solved all of coal’s problems.

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As readers of this blog know, the question of guidance v. regulation is one near and dear to my heart. I generally disfavor guidance, because I think it offers none of the protections of the regulatory process and almost none of the flexibility that guidance is supposed to provide. Two issues are of particular concern. First, guidance is not supposed to announce new rules – only clarifying interpretation of existing rules. However, we all know what a slippery slope that can be. Second, notwithstanding the purported flexibility of guidance, how often do regulators on the street – those actually using the guidance, rather than those writing it – treat guidance exactly like regulations and expect the regulated community to follow it to the letter?

The problem was brought to the forefront again recently by the decision in National Mining Association v. Jackson, in which Judge Reggie Walton in the District Court for the District of Columbia stated that EPA’s mountaintop mining guidance likely exceeded EPA’s authority. Although Judge Walton denied plaintiffs’ request for an injunction because they had not demonstrated irreparable harm, he made clear that the plaintiffs are likely to prevail on the merits. Addressing the core issues I noted above, he stated that the EPA mountaintop mining guidance

Qualified as final agency action because, despite the representation that it is an interim document, it is nonetheless being applied in a binding manner and has been implemented in its current version even though the EPA continues to receive comments about it. Therefore,… it appears that the EPA is treating the Guidance as binding.

Judge Walton went on to conclude that the various documents at issue constitute “legislative rules because they seemingly have altered the permitting procedures under the Clean Water Act by changing the codified administrative review process.” He also found that the documents exceeded EPA’s authority, because they ignored “EPA’s limited role in the issuance of Section 404 permits.”

Relatively hard on the heels of the National Mining Association decision, Daily Environment Report this week covered efforts by industry groups to prevent EPA from issuing guidance interpreting the Supreme Court’s Rapanos decision regarding the scope of Clean Water Act jurisdiction over “waters of the United States.” I’m sorry, but does anyone think that such “guidance” would not be treated in practice as having the finality of regulation? If, under such guidance, certain types of situations are considered to be “waters of the United States,” does anyone doubt that such situations will be subject to CWA permitting requirements 100% of the time? 

Agencies officials generally make two arguments in favor of guidance. One is simply to ask for recognition of the practical reality that getting formal notice and comment rulemaking accomplished is very difficult and often impractical in the modern world. The second is that guidance provides flexibility. However, if the regulators want the rest of us to recognize the practical realities involved in promulgating regulations, then they must recognize the practical reality that guidance almost always immediately ossifies and that those implementing it treat it as gospel. There is often little in it for the regulated community.

Until Rand Paul succeeds in dismantling the modern administrative state, the debate will continue.

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Back in my public policy days, there was much discussion of “muddling through.” When I look at recent developments on the climate and air regulation front, I just see a muddle. First, we have Gina McCarthy, saying that EPA wants to walk before it runs, and assuring utility executives that New Source Performance Standards for GHG emissions will not have a “dramatic effect.” McCarthy further said that EPA will take a “common sense approach,” comparing it to EPA’s approach to the GHG BACT guidance, which she described as “not overly ambitious.”

At the same time, the first PSD permit for GHG has been issued, to Nucor Corporation's direct reduced iron manufacturing facility in Louisiana. While praising Nucor for utilizing DRI technology, which apparently generates lower GHG emissions than plants utilizing coke, and while acknowledging that this was one of the first GHG PSD applications, EPA raised two concerns that may be troubling to permittees. First, the permit would require a package of good combustion practices, but did not include a numerical limit for GHG emissions. EPA commented that the permit had not justified why a numerical limit would not be feasible. 

Second, EPA noted that the permit did not provide a basis for the conclusion that carbon capture and sequestration, or CCS, would not be feasible for this project. EPA’s comments referred to EPA’s December 2010 GHG BACT guidance as noting that CCS is generally available for iron and steel manufacturing facilities.

To EPA, the BACT guidance may be common sense. However, to the regulated community, it creates uncertainty. Uncertainty means risk. Risk means costs. Will EPA insist on numerical standards? What are those standards going to be? Based on the EPA's comments regarding CCS, it appears that EPA may be intending to treat the GHG BACT guidance as having the force of regulation. If so, we are stuck with the worst of both worlds – the absence of the protection provided by notice and comment rulemaking and the absence of the flexibility in utilizing guidance, rather than regulation. 

Moreover, EPA does not appear to understand the scope of the uncertainty created by such actions. EPA may allow the Nucor facility to proceed without CCS, once the permit application is amended to include an explanation of the infeasibility of CCS. However, there is no point in requiring such an analysis unless there is some possibility that CCS may be required. The regulated community – and state regulators – are left wondering under what circumstances CCS would be considered feasible. The same is true with the analysis of coal and natural gas. It’s difficult to read the BACT guidance without concluding that, under some circumstances, BACT for coal might be gas. However, we don’t know yet what those circumstance would be. 

On the other side of the aisle, as it were, we have the muddle that is Congressional opposition to EPA GHG regulation. Fred Upton, Chair of the House Energy and Commerce Committee, has described the NSPS standards as a “backdoor attempt to implement their failed job-killing cap-and-trade scheme.” Sadly, I only wish it were so. He seems to think that describing NSPS standards as a “cap-and-trade” scheme is the worst kind of insult. However, he’s got it backwards. First, unlike the cap-and-trade plan, the NSPS regulations are required under the existing Clean Air Act as interpreted by the Supreme Court in Massachusetts v. EPA. Second, cap-and-trade was proposed precisely because it has been demonstrated to be an economically efficient way to attain pollution reductions. It’s really only fair to describe it as job-killing if you don’t believe in anthropogenic climate change. (I’m too tired to go there today.) If Congress doesn’t want EPA to kill jobs, then give it the tools to regulate as efficiently as possible. 

Moreover, as noted in the Daily Environment Report, while Congress is up in arms about EPA climate rules, Congress is extremely unlikely to limit EPA’s authority to issue the Clean Air Mercury Rule and Clean Air Transport Rule, both of which are going to have more significant impact on power generators and electricity prices than GHG NSPS.

Occupying the middle ground – if not the muddle ground – is Senator Rockefeller, attempting the most delicate of balancing acts. While still complaining about EPA’s veto of the mountaintop removal permit for the Spruce No. 1 mine and backing legislation which would delay EPA’s GHG rules for two years, Rockefeller criticized “EPA-bashing.” Rockefeller’s view is apparently just that coal is important, coal cannot survive serious GHG regulation without CCS, and CCS requires more time. We’ll see how his dance plays back home and with the Chamber of Commerce. I thought that we are now against backing particular technological solutions and I certainly believe that sooner or later, we're just going to have to bite the bullet and put a price on carbon.

For now, though, I guess we’re just muddling through.

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This week, the United States filed its brief in American Electric Power v. Connecticut. The brief is a nicely nuanced and persuasive argument for dismissal of plaintiffs’ public nuisance claims against five large power generators. The brief is nuanced in that it acknowledges that plaintiffs have Article III standing – allowing the Court to avoid reaching a constitutional standing issue – and provides a vehicle for the Court to avoid reaching the political question doctrine issue.

Instead, the brief makes two fairly simply points – and makes them convincingly. First, the brief argues that plaintiffs’ lack “prudential standing,” because their complaint raises “generalized grievances more appropriately addressed in the representative branches.” As the brief notes:

Global climate change will potentially affect the property interests of most landowners. And the effects of climate change will not be limited to landowners; they will also be felt by individuals, corporations, and governmental entities throughout the Nation and around the world. … The problem is not simply that many plaintiffs could bring such claims and that many defendants could be sued. It is also that essentially any potential plaintiff could claim to have been injured by any (or all) of the potential defendants.

A court – when no statute or regulation is in place to provide guidance – is simply not well-suited to balance the various interests of, and the burdens reasonably and fairly to be borne by, the many entities, groups, and sectors of the economy that, although not parties to the litigation, are affected by a phenomenon that spans the globe.

The brief is even more convincing in demonstrating that the common law claims have been displaced by the regulatory actions that EPA has taken under the Clean Air Act since Massachusetts v. EPA.   Specifically, it doesn’t matter that EPA’s regulation doesn’t do what the plaintiffs are seeking in the litigation:

Although EPA has not yet done precisely what plaintiffs demand here…, that is not the relevant test. … The question is whether the field has been occupied, not whether it has been occupied in a particular manner.

Moreover, and this is the crux of the displacement argument, the brief notes that:

Plaintiffs’ attempt to secure court-ordered emissions reductions from emitters of their choosing on their own schedule would be plainly inconsistent with EPA’s systematic, phased approach.

Interestingly, the brief makes the point that:

Displacement also occurs when an agency, whose comprehensive statutory authority to regulate the subject matter has been triggered, decides to postpone or even forgo the imposition of regulatory standards, where the decision is made through the exercise of that authority on the basis of a weighing of relevant considerations under the statutory scheme. [My emphasis.]

This is one issue that could come back to haunt both the government and global warming skeptics in Congress. As you will probably infer from my description of the brief, I expect the United States to win this case. However, while the prudential standing issue is persuasive, I think that the displacement is much the stronger argument – but only because EPA has in fact done something about GHG. What’s notable about the language in the brief is that, even if EPA were to make a formal decision to postpone GHG regulation under the CAA, such an decision would justify continued displacement of public nuisance claims, under the theory of the government’s brief. On the other hand, if Congress were to amend the CAA to preclude EPA regulations – and unless the legislation specifically precluded nuisance claims as well – such action would then revive the potential for nuisance claims, which is probably the last outcome that power generators would want to see.

As I have said before on this issue, be careful what you wish for.

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Last month, I noted that, in the absence of comprehensive climate legislation, U.S. carbon policy would be a mish-mash of several elements – including more NSR enforcement. In fact, Phillip Brooks, director of EPA’s Air Enforcement Division, had just told an ALI/ABA forum that EPA’s NSR enforcement initiative is alive and well and he predicted more closures of old coal plants as a result of EPA’s NSR enforcement. Earlier this month, proving that Brooks meant what he said, the United States sued Ameren Corporation, alleging NSR violations at Ameren’s Rush Island facility in Festus, Missouri. 

Apparently, I am not the only person who has noticed the connection between NSR enforcement and efforts to make life generally more difficult for coal plants. (Perhaps Mr. Brooks should not have been so explicit in his ALI/ABA remarks.) This week, Missouri Republican Senator Roy Blunt wrote to Lisa Jackson, criticizing the Ameren enforcement action and describing it as “another backdoor method used by the EPA to broadly penalize the use of coal in the United States.”

Blunt also criticized the “tsunami” of regulations by EPA that will increase the cost of coal-fired electricity generation. We had previously noted the Credit Suisse report which predicted the closure of more than 50 gigawatts of coal-fired capacity. Blunt referred to a study by the North Electric Reliability Corporation which made a similar prediction.

As my readers know, I dislike the NSR program and the enforcement initiative. I do think that many of these projects, often 15, 20, or 25  or more years ago, truly were thought routine, even if EPA may be able to persuade a court that they were not “Routine Maintenance” within the meaning of the regulations. The NSR program is certainly not a cost-effective way to regulate. However, NSR is part of the statute, EPA believes in it, and the case law is, from EPA’s perspective, at worst ambiguous and at best favorable. I expect that EPA would be pursuing many of these cases, even if climate change were not an issue and CO₂ not considered a problem. 

Is EPA sad that its NSR enforcement has the collateral impact of making coal less economic so that small coal-fired plants retire early, thus reducing GHG emissions? I doubt it. Does the climate change issue increase EPA’s enthusiasm? Perhaps so. The question is whether this added motivation is relevant. EPA’s intent may not be relevant to the courts, but it certainly looks as though it is relevant to Congress.

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With everyone in agreement that cap-and-trade legislation is dead in Congress for the near term, attention is now turning to whether Congress might be able to pass some kind of renewable or clean energy standard. In fact, even Thomas Donahue, President of the U.S. Chamber of Commerce, sworn foe of cap-and-trade legislation, is saying that the Chamber could support some kind of climate change legislation – presumably a CES including nuclear power – as long as the legislation precludes EPA regulation of GHG under existing authority. 

For those who are taking the half a loaf approach to climate legislation, I recommend this post by Rob Stavins at Harvard and Dick Schmalensee at MIT, which compares cap-and-trade legislation with CES legislation. The piece is a remarkably cogent short analysis of the issue, so I hate to excerpt something which can be read in a few minutes. Nonetheless, for the lazy among my readers, the bottom line is that:

Carbon cap-and-trade has been killed in the Senate, presumably because of its costs. Renewable electricity standards or clean energy standards would accomplish considerably less and would impose much higher costs per ton of emissions reduction than cap-and-trade would. This does not sound like a step forward.

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And you thought that the explanation was just partisan gridlock in Washington? According to a study that has been accepted for publication in Environmental Research Letters, it will be somewhere between 120 years and 550 years before losses caused by Atlantic tropical storms can be statistically attributed to anthropogenic climate change. It’s important to note that this study is not by climate skeptics; nor are the authors opposed to Congressional action. They are simply pointing out that it’s damn hard to attribute causation to specific storms or on short time scales. As they note in their conclusions:

Based on the results from our emergence time scale analysis we urge extreme caution in attributing short term trends (i.e., over many decades and longer) in normalized US tropical cyclone losses to anthropogenic climate change. The same conclusion applies to global weather-related natural disaster losses at least in the near future. Not only is short term variability not ‘climate change’ (which the IPCC defines on time scales of 30 to 50 years or longer), but anthropogenic climate change signals are very unlikely to emerge in US tropical cyclone losses at time scales of less than a century under the projections examined here.

Our results argue very strongly against using abnormally large losses from individual Atlantic hurricanes or seasons as either evidence of anthropogenic climate change or to justify actions on greenhouse gas emissions. There are far better justifications for action on greenhouse gases. Policy making related to climate necessarily must occur under uncertainty and ignorance. Our analysis indicates that such conditions will persist on timescales longer than those of decision making.

Do I wish that Congress had bitten the bullet and passed comprehensive climate change legislation? Of course. However, no one can dispute that there will be some significant short term costs, even if there are also opportunities in moving towards the new energy economy. It is difficult enough for Congress to look past the next election. Asking Senators and Representatives to look past the next century? Perhaps, instead of asking why legislation did not pass, we should take comfort from the fact that it got as close as it did.

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It says something about where our politics are today when Republican Senator Lindsey Graham has to ask that question. Of course, there’s reason to wonder what the answer is. It was certainly not intentional irony when, shortly after this story appeared about Senator Graham, Senator Rockefeller announced that he has given up on legislation that would delay implementation of EPA GHG rules because the bill has lost Republican support. The reason? It’s not that the Republicans are opposed to the delay; it’s just that it’s more important to the Republicans that they be able to make political hay out of the issue when they are in the majority next term. Then there’s Texas Representative Joe Barton, who has made it his mission to save the incandescent light bulb. I wonder what he would say if he had a horse shoe factory in his district?

Political prognostication is neither my strong point nor the purpose of this blog. I note only that, while the Democrats are in retreat now, it was only two years ago that many were predicting a lengthy time in the minority for the Republicans. Senator Graham seems to be one of the few taking the long view:

I'm concerned that if the Republican Party doesn't embrace the idea [that] it's OK to clean up the air, we're gonna lose young people forever, Graham told ClimateWire. Whether you like it or not, young people are environmentally sensitive. I happen to like it.

At a practical level, Senator Graham’s concerns seem focused in the short run on legislation that would enact some kind of clean energy standard, or CES – like an RES, but including nuclear energy and clean coal. In many ways, imposing a CES or RES seems like more of an interference in the market than simply putting a price on carbon, which is what free market economists would say is necessary to internalize an externality. However, with climate legislation dead for the near term, and with a focus on jobs, CES legislation might have some chance of moving forward. 

Will it pass? I’ll leave the prognostication to others.

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As a follow-up to last week’s post, if you want a handy-dandy rundown of what U.S. carbon policy looks like in the absence of comprehensive federal legislation, take a look at the presentation I gave last week to the Harvard Electricity Policy Group, which summarizes federal, regional, and state regulatory efforts – many of which are not explicitly directed at CO₂ – that are likely to have significant impacts on U.S. CO₂ emissions. Thanks to Amy Boyd, who did the lion’s share of the work on this one.

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I’ve always thought that implementation of EPA’s GHG rules for stationary sources was inevitable in the absence of climate change legislation. The Supreme Court told EPA that GHGs are a pollutant under the Clean Air Act. Given the decision in Massachusetts v. EPA, EPA’s subsequent regulatory moves have been pretty much unavoidable. 

Since the statute seems to mandate GHG regulation, only Congressional action could block the rules. While a House majority seemed plausible, even before the election, getting 60 votes in the Senate always seemed a much stiffer proposition. Moreover, one could always expect an Obama veto, if legislation precluding EPA’s rules somehow were to get through Congress. Now, I’m not so sure.

If it turns out that there are enough coal state Democrats to move the legislation through the Senate, and if the supporters keep attaching the legislation as a rider to bills that the Administration does want, it may become difficult at some point for Obama to continue to veto it. A more tantalizing possibility is that the GOP might use such legislation as a bargaining chip with Obama over energy legislation, agreeing to support energy legislation, but only if Obama agrees to a prohibition on EPA GHG rules for stationary sources. In that situation, would Obama throw the GHG rules under the bus? Now that’s an interesting scenario.

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Earlier this week, I posted about the dire prospects for climate change legislation following the fall elections. The alternative to legislation has always been regulation under existing Clean Air Act authority, so it’s appropriate as a follow-up to briefly examine the pressures on EPA as it moves forward with its stationary source GHG regulations. Two headlines from the trade press today brought home just what a tightrope EPA is walking.

The first headline, from the Daily Environment Report, was to the effect that a “Ban on New Source Construction [Is] Possible In States Without Greenhouse Gas Permitting.” Specifically, Raj Rao, of EPA's Office of Air Quality Planning and Standards, said states that have not taken steps to implement permitting requirements by Jan. 2 could face the construction ban.

The second headline might be described as a corollary of the first. Today’s GreenWire notes that “New rules spark bipartisan fury in midterm elections.” Well, duh. Is it any surprise that in the face of continuing unemployment near 10%, regulations that even EPA acknowledges might result in construction bans in some states would be a topic of debate in congressional elections? In fact, the GreenWire piece was not even primarily about the GHG regulations and made no mention of the potential construction ban. It was largely about other EPA rules, such as the boiler MACT rule.

I have a certain amount of sympathy for EPA on this one. As I’ve noted previously, to a certain extent, EPA is just doing its job. On GHGs, it really has no choice but to regulate. While I have doubts about the legality of the Tailoring Rule, the alternative is only more onerous. The boiler MACT rule is another matter – and is complicated enough to warrant several posts of its own. However, EPA’s options are limited given the stringent provisions Congress itself wrote – and a Republican President signed into law. On conventional pollutants, the science is driving EPA towards lower and lower NAAQS, and more stringent rules on emitters follow like night follows the day.

Just so my friends in the regulated community don’t think I’ve gone soft, I will point out that it is at the least disingenuous for Administrator Lisa Jackson to say, as she was quoted in GreenWire, that:

The Clean Air Act does not place our need to increase employment in conflict with our needs to protect public health.

Somehow, that message has never gotten to the EPA and DOJ lawyers briefing appeals of EPA regulations, where those opposing the regulations say that they are uneconomic, while EPA's invariable rejoinder is that the Clean Air Act doesn't allow for the consideration of the cost of regulations in deciding how stringently to regulate.

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It’s been obvious for some time that Republican victories in next month’s elections will only make it more difficult to pass climate legislation. However, perhaps the most telling reminder of the difficulty in passing climate legislation came last week from the Democrats, not the GOP. Governor Joe Manchin, running for Senator Byrd’s seat, was endorsed by the West Virginia Coal Association. Among the bullets noted in the press release, the WVCA noted that:

Governor Manchin opposes any form of Cap & Trade legislation that threatens the jobs that our coal mining families depend on for their livelihoods. 

The press release also notes that Manchin would work to pass legislation prohibiting EPA from regulating carbon using existing Clean Air Act authority. According to Greenwire, Bill Rainey, the President of the WVCA stated that “we've witnessed this governor put his finger in the chest of EPA officials."

In fact, given that he is from West Virginia, it appears that Manchin has been a good governor and would probably be a good senator – someone who could perhaps work across the aisle with senators like Lindsey Graham. However, while Tea Party types often talk about RINOs – Republicans in Name Only – environmentalists have to look at someone like Governor Manchin and think that, at least on climate change, he’s a DINO.

The environmentalists’ problem, even aside from potential losses in November, is that, on climate change, a newly-elected Senator Manchin would not be the only DINO.

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On a day when ClimateWire reported that thousands of walruses are stuck on land because their usual summer home – sea ice – has disappeared, I’m beginning to wonder whether EPA’s stationary source GHG rules are similarly at risk. It may not be difficult for EPA to brush off a fairly over the top letter from Texas which basically asked EPA “What part of ‘hell no” don’t you understand?”

However, today Greenwire reports that Governor Freudenthal of Wyoming – a Democrat – is asking EPA to defer enforcement of GHG stationary source regulation. So is Ben Grumbles, head of the Arizona Department of Environmental Quality. Grumbles may be a Republican, but he was head of the water office under the Bush EPA, so he has to have some idea of the legal pressure for EPA to regulate GHGs following Massachusetts v. EPA. 

In addition to these latest requests from the states, ClimateWire had a separate story today which noted that Senate efforts to bar EPA from regulating GHG may still be alive and that Democrat Senators Nelson and Dorgan may support attaching the legislation to the EPA appropriations bill. Readers of this blog know that I am a fan of Senator Graham’s willingness to consider climate legislation, but EPA has to be worried if it is counting on Senator Graham’s prediction that the amendment will fail.

I have long said that EPA’s regulations are here to stay, because they are not only defensible, they are - in some form, at least - pretty much mandated by Massachusetts v. EPA. However, where the prevailing metaphor for the November elections is that of a GOP tsunami, one has to wonder whether there is a realistic possibility that, one way or another, EPA regulation of GHG under existing authority could be subject to significant delay.

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In February, President Obama tasked the Interagency Task Force on Carbon Capture and Storage with the ambitious goal of overcoming the barriers to widespread, cost-effective deployment of carbon capture and storage (CCS) within the next 10 years.  As the first bold step, the 14-agency and executive department group released its findings in a report on August 12. 

The report concludes that widespread cost-effective deployment of CCS will only occur if the technology is commercially available (i.e. scale-able and cost-effective) and a supportive national policy framework is in place to both fund and regulate it.  The task force believes that,  in the long run, there are no insurmountable technological, legal, institutional or regulatory barriers that will prevent CCS from playing a role in reducing greenhouse gas emissions.  But that does not mean the early years will be easy.  

CCS is a three-step process that includes the capture and compression of CO2 from power plants and industrial sources (usually coal-fired, since their carbon emissions are the most plentiful); transport of the captured CO2 , usually in pipelines; and storage of that CO2 in geologic formations, such as oil and gas reservoirs and unmineable coal seams.   The report points out that technologies for all three components of CCS already exist, and there are four existing commercial CCS facilities in other parts of the world.

The US government has bought in to CCS in a big way, committing $3.4 billion in stimulus funds,  including $1 billion for FutureGen, and just this week, DOE announced 15 projects receiving $21.3 million over the next three years.  

So what is stopping the technology?  The key barrier identified by the task force is the lack of comprehensive climate change legislation.  Without a price on carbon (and a relatively high one, at that), there is no stable framework for investment in the technology.  Even with significant federal funds pouring in, projects of this scale still need private investment.  But legal and regulatory uncertainty, unsurprisingly, make funding the projects a shaky prospect. 

The report concludes that early CCS projects -- like the 5 to 10 DOE-supported CCS demonstration projects slated to begin operations by 2016 -- can proceed under existing laws, but that the experience gained from those initial projects must be incorporated into a new regulatory framework before we embark on more widespread deployment.  

The report lays out a plan for a federal agency roundtable, championed by DOE and EPA, to oversee and continually review the adequacy of technology, incentives, and safety during this initial period.  The plan includes a lot of work for EPA, such as formulating new regulations under the Safe Drinking Water Act and Resource Conservation and Recovery Act that deal with the novel problems posed by storing commercial-scale amounts of pressurized carbon. 

Of course, one of those problems is that the stored gas might escape.  The Task Force also made recommendations on procedures for long-term liability and stewardship, including creation of an industry-financed trust fund to support long-term stewardship activities and compensate parties for damages after site closure.  The report cautions against having open-ended federal indemnification to address the long-term liabilities.

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Now that the Senate has put an end to speculation about a federal cap-and-trade program, the laboratory of the states and patchwork of regional regulation seem even more important.   The Western Climate Initiative (WCI) will likely involve a little of both.

Yesterday, the WCI Partner Jurisdictions (seven US states and four Canadian provinces) unveiled their comprehensive strategy for a cap-and-trade program with the goal of reducing regional greenhouse gas emissions by 15% below 2005 levels before 2020. The program is planned to begin in 2012, although apparently only California, New Mexico, Quebec, Ontario, and British Columbia are on track to have trading systems operational by that date. Even so, these two states and three provinces account for 70 percent of the greenhouse gas emissions the WCI partners produce.

The report recommends standards for regulations governing allowances, creation and use of offsets, credits for early action reductions since 2007, and other design features of a cap-and-trade program, but does not itself dictate specific regulations. Instead, the regional goal will be reached through individual states’ and provinces’ implementation of separate programs that supply allowances for quarterly regional auctions. While this individualized approach makes sense given the wide diversity of settings and the fact that WCI crosses not only state but national boundaries, it does leave a large number of factors up to the individual jurisdictions.  

Among the details that are undecided is how many allowances will be at play (a critical issue and lesson learned from the implementation of RGGI). Each state or province will adopt its own budget and determine how allowances within that budget will be distributed to emitters – through allocations, direct sales or auctions. In yesterday's report and a more detailed one from early July, WCI recommends that each jurisdiction’s 2012 allowance budget be the expected 2012 actual emissions, rather than starting with an initial cut, but then begin to decrease (at a rate to be set by each jurisdiction), with another increase in 2015 when the cap expands to cover transportation fuels and residential and commercial fuels as well.  

Offsets would be more tightly defined by the regional structure: an offset certificate issued by a WCI partner jurisdiction must meet all recommended offset criteria and result from a project located in Canada, the US or Mexico. It is recommended that each jurisdiction restrict the use of offset certificates to 49% of aggregate emissions reductions – such a limit will be expressed as a portion of each emitter’s emissions that may be covered by offset certificates or allowances from other programs.  

The WCI partner jurisdictions seem to have adopted a number of RGGI’s features, including a quarterly regional, single-round, sealed-bid auction structure, 3-year compliance periods, unlimited banking of allowances, and an auction floor price.  But as the report notes, the partner jurisdictions expect auctions to be only one component of allowance distribution – different from RGGI, where nearly 100% of allowances are auctioned.  The portion of allowances that each jurisdiction submits to the quarterly regional auctions may vary across jurisdictions and may also change over time.  Such flexibility could allow each jurisdiction to address competitiveness and leakage issues more directly than a regional plan. 

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Climate change legislation is dead for now. I won’t pretend it’s not depressing, even though I avoid the political channels and ignore the rhetoric. For those of us who haven’t refudiated climate change science, it’s a victory for the pessimists and evidence that Congress has a hard time addressing long-range problems, even if consequential.

With respect to regulation of GHG, it’s the worst of both worlds and no one should be happy (which is why I held out hope until the end that cooler heads would prevail). We’re still going to have regulation of GHG, the mechanism being EPA’s recently promulgated Tailoring Rule for GHG. One word. Ugh. Does this really make climate skeptics happy? Do they really think that they will somehow succeed in rolling back the Tailoring Rule? I don’t think so. On the other hand, we don’t have an economy-wide cap-and-trade or carbon tax regime. Are environmentalists happy? I still don’t think so. 

I’m left feeling a little like Rodney King. Certainly, the issue isn’t going to go away before the next Congress is sworn in.

As I have noted before, however, problems with climate change legislation don’t mean that Congress can’t enact legislation further regulating traditional pollutants. The three-pollutant bill now before the Senate already has a Republic co-sponsor, Lamar Alexander. Now, according to a report in E&E Daily, even Senator Inhofe is stating that he’s interested in working with Democrats to move three-pollutant legislation. Given the failure to move GHG legislation, hell is likely to get hotter before freezing over, but if Inhofe can really be brought on board, there’s no reason why legislation couldn’t pass.

Three-pollutant legislation shares one significant feature with the GHG issue. Like GHG regulation, efficient regulation is hampered by limitations in existing law, as we saw with the D.C. Circuit’s rejection of the trading regime in the CAIR regulations, and EPA’s much more limited trading program in the Transport Rule. Senator Voinovich, another Republican that three-pollutant legislation supporters would like to have with them, noted as much, saying that the transport rule would be a "stringent and inflexible regime." New legislation could provide for a more robust trading regime. We’ll see if that’s enough to bring Republicans on board.

I sure hope so. Right now, all we’ve got is a GHG regulatory program that won’t do much for climate change, but will cause my clients endless headaches, and a Transport Rule that’s probably the best EPA can do on traditional interstate pollution, but not nearly as cost-effective as it might be with new legislative authority. I remain an optimist, but sometimes it’s difficult.

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There are only two permissible answers to this question:

1.                   Yes

2.                   I don’t know.

I was reminded of this reality in reading the decision issued earlier this month in Solutia v. McWane, in which Chief Magistrate Judge Greene of the Northern District of Alabama held that a party which incurs response costs pursuant to a consent decree or administrative order may not bring an action for cost recovery under § 107 of CERCLA and is instead limited to a contribution action under § 113 of CERCLA. 

For those of our readers who are either masochists or do Superfund law for a living and thus have to keep up with this stuff, the decision is worth reading; it’s a useful summary of the post-Atlantic Research, post-Aviall case law. At bottom, the decision is a reasonable, practical result. Why should the nature of a private party’s right of action depend on whether the party did the cleanup itself or instead reimbursed the government for costs incurred pursuant to a government-led cleanup?

I will say that it’s not obvious to me that the Supreme Court would agree, were it to hear the case, simply because the Supreme Court has appeared to be so fixated on the traditional common law understanding of the nature of contribution as the right of a contribution plaintiff to receive a payment from a third party defendant when the contribution plaintiff has paid to the original plaintiff more than its fair share of a common liability.  Direct response costs don’t fit neatly into that traditional contribution model. However, it's probably a moot point, because it is hard to picture this issue getting to the Supreme Court. I expect the justices to conclude that they’ve heard enough of these cases by now.

We’re still left with my original question. Why is it that 30 years after CERCLA was passed and 24 years after the SARA amendments, the nature of third party claims still isn’t clear? Because CERCLA is incomprehensible, that’s why.

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A week after the Senate’s rejection of the Murkowki resolution last week, where does climate change stand in Congress? The defeat of the resolution is not the end for those who don’t want EPA to regulate under existing authority. Senator Rockefeller hopes to get to the floor a bill that would delay EPA regulation of stationary sources for at least two years, but keep in place the mobile source compromise reached last year. Rockefeller has stated that he hopes to get the votes of some Senators who opposed Murkowski’s resolution.

What about cap-and-trade legislation? Notwithstanding the President’s stated commitment to getting it passed, it’s not obvious that the votes are there. Senator Lieberman, one of the sponsors, is now saying that the bill deserves a debate, notwithstanding the absence of 60 votes. Not exactly an encouraging prognosis for those who want legislation to be enacted.

I’ve got to say, it looks as though paralysis remains the word of the day. The Senate may be the world’s greatest deliberative body, but with respect to climate change, it’s difficult to see anything other than sound and fury, signifying nothing, for the near term. 

And that’s two Shakespeare quotes in one month.

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As you might have heard, late yesterday afternoon, the Senate voted 53-47 to reject a procedural motion that would have allowed a vote on Senator Murkowski's disapproval resolution: a long-winded way of saying that, for now, the EPA maintains its authority and scientific finding that greenhouse gases endanger public health and welfare. 

As Seth noted a few weeks ago, the political dynamics of this vote are complex, bringing together strange bedfellows and inviting interesting predictions about what happens next.  On the one hand, environmental groups are claiming victory in the resolution's failure, which breaks down pretty closely along party lines: all 41 Republicans and six Democrats voted in favor.  On the other hand, some moderate Democrats who voted against the resolution are now rallying behind another bill that would restrict EPA's authority.  That bill, which would create a two-year delay for implementation of EPA climate rules for stationary sources was introduced in March by Senator Rockefeller of West Virginia, who himself voted in favor of the Murkowski resolution.

To further add to the strangeness, it's the narrowness of the vote that is being lauded by Senate Majority Leader Reid, who told reporters after the vote, "it's obvious people want some rules and regulations."

But what rules and regulations do they want?  That's the real question of the hour.  Perhaps after next week's full Democratic caucus, we'll have a better idea, at least about what rules and regulations might be likely to come to a floor vote.

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Last week, EPA released its Clean Watersheds Needs Survey 2008 Report to Congress. I have three immediate reactions to the Report. The first is that there are a lot of needs out there. The Report’s bottom line is that there is currently an expected shortfall of $298 billion over the next 20 years for clean water infrastructure. As Congress turns from short-term stimulus spending to long-term concerns about the deficit, it’s difficult to see Congress being eager to hear National Association of Clean Water Agencies Executive Director Ken Kirk say that

the federal government must become a long-term partner in developing a sustainable funding mechanism to address the growing infrastructure funding gap.

My second reaction is that I’m skeptical of these numbers. I don’t doubt the big picture funding gap, but it’s clear in a quick review that different states report these numbers differently. For example, as readers of this blog know, both EPA and Massachusetts DEP are making big pushes to increase stormwater regulation in Massachusetts. However, the Report states that, while Massachusetts has almost an overall $8 billion shortfall, its stormwater needs are only $41 million. The Report further states that Massachusetts needs literally zero money for stormwater conveyance infrastructure and only $22 million for treatment systems. Pennsylvania, on the other hand, apparently needs $6 billion for stormwater infrastructure. 

As much as I love my adopted state, I’m doubtful that Massachusetts is that far ahead of Pennsylvania. I sure hope that, before spending decisions are made, someone takes a closer look at these numbers.

My third reaction is one of fear, particularly on the stormwater front. Nationally, the overall shortfall associated with stormwater is nearly $43 billion. We’ve already seen in Massachusetts efforts to push stormwater compliance costs onto private landowners. With that sort of shortfall, the pressure to do so can only increase, particularly as local governments are starved for revenue. 

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With work on financial reform almost complete, Senator Dodd announced this week that his remaining legislative priority is the enactment of the Livable Communities Act, S. 1619. There is a companion house bill, H.R. 4690. A hearing on the Senate bill will be held tomorrow.

It’s hard to be against livable communities and I may just be getting crotchety, but this legislation seems some combination of pointless and misguided. The legislative findings discuss traffic congestion, the percentage of oil used for transportation and CO₂ generated from transportation, and the need to encourage and sustain compact development and historical town centers.  And we’re going to solve this – or even make a dent – by making grants to “micropolitan” statistical areas? I don’t think so.

I agree that sprawl is a problem. I support transit-oriented development. However, there are reasons why we see development where we sit it in the United States. People still like the freedom and flexibility of personal automobile use. If we think that all that driving causes externalities – and I do – I’ve got two words for you: carbon tax. Until we make people internalize the cost of their living choices, they will continue to make those same choices and money spent on encouraging livable communities will be largely wasted. If we can’t summon the political will to tax carbon, we shouldn’t pretend that we’re solving the problem by spending money on micropolitan areas.

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It now appears that Senator Murkowski’s resolution disapproving EPA’s endangerment finding will come to a vote in the Senate sometime in June. The complexity of the political dynamic is highlighted by the speculation regarding what such a vote will mean.  On the one hand, there are those who argue that a significant number of votes for the resolution will mean that climate change legislation is dead. On the other hand, Senator Graham has now predicted that the resolution will pass precisely because most Senators do want to pass a climate bill.

As a logical matter, Senator Graham is right. Being against EPA regulation of GHG under existing authority doesn’t necessarily mean that one is opposed to climate change legislation. Indeed, my guess at this point is that at least a plurality and probably a majority of the regulated community supports climate change legislation, but thinks that regulation of stationary sources under existing authority would be a bad idea. 

In terms of practical politics, however, it seems likely that there may be very little correlation between Senators’ views on climate change legislation and their vote on the Murkowski resolution. Some senators may vote for it because on the merits they think that GHG should be regulated pursuant to specific legislation enacted by Congress. However, many will just be taking a stand against any government regulation of climate change. On the other side, there may be many Senators who would prefer that climate change be addressed through legislation, but since legislation is not guaranteed, want to be certain that some kind of regulatory program is in place. 

Of course, it’s also important to remember that the Murkowski resolution would not just preclude regulation of stationary sources. Because it would disapprove the endangerment finding, it would also jeopardize the carefully negotiated agreement on mobile sources. They aren’t very many people who want to reopen that agreement, I assume.

The world’s greatest deliberative body? We’ll see about that.

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First Kerry-Lieberman, then the Tailoring Rule – a busy week for climate change. Senator Kerry certainly did not miss the coincidence. He called the release of the Tailoring Rule the “last call” for federal legislation. I’ve noted before the leverage that EPA regulation would provide, but this is the most explicit I’ve seen one of the sponsors on the issue.

As to the substance, there are not really any surprises at this point. EPA is certainly working to soften the blow of GHG regulation under the PSD program. Here are the basics (summarized here):

January 2, 2011 – Facilities obtaining PSD permits for pollutants other than GHGs after that date will need to meet BACT for GHG (whatever that may be) if their GHG emissions will increase by at least 75,000 tpy.

July 1, 2011 – New facilities with emissions of at least 100,000 tpy of GHG will need to obtain a PSD permit and meet BACT (whatever that may be) for GHG, even if they do not need a PSD permit for other pollutants. Modified facilities with increases of at least 75,000 tpy will have to obtain a PSD permit and meet BACT (whatever that may be) for GHG, even if they do not need a PSD permit for other pollutants.

July 1, 2012 – EPA will conclude a further rulemaking to address smaller sources. EPA has already committed to not regulate sources with GHG emissions below 50,000 tpy and further stated that permits would not be required for smaller sources before April 30, 2016.

As I’ve subtly hinted above, we still don’t know what EPA thinks BACT for GHG may be. EPA has at least suggested that, with respect to coal plants, BACT may be Integrated Gasification Combined Cycle, or IGCC, and with respect to IGCC plants, BACT may be natural gas. If so, we’re not going to see many traditional coal plants permitted after this rule takes effect.

What about opposition to the rule? It’s near certain that someone will challenge it. While environmental groups support it and have suggested that opponents may not have standing, I’m skeptical. I think it likely that someone with standing will challenge it. I also think that there is a reasonable chance that the rule is overturned, because it’s not obvious to me that the courts will buy the “administrative necessity” argument. The more fundamental point is that I’m not sure it matters. If the Tailoring Rule is struck down, a court is still unlikely to vacate the rule. Instead, the court is likely to keep the Tailoring Rule in place, while giving EPA time to figure out how to comply with conflicting mandates in a way that doesn’t bring the world as we know it to an end.

At bottom, the problem isn’t the Tailoring Rule. The problem is that Massachusetts v. EPA makes regulation of GHG under the existing Clean Air Act inevitable absent congressional action. In other words, John Kerry is right; the Tailoring Rule is last call for the climate bill. I happen to agree with opponents that regulation of GHG under existing authority will be a nightmare. Even exempting small sources, PSD is just a terrible way to go – one of the last vestiges of command and control regulation and a nearly incomprehensible one, at that.

However, given Massachusetts v. EPA, Congress really only has two ways to fix the problem. The first would be to pass climate legislation. The second would be to pass legislation to preclude EPA regulation of GHG under existing authority. Right now, neither alternative seems likely, but once EPA rules are in effect, they’ll both be more tempting. We’ll see which we Congress moves.

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So, Kerry Lieberman (Graham?), also known as the American Power Act, is here. What does it mean?

My immediate reaction is that, in a big picture sense, they got it just about right. The fundamental issue, which was previously acknowledged by Senator Graham (can we start calling him “he who must not be named?”), is that we’re not going to solve the energy independence or climate change problems unless we put a price on carbon. This bill does that.

Frankly, the rest of the issues really only matter either to particularly constituencies or, as a related concern, to particular members of Congress. What are some of these other issues and how would they be handled in this bill? We’ll be getting a more detailed client alert out shortly, and if you can't wait, you can review the short summary or the section by section analysis, but here’s the very quick version.

Basic cap-and-trade provisions –

Goal is to reduce CO₂e by 4.75 percent of 2005 levels by 2013 and 83% by 2050, with interim targets in 2020 and 2030

EPA administrator will set allowance numbers to reach those targets

Only facilities emitting >25,000 tpy CO₂e will be subject to the program

Generating facilities are subject to the program in 2013; manufacturing facilities will not be subject until 2016.

Initial price floor of $12/ton and price ceiling of $25/ton

Limits on who can participate in the carbon market to avoid market manipulation

Allowances used primarily to cushion consumers from energy price increases, but also to support various industries

Includes a “WTO-consistent border adjustment mechanism.” In the absence of a global agreement, tariffs will be imposed on countries without similar GHG controls

Nuclear power – lots of help for the nuclear industry

Off-shore drilling – Provides substantial revenue sharing to certain coastal states, but allows states to prohibit leasing within 75 miles of their coastline

Coal – significant support for carbon capture and sequestration

Renewable energy – Does not include a national renewable energy standard, or RES, though does provide for federal assistance to encourage development of renewable energy technology

Preemption – preempts state cap-and-trade programs, but not other state regulation of GHG. Precludes EPA regulation:

No listing of GHG as criteria pollutants based on climate change impacts

No listing as hazardous air pollutants based on climate change impacts

Limitation – but not complete preemption – of GHG regulation under existing NSR authority

Don’t yell at me if this list does not include your favorite provision. This is a blog, not a treatise. As to the big political picture, I still think that, if Senator Graham can be brought back on board, there is a reasonable chance that this bill passes. If not, then I’m pretty skeptical. 

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There has been a fair bit of evidence in recent weeks that getting a climate bill through Congress remains a difficult task. It is a sign of just how perfectly aligned the stars will need to be that the two recent problems for the bill were either completing unrelated to climate change or at best tangential.

First, as everyone knows, Senator Graham got annoyed that Senator Reid (locked in a tough reelection battle and needing Hispanic votes) suggested that he might move an immigration bill before the climate/energy bill. Senator Graham, as about the only Republican willing to work with Democrats, and knowing the leverage that he possesses, actually used that leverage. Senator Reid appears to have backed off at this point and my sense is that Kerry, Lieberman, and Graham were so close that it’s difficult to believe that they wouldn’t have been able to get a bill trhough in the next couple of months.

Then, of course, BP”s Deepwater Horizon drill rig sank. The resulting oil spill and potentially catastrophic damage to the Gulf Coast has quieted, for now, the Drill, Baby, Drill, crowd, and emboldened opponents of off-shore drilling. Notwithstanding the obvious reaction to the spill, expanded off-shore drilling was a likely part of the compromise necessary to get a climate bill over the finish line. Moderate and conservative senators are still going to require something that will allow them to vote for the bill as an economic development measure.

More coal? Oops. Forgot about the Upper Big Branch Mine explosion.

I still think that a bill will happen. Partly because I’m an optimist. Partly because it just seemed that Kerry, Lieberman, and Graham were to close to fail, as it were.

Which brings up the second part of this post. If I’m right, we’re going to get a bill. Will it be a good bill? Last week, the Rasmussen Reports announced the results of a poll showing that most Americans favor passage of a climate bill. However, at the same time, most American’s don’t want to pay anything for it. Now, that’s not really a surprise. Nonetheless, since most environmentalists, most economists, and even Senator Graham believe that we have to put a price on carbon, it does make it politically difficult for Congress to do what it has to do (and, yes, I do know that we can put a price on carbon and still provide rebates that will leave consumers both facing carbon prices and in the same net economic position).

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Yesterday, Senator Lieberman (I -CT) confirmed that the climate bill that he, Senator Kerry (D-MA) and Senator Graham (R-SC) plan to announce next week will include preemption of state and federal initiatives, including EPA's Clean Air Act authority.  Leaving aside the potential in his statement for the bill to also preempt state renewable energy and efficiency programs, the goal of predictability and one nationwide cap-and-trade system is an approach that we endorsed a few weeks ago, and one that H.R. 2454 also contained, albeit with a 5 year moratorium, rather than a complete preemptive ban.

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As Senators Kerry, Lieberman, and Graham get ready to release their version of a climate bill, negotiations with moderate Democrats are heating up. Ten Democrats, apparently let by Sherrod Brown and Debbie Stabenow released a letter outlining what they call “key provisions for a manufacturing” package as part of an overall bill. Here are some highlights the Senators' wish list:

Investments in clean energy manufacturing and low carbon industrial technologies.

Ensuring law energy costs for manufacturers, including a “firm price collar”

A phase-in for regulation of GHG emissions from manufacturing

Allowance rebates for energy-intensive, trade-exposed industries

Tariffs on imports from countries without comparable GHG regulatory regimes

Preemption of state GHG regulation

If Kerry, Lieberman, and Graham can actually bring these Senators along, they will have come a long way towards getting a bill passed. However, there are still a number of moderate to conservative Democrats who have not signed this letter and whose support is by no means a sure thing. 

Similarly, one wonders what kind of Republican support there will be, if any. One thing is clear, if a bill is enacted, President Obama and the Congressional leadership are going to owe a big debt to Senator Graham. If he stays on board, it’s hard to see how Senators such as Collins and Snowe don’t sign on as well. 

Environmentalists are the ones who may have to be dragged across the finish line, assuming that final legislation includes preemption, support for nuclear energy and clean coal, a phase-in for manufacturing compliance and, perhaps, off-shore drilling.

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What will happen to state and regional energy and carbon-related regulations if (perhaps when) federal climate legislation is enacted?  If the Attorneys General of California and 6 New England and Mid-Atlantic states have anything to say about it, very little.  

As E&E reported last night, the Attorneys General of Massachusetts, Delaware, Maine, Maryland, Rhode Island, Vermont and California sent a letter this week to Senators Kerry, Graham and Lieberman in which they urge the Senators to incorporate provisions in the climate bill expected to be announced later this month, which save existing state initiatives.  Drawing a parallel to California's emissions standards waiver under the Clean Air Act, they urge coexisting federal and State authority to spur energy independence and reduce global warming pollution.

Some suggestions make a lot of sense for both regulators and the regulated community: allowing time for industries participating in regional programs to transition to federal programs, providing for an exchange of RGGI allowances, and maintaining EPA's authority under the Clean Air Act to regulate in the absence of functional federal programs created by new legislation could all allow the transition between programs to flow more smoothly. 

However, their call to keep cap-and-trade initiatives like RGGI viable in the midst of federal cap-and-trade, and at most impose only a temporary moratorium for a fixed period of time, seems more like a land grab than good policy.  The AGs say it would provide a valuable incentive to ensure rigorous implementation and enforcement of the federal program.  No. Overlapping cap-and-trade programs would only create a mess.  A nationwide and comprehensive cap-and-trade program is clearly preferable, for both the economy and achieving reductions in carbon dioxide emissions. 

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Now that health care legislation has passed, the question is whether passage of the health care bill will unleash a cascade of other legislation, including a climate change bill, or whether Congress will be so exhausted and so polarized that nothing else will happen. I lean to the former position, but only time will tell. One positive indication was Senator Graham’s statement that, notwithstanding his views on the health care bill, he will continue to work towards passage of a climate change bill. Another shout out seems in order for Senator Graham.

The second positive indicator is the chorus of concern recently voiced by environmental groups about the direction in which climate legislation seems to be heading. If the Center for Biological Diversity is expressing grave concern, I suspect that negotiations are probably about where they need to be for a bill to pass. The concern expressed most recently by environmental groups is that the Senate negotiations appear to be headed towards inclusion of language preempting both state regulation and EPA regulation under existing Clean Air Act authority – both of which seem to me to be no-brainers. 

I’m sure that the CBD truly is appalled at the idea of preemption; I hope that the more mainstream environmental groups are more practical and will simply use their opposition as a bargaining chip. While I’m not really in the prognostication business, I’d be about willing to guarantee that there won’t be a bill unless there is preemption language.

Another issue that’s jumped up on the radar screen is off-shore drilling, with a number of Senators indicating that it has to be part of a bill, while 10 Democrats have written to Senators Kerry, Graham, and Lieberman indicating that they may not be able to support a climate change bill that provided for increased off-shore drilling.

Finally, E&E Daily reported that Obama staffers, including Carol Browner, met with Senate Democrats yesterday to discuss ways to move Senate legislation in April. The report indicates that Kerry, Graham, and Lieberman hope to draft a bill in the next few weeks. I don’t think we’re going to see the Senate pass a bill any time soon, but it does look as though things are starting to move.

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It’s difficult to keep up with the various moves in Congress, attempting either to advance climate change legislation or to preclude EPA climate change regulation. On the advance side, E&E Daily had a very helpful summary earlier this week on the various issues affecting those senators that will need to be brought on board to reach 60 yes votes in the Senate. The identified issues include, not surprisingly: (1) coal, (2) nuclear power, (3) trade-sensitive industries, (4) oil and gas drilling, and (5) sector-specific limits. In what is probably a sidelight to the whole debate, Vernon Ehlers, a Republican, but the first research physicist elected to Congress, has taken climate change skeptics to task, saying that the scientists relied on by the skeptics are not “the experts in the field.”

On the preclusion side, Congress is being deluged with requests, including from some of its own members, to stop EPA from regulating GHG under existing regulatory authority. In the past week:

20 governors (if you include Puerto Rico and Guam) wrote to Congress opposing any EPA regulation of GHG under existing authority. The letter specifically says that they seek not just a delay, but preclusion of any regulation absent specific Congressional authorization.

98 industry groups, including such left-leaning groups as the U.S. Chamber of Commerce and the API, wrote to all senators in support of Senator Murkowski’s resolution to disapprove of EPA’s endangerment finding. The letter specifically asserts that EPA’s tailoring rule “has little legal foundation” – while at the same time criticizing for not going far enough to protect smaller sources of GHG.

Senator Levin wrote a letter to Senator Kerry which, while indicating support for climate change legislation, stated that industrial sources should not be regulated for at least 10 years

I still find it difficult to believe that the resolution disapproving the endangerment finding will be enacted. While Senator Murkowski recently referred to EPA’s efforts as a “backdoor” attempt to regulate GHG, EPA’s is doing pretty much what the Supreme Court ordered it to do, and it seems to be making every effort to minimize the economic impact of those regulations. I still agree that EPA regulation will be a mess, and it’s not obvious to me that the tailoring rule will survive legal challenge, but it’s difficult to see how EPA could be doing anything less than what it is doing in light of Massachusetts v. EPA.

All of which gets back to those fence sitters and the difficulty of getting 60 Senators to agree on enough to move a bill. One aspect is looking more and more certain. If there is a bill, state authority is going to be preempted and EPA authority under prior CAA provisions is going to be superseded.

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Late last week, Senate and House Democrats piled more pressure on EPA’s efforts to regulate greenhouse gases under existing Clean Air Act authority. Senator Rockefeller and Representatives Rahall, Boucher, and Mohollan introduced companion House and Senate bills to preclude EPA regulation of stationary source GHG emissions for two years. Unlike the resolution sponsored by Senator Murkowski, which would simply overturn the endangerment finding and thus preclude all GHG regulation, the new legislation would specifically allow mobile source regulation to proceed.

As long as the White House and important committee chairs oppose the legislation, it still seems unlikely to pass, though there have been enough political surprises in the past few months, and there are enough moderate Democrats supporting some kind of preclusion of EPA regulation, that I would no longer rule it out.

Even if the bills are not enacted, the filing of the legislation remains noteworthy. First, Representative Boucher was one of the early, and perhaps most surprising, supporters of cap-and-trade legislation. At a policy level, support for legislation and opposition to EPA regulation under existing authority is perfectly reasonable. I should hope so, because it’s a view that I share. Nonetheless, it still strikes me as a telling example of how much momentum seems to be building to slow down the more aggressive aspects of EPA’s approach to GHG regulation.

The flip side of this coin is EPA’s announcement that it will not require permits for GHG emissions until 2011 and that the program will initially cover only sources emitting at least 75,000 tpy of GHG. Time will tell whether administration opposition and EPA’s moves to limit the pain of stationary source GHG regulation will be enough to beat back the opponents of any GHG regulation under existing authority.

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A few weeks ago, I queried whether three pollutant legislation might be back in play, particularly given the current rough sledding for broad climate change legislation. Now, it certainly appears that way. The bill has been formally introduced. In addition to Alexander, there are now three other GOP co-sponsors (Gregg, Graham, and Snowe), not including Senator Lieberman, who is also a sponsor. There will be a hearing on March 4.

The basic provisions are as follows:

Reduction in SO₂ emissions of 80% by 2018

Statutory authorization of the CAIR rule through 2011

Reduction in NO_x emissions of 53% by 2015

Reduction in mercury emissions from coal-fired power plants of 90% by 2015. 

I still don’t have a crystal ball on the likelihood that this bill will move, but there are certainly a number of reasons why it might. Uncertainty about the CAIR rule motivates a number of sources to prefer a legislative solution. The difficulties in moving the climate change legislation make a bipartisan agreement on three pollutant legislation attractive to both sides of the aisle. We’ll know more after the hearing, but the Ozone Transport Commission has already criticized the NO_x provisions as insufficiently stringent, which I take as a good sign for the bill’s prospects.

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Since I did a post earlier today indicating the cap-and-trade legislation is unlikely to become law in the near term, it’s only fair that I also do a post on efforts by Senators Kerry, Graham, and Lieberman to resuscitate the legislation. The bill's prospects are too uncertain to spend too much time on the details. In short, it would include a phased-in approach to regulation, starting with the biggest emitters, such as utilities, combined with a carbon tax on transportation fuels that has been supported by several major oil companies.

To me, the most notable statements come from Senator Graham, the only Republican in the gang of three. Senator Graham has turned out to be one of the more intriguing and less predictable members of Congress in recent years. This may have its pluses and minuses and I have no idea whether he can bring any GOP support along, but you have to sit up and take notice when a Republican says

Cap and trade as we know it is dead, but the issue of cleaning up the air and energy independence should not die -- and you will never have energy independence without pricing carbon.

Of course, he’s right. The sad thing is that the rest of his party has so demonized any and all taxes that no Democrat could possibly say something like this – and many of the distortions in the various bills we’ve seen to date have resulted from strenuous efforts to avoid having consumers see any price signals about the cost of carbon emissions.

Keep sayin’ it, Brother Graham.

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The uncertainty surrounding EPA regulation of GHG emissions under existing Clean Air Act authority was driven home for me last week when the same conference resulted in two diametrically opposed headlines in the trade press. Regarding a forum held by the International Emissions Trading Association, the Daily Environmental Reporter headline was “Existing Law Too Inflexible to Accommodate Market-Based Emissions Cuts, Executives Say.” Over at ClimateWire, the headline was “Some Companies Want EPA to Establish a CO2 Cap-and-trade System.” 

Of course, in fairness to the two publications, both headlines are true – and that’s the problem with the current EPA efforts. Notwithstanding current efforts in Congress to preclude EPA regulations, the endangerment finding seems almost certain to withstand legal challenge. Thus, GHGs will be regulated. Almost everyone wants that regulation to be in the form of a cap-and-trade program, but the last time EPA tried that without explicit Congressional authority, it was shot down in the courts. This may be why the Daily Environment Report story indicated that Vickie Patton of EDF had “pleaded” with executives to support cap-and-trade legislation.

At this point, the most likely near-term outcome appears to be no federal cap-and-trade legislation, and a stripped-down EPA regulatory program that would only apply to really large emitters, so that the inefficiencies inherent in the facility-specific BACT approach won’t appear too unreasonable, because the only people complaining about it will be some very unpopular polluters and all of my economist friends.

Or, as the Stones might have said in their more cynical moments:  Not only can’t you get what you want, but you can’t even get what you need.

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Yesterday, EPA Administrator Jackson issued a letter to Senator Jay Rockefeller responding to certain questions regarding EPA regulation of GHGs under existing Clean Air Act authority, including promulgation of the so-called “Tailoring Rule”, describing how stationary source regulation under the existing PSD program would be phased-in once GHGs are subject to regulation. Here are the highlights:

EPA still expects to promulgate the Tailoring Rule by April 2010.

The GHG permitting threshold will be “substantially higher than the 25,000-ton limit that EPA originally proposed.”

No permits will be required until 2011. Initially, only facilities otherwise subject to CAA permitting will be required to obtain permits. The smallest facilities will not be subject to GHG permitting before 2016.

You can talk all you want about global warming, but it seems to me as though it’s EPA that’s feeling the heat. EPA has clearly heard the threats of a Congressional resolution barring EPA regulation of GHGs under existing authority. The reaction from Congress is all the evidence one needs. Both Senators Rockefeller and Murkowski praised the letter. While neither indicated that the letter would be sufficient to stop them from pursuing Congressional action, it might be enough to peel off some fence-sitters who might otherwise have felt compelled to support the legislation.

What does EPA’s statement of intent mean for various law suits swirling around this issue?

I don’t see any impact on litigation against the Endangerment Finding; it will still proceed and it will still lose.

The likelihood of law suits from environmental groups alleging that EPA is shirking its responsibilities under the CAA has certainly increased. Moreover, while EPA has a lot of discretion, I could imagine courts saying to EPA:  “Nice try, but the CAA doesn’t give you the kind of flexibility you have asserted in the Tailoring Rule. Only Congress can provide that flexibility by amending the CAA.” In this respect, the situation is similar to litigation over the CAIR regulations, which pretty much everyone liked, but which were struck down because the approach EPA took in the CAIR rule wasn’t consistent with the CAA.

Finally, any kind of regulation by EPA will provide an additional defense to private nuisance litigation. As I have previously noted, one question raised by the nuisance law suits is whether EPA has regulated GHG in a manner sufficient to “displace” the common law of nuisance. In this respect, the sort of program described yesterday by Administrator Jackson may be the best possible outcome for the regulated community, because it will narrow EPA regulations while providing a ground to preclude nuisance litigation.

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Earlier this week, the Southeastern Legal Foundation filed a petition for review of the EPA Endangerment Finding with the District of Columbia Court of Appeals. It’s not really surprising that someone filed suit, but the list of plaintiffs is interesting – though more for who is not on it than who is. There is not a single Fortune 500 company on the list of plaintiffs. Whether that speaks to the larger corporations doubting the merits of the challenge or simply making a strategic decision that it is not worth it to be associated with the litigation, I leave for them to say.

I will say that the likelihood that this challenge succeeds is vanishingly small. Ever since Ethyl Corporation v. EPA, courts have given EPA extraordinarily broad discretion when regulating on “the frontiers of scientific knowledge.” Whatever concerns dissenters may have about climate change science, I think it is pretty clear that EPA has a stronger record to support the Endangerment Finding than it had in Ethyl Corporation.

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For those of you who missed it, the SEC finally issued an interpretive release last week clarifying public company disclosure obligations concerning climate change. Rather than rehash it here, I am instead linking to the client alert that we did on the topic.

It is worth noting that, as mentioned in the alert, the release has engendered significant political controversy. Indeed, ranking member Spencer Bachus sent a letter to the SEC questioning the appropriateness of the release. My favorite question in the letter:

Do you believe the Commission’s role is to promote a social policy agenda through the securities laws and regulations?

I wonder how the SEC will answer that one?

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While Congress may be fiddling on climate legislation, Senators Carper and Alexander are attempting to put three pollutant legislation back on the congressional agenda. Yesterday, they introduced an aggressive three pollutant bill. Here are the highlights. The bill would:

Codify the CAIR program through 2011

Gradually reduce the cap on SO₂ emission allowances to 1.5 million tons by 2018 – substantially more stringent than the CAIR would have imposed. 

Reduce NO_x caps to 1.6 million tons by 2015. 

Create two NO_x trading zones. Zone 1 includes 32 Eastern states and the District of Columbia. Zone 2 includes the remaining 16 contiguous states.

Coal- and oil-fired power plants would have to reduce mercury emissions by 90%. There would be no trading program for mercury.

I still find it remarkable that Senator Alexander, a coal-state Republican, is a co-sponsor of the bill. Nor does he seem to be half-hearted about it. Money quote:

We have a number of different things to work out on carbon.…  But there's no excuse for waiting a minute on SOx, NOx and mercury because we have the technology, we know what to do, and we shouldn't be operating coal plants without pollution control equipment. (My emphasis.)

I have, until recently, assumed that climate change legislation would happen this year. Now that that seems less likely, and with Senator Alexander as a sponsor, it will be interesting to see if the Senate is able to move this legislation, as an alternative. It is worth noting that climate change legislation necessarily would also have resulted in reductions in SO₂, NO_x, and mercury. Unfortunately, the converse is not also true. In the absence of GHG controls, three pollutant legislation would actually increase GHG emissions, because the traditional means of reducing emissions of SO₂, NO_x, and mercury are energy hogs. Oh, well.

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Given the stories this week of continuing efforts in Congress to preclude EPA from regulating GHGs under existing Clean Air Act authority, I couldn’t resist this headline. 

The first story is that three House members, including two Democrats (House Agriculture Committee Chair Collin Peterson and Missouri Rep. Ike Skelton) have followed the lead of the Senate – where there are also Democratic sponsors – and introduced legislation preventing EPA regulation. According to Representative Skelton, the bill would “get the EPA under control.”

In light of the efforts in Congress, it just seemed too perfect not to note that EPA’s Assistant Administrator for Air, Gina McCarthy – never one to mince words – was quoted in GreenWire today as saying that

We are furiously ensuring that we get the light-duty vehicle out and ready in March…. There is no hesitation about that. It will be happening.

I don’t doubt that EPA is working furiously to get the rule done, particularly since President Obama has acknowledged that a cap-and-trade bill might not get passed this year. Whether EPA is actually furious, I don’t know. It does appear that some members of Congress may be furious in March if EPA goes ahead and issues the rule. Stay tuned.

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Last month, I noted with some trepidation that EPA Administrator Jackson had stated that "I don't believe this is an either-or proposition," referring to the possibility that there could be both climate legislation and EPA regulation of GHGs under existing EPA authority. Today, it’s looking more like a neither-nor proposition.

First, with respect to the prospects for climate change legislation, Senator Gregg was quoted in ClimateWire as saying that “the chance of a global warming law passing this year was ‘zero to negative 10 percent.’" Whether Senator Gregg has the odds pegged exactly right, legislation certainly seems less likely than was thought even a month ago, as health care legislation struggles and Scott Brown (R. Mass.) takes office.

At the same time, Senator Murkowski is moving forward with a resolution to disapprove EPA’s endangerment finding, in order to preclude EPA regulation under existing authority. While binding Congressional action to preclude EPA regulation is unlikely, because it would require approval by President Obama, Senate action does not appear out of the question at this point, given that Senator Murkowski has obtained three Democratic co-sponsors of the resolution, Senators Sen. Blanche Lincoln (D-Ark.), Ben Nelson (D-Neb.) and Mary Landrieu (D-La.). A Senate vote in favor might not preclude EPA regulation without House and Presidential concurrence, but it’s hard to see how such a vote wouldn’t be a further black eye for the administration.

The situation certainly seems to warrant ClimateWire’s lede that “Climate chaos reigned on Capitol Hill yesterday.” Unfortunately, as I have noted previously, uncertainty is not really to anyone’s benefit. Does anyone doubt that, in the longer run, there will be some kind of climate regulation in the U.S.? How are regulated entities supposed to do cost-effective planning for such regulation in the face of this kind of uncertainty?

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Yesterday, Senators Kerry, Graham, and Lieberman sent to President Obama a “framework” for Senate climate change legislation. The framework is short on details and does not contain many surprises. For example, it proposes “near term” – near team is undefined – reductions of 17% from 2005 levels and “long-term” – also undefined – reductions of 80%. 

The framework is nonetheless noteworthy, particularly for its inclusion of strong support for both the coal and nuclear industries. Senator Kerry was must have loved writing “Additional nuclear power is an essential component of our strategy to reduce greenhouse gas emissions.” And this: “We will commit significant resources to the rapid development and deployment of clean coal technology.”

It is clear from the public statements that the Senators have made what this language really means. The translation is fairly easy, but for those not in the know, here goes:

“Nuclear power is essential” means “We need some Republican votes.”

“We will commit substantial resources to … clean coal” means “We need some coal-state Democratic votes.

If this weren’t so important to the environment and our economy, I might enjoy watching this.

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As anyone not hiding under a rock has by now probably realized, EPA officially announced Monday that it has concluded that GHG from human activity threaten public health and the environment. Since the announcement was not exactly a surprise, the question remains what impact it will have.

In the short run, the timing certainly seems intended to coincide with the Copenhagen talks and help to demonstrate to other nations that the U.S. is taking concrete steps to address climate change. We’ll see shortly how successful the endangerment finding is in that respect.

Since I spend most of my time down in the trenches, I’m more concerned with the impact of the endangerment finding on the domestic front. There are really three fronts here:

Litigation – If there was any suspense regarding whether anyone would challenge the endangerment finding, such suspense was quickly relieved by an announcement from the Competitive Enterprise Institute that it would indeed sue. CEI’s press release stated that the global warming “models are about to sink under the growing weight of evidence that they are fabrications.” Uphill battle barely begins to describe the likelihood that CEI wins that case.

Prospects for Cap-and-Trade Legislation – Notwithstanding Administrator Jackson’s protestations to the contrary, it’s hard not to see the announcement as a further prod to Congress to get moving, particularly since the Administration keeps saying that it would prefer enactment of a cap-and-trade bill. Even so, however, some members of Congress indicated that the announcement would have little impact, because the endangerment finding was expected and thus adds little new.

EPA Development of Regulations – EPA is moving forward with regulatory development, though Administrator Jackson gave no time line for when stationary source regulations would be promulgated. There was an indication that EPA would issue BACT guidance in advance of issuing NSR regulations. Notwithstanding the promise of BACT guidance, it appears that states are not ready for the brave new world of using the NSR program to regulate GHGs. ClimateWire reported that Bill Becker, executive director of the National Association of Clean Air Agencies, believes that states will have hard time getting ready to process stationary source permits by March.

I actually found the biggest take-away from the announcement to be the Administrator’s statement that she wanted EPA regulations that would be complementary to new legislation. "I don't believe this is an either-or proposition," ClimateWire reported her saying. 

Uh-oh. 

I thought that the deal had always been that legislation would substitute for regulation under the existing CAA. Otherwise, what do the administration’s statements that it would prefer legislation to regulation mean?   I’m having difficulty imagining a world with both a cap-and-trade program and NSR regulation of GHGs.

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Boston Celtics’ fans know the phrase “fiddlin’ and diddlin.” Well, the Senate continues to fiddle and diddle over climate change legislation. Those who have worked with Gina McCarthy, current EPA air chief, know that she has probably never fiddled or diddled in her life, and I certainly don’t expect her to do so with respect to GHG regulation under existing Clean Air Act authority in the absence of comprehensive legislation. As a result, it now seems likely that EPA will be issuing climate change regulations before any legislation is enacted.

What’s the basis for this conclusion? First, the Senate side:

E&E Daily reported today that Senate leaders are not planning to bring the cap-and-trade bill to the floor until after work on health care and financial regulation bills has been completed.

Senator Webb today “blasted” cap-and-trade legislation as “enormously complex.” (Even with a tailoring rule, good luck eliminating the complexity from EPA regulation under current authority)

So, things aren’t exactly cooking with gas on the legislation front. What’s up at EPA?

Last week, EPA sent the endangerment rule to OMB for final review

EPA’s stakeholder group on the tailoring rule has been hard at work at work and expects to have a preliminary report out by the end of the year. The Daily Environment Report gives a good flavor of the complexities faced by this project, but there is no question that the group and EPA are moving forward.

The bottom line is that unless a health care bill passes soon, and unless passage relieves a bottleneck in the legislative pipeline, we will all be participating in the experiment to see if EPA can make climate change regulation work under existing CAA authority. 

May you live in interesting times.

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Last week, the City of Portland, Oregon (together with Multnomah County) released an updated Climate Action Plan. The Plan presents a number of aggressive goals and targets, with ultimate goals of GHG reductions of 40% by 2030 and 80% by 2050.

The details of the Plan are obviously only relevant to those in the Portland area, but for those anticipating what regulation might look like in California, Massachusetts, and other states that have enacted or will soon enacted some version of a Global Warming Solutions Act, the Plan provides a helpful catalogue of the types of changes that might be sought. Therefore, a quick summary of some of the 2030 goals seems warranted

Reduce energy use from existing buildings by 20%-25%

All new buildings – and homes -- should have zero net GHG emissions. 

Reduce VMT by 30% from 2008 levels

Recover 90% of all waste generated

Reduce consumption of carbon-intensive foods

Expand “urban forest canopy” to cover one-third of Portland

Reduce emissions from City and County operations by 50% from 1990 levels

What’s my take? I have two immediate reactions. First, if any further evidence were needed that attaining significant GHG emission reductions is going to involve major social and economic changes, this is certainly it. 

Second, and perhaps more importantly, this Plan, and others like it, have to constitute a heavy thumb on the side of the scale arguing for comprehensive federal legislation. In the past, I’ve argued that federal legislation would be preferable to a patchwork made up of EPA regulation under existing Clean Air Act authority, public nuisance litigation, and state and regional initiatives. To that list, we can now add comprehensive local regulation. I don’t mean to be too sanguine about the ability of federal legislation to harmonize this entire process; the existing bills would not preempt most state, regional, and local regulations (other than cap-and-trade programs). Nonetheless, delays in federal enactment can only contribute to the proliferation of state, regional, and local programs, some of which may be beneficial, but many of which will be inefficient, contradictory, or both.

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The Chairman's Mark of the Clean Energy Jobs and American Power Act (S. 1733), released late Friday night by Senate Environment & Public Works Committee Chair Barbara Boxer, fills in some of the details left out of the earlier-introduced Boxer-Kerry bill, notably identifying which sectors will get CO₂ allowances allocated to them for free. The bill largely follows the lead of the House-passed ACES, and in some areas uses identical language. For instance, as in ACES, the largest share of allowances (30%) is allocated to state-regulated local electric-distribution companies, who are instructed to use any revenue from the allowances to protect consumers from electricity price increases.

The precise allocation numbers are sure to be a source of debate as the negotiations move forward through the remaining 5 committees and individual Senators negotiate for their states’ interests to be met in the bill. But do the allocation numbers actually matter? A recent post by Harvard Professor Robert Stavins makes the case that once the decision has been made to allocate a set number of allowances for free, to whom they are assigned does not have a significant impact on the environment performance of the cap and trade regime or on the overall social costs imposed by the regulatory system.

That's why it is significant that one of the largest differences between the Chairman's Mark of the Senate Bill and ACES is how many allowances will not be allocated for free.  The size of the pot of allowances in the Senate bill to be set aside for the Treasury Department's use for deficit reduction rises from 10% in 2012 to a high of 25% between 2040 and 2050.  In comparison, the House bill earmarks for the Treasury Department only those allowances which are not already freely allocated or auctioned, a piece which falls to 1% by 2014.  The set of allowances marked for direct sale at auction is also larger in the Senate bill -- 15% of all allowances will be auctioned each year through 2029, rising to 18.5% in later years.  As in ACES, one of the key uses for the auction revenues are direct rebates to consumers to help them deal with higher energy bills.

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Waxman-Markey. Boxer-Kerry. Public nuisance litigation. EPA regulation under existing authority. What’s next in the arsenal of weapons against climate change? How about including climate change impacts in reviews under NEPA?

In February 2008, the International Center for Technology Assessment, the Natural Resources Defense Council, and the Sierra Club petitioned the CEQ to “clarify” its regulations to require the assessment of potential climate change impacts in environmental reviews performed under NEPA. CEQ has not yet formally responded to the petition, but that hasn’t stopped noted environmentalist Senator James Inhofe (R. Okla.) from weighing in preemptively. Calling NEPA a “bedrock environmental statute,” Senator Inhofe has informed Nancy Sutley, CEQ Chairwoman, that NEPA “is not an appropriate tool to set global climate change policy.” It’s not obvious to me why a bedrock environmental statute shouldn’t be used to address the impacts of climate change.

In any case, whether Senator Inhofe is correct or not, it seems likely that CEQ will eventually take some action, whether by guidance or regulation, to require inclusion of climate change assessments into NEPA reviews. Moreover, this is yet another area of climate change policy in which the federal government will be following the laboratories of democracy, the states, rather than leading. As we have previously reported, a number of states, including California, Massachusetts, and New York, already require GHG assessments in reviews under their state NEPA analogues.

Going forward, those planning large projects, whether the projects are public or private and whether they are state or federal, should expect to have to assess the climate change impacts, including whether alternatives to the project are available that would have reduced climate change impacts.

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Environment & Public Works Chairwoman Barbara Boxer (D-CA) announced Tuesday that committee hearings on the Boxer-Kerry climate bill, S. 1733, will begin on October 27 and that a mark-up will be planned for early to mid-November. Meanwhile, the Energy and Natural Resources Committee is continuing its hearings on emission allocations, with the next hearing scheduled for Oct. 21.

After announcing the hearing, Boxer said she would try to win over all of the Environment & Public Works Committee Democrats, including coal-state Senators Max Baucus (D-MT) and Arlen Specter (D-PA).  Boxer said she does not expect to secure any Republican votes. She plans to release a modified version of the Boxer-Kerry bill before the legislative hearings begin, with only a handful of "tweaks" compared to the version unveiled last month.

This aggressive timetable might be enough to have a bill in hand before the Copenhagen discussion in December, a goal the White House is pressing very hard to meet.

One change that would be more than a tweak would be a boost to nuclear energy. The Boxer-Kerry bill has a modest nuclear title focused on worker training and research into waste management technologies.  But the bipartisan blueprint for a comprehensive energy and global warming bill that Sens. John Kerry (D-MA) and Lindsey Graham (R-SC) spelled out in their joint op-ed in the New York Times Sunday calls for additional incentives for nuclear power, stating that “nuclear power needs to be a core component of electricity generation if we are to meet our emission reduction targets.”   In the op-ed, Kerry and Graham called for a streamlined permit system that maintains vigorous safeguards while allowing utilities to secure financing for more plants.  As E&E reports, Tom Carper (D-Del) yesterday called for a nuclear energy amendment that could help bring aboard swing votes who support the industry, such as Senators Joe Lieberman (I-Conn.), John McCain (R-Ariz.) and Graham, who are seeking more federal financial backing and other support. Carper’s plan involves more funding to the Nuclear Regulatory Commission, rather than a focus on streamlining.

As notable as this change would be, one problem with basing a consensus for the climate bill on nuclear power is that it's nuclear. Puns aside, opinions run strong on the issue of nuclear power, particularly among the environmental lobby, and too much emphasis might lose more votes than it picks up.  With only a few legislative weeks left before the end of the year, it will be interesting to see if the fast-paced timetable holds, and whether a consensus can be built in time.

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After a number of stories indicating that the prospects for climate change legislation were dimming for 2009, the convergence of a number of factors suggests that legislation may still be possible.

Yesterday, Senator Boxer and Senator Kerry released a draft of climate change legislation. This doesn’t mean that Senate passage is imminent. The bill has not been formally introduced and, like the early drafts of the Waxman-Markey bill, leaves some sections blank. Senator Boxer apparently intends to issue a mark-up of the bill sometime in October. One note for the politically-minded readers of this blog – just don’t call the bill “cap-and-trade” legislation. Senator Kerry stated that he does not know what “cap-and-trade” means and denied that this is “cap-and-trade” legislation – notwithstanding that it would cap emissions of CO₂ and allow regulated entities the right to trade allowances to emit CO₂.

Meanwhile, EPA continues to work on climate change regulations. Last week, OMB apparently completed its review of EPA’s proposal to apply PSD rules to sources of CO₂ greater than 25,000 tons per year. EPA apparently intends to issue the rules some time this week. 

Opposition to climate change legislation among the regulated community appears to be splintering. In the past week, three members of the U.S. Chamber of Commerce left the Chamber due to its intransigence on climate change. Perhaps even more tellingly, the Chamber yesterday issued a statement that it supports “strong federal” climate change legislation – though it still appears to oppose significant parts of the Waxman-Markey bill. The Chamber also stated that it prefers legislation to regulation by EPA. Finally, it is worth noting that the Chamber’s statement accused environmentalists of distorting its position, without addressing the withdrawal of three utility members.

The decision in Connecticut v. EPA allowing the public nuisance litigation against six generators to continue. If the threat of EPA regulation hasn’t been enough to tip the balance in favor of legislation, the threat of regulation by injunction may be enough to do so.

Whether these developments will be enough to push climate change legislation over the threshold remains to be seen. Certainly, they improve its prospects.

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The silence from Congress recently concerning climate change legislation has been deafening. The continued health care debate does not bode well for early passage of the Waxman-Markey bill. Meanwhile, EPA is not sitting on its hands.

Daily Environment Report noted last week that EPA has sent to the OMB a proposal to reverse the Agency’s policy that CO₂ is not a pollutant subject to the PSD provisions of the Clean Air Act. Also last week, Greenwire reported that: “As Hill debate flounders, EPA plows ahead on emissions rules.” [And for those of you who can’t get enough of the debate between “founder” and “flounder”, take a look here.] The Greenwire story reports that EPA is moving ahead on rules governing emissions of GHGs from automobiles and large stationary sources.

The biggest debate continues to be whether EPA has legal authority to exempt small sources of CO₂ (probably those emitting less than 25,000 tons per year) from PSD rules. Certainly, the D.C. Circuit’s treatment of EPA’s CAIR rule should give everyone pause that the Court will approve rules that don’t seem to have authority in the CAA, just because everyone thinks that the rules would be good public policy. The strongest argument in support of the exemption – or at least the one mentioned most often – is simply that no one would challenge such a rule, because it would obviously be such a good idea. I’m skeptical. Major sources who want to torpedo the entire rule might easily challenge such an exemption.

I hate to sound like a broken record, but I keep coming back to a slightly different question: Who in their right mind would prefer EPA rules under current CAA authority to comprehensive legislation, however imperfect the legislation might be? Those assessing the merits of legislation can’t compare it to the status quo, because, as these recent moves by EPA demonstrate, the status quo cannot hold for long. The comparison must therefore be between the Waxman-Markey bill and the world as it will be once EPA regulates under existing authority.

It’s looking more and more likely that Congress may not have sufficient momentum to pass legislation until the reality of EPA regulation becomes manifest. I’m not looking forward to that.

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Although we had earlier predicted that comprehensive climate legislation could reach a floor vote in the Senate as early as October, that deadline is likely to move to November or later.  As reported by BNA this morning, the lead democratic authors of the bill, Senators Boxer and Kerry, announced yesterday that they need more time to craft the Senate bill and will put off introduction until the end of September. 

The plan had been to introduce the bill on September 8th, when the Senate returns from its month-long August recess.  The Senate Environment and Public Works Committee, of which Senator Boxer is the chair, would begin mark ups as soon as a week afterward.

Introducing the bill in late September means that the six committees with jurisdiction over the Senate climate legislation -- Agriculture, Commerce, Energy & Natural Resources, Environment & Public Works, Finance, and Foreign Relations -- will not begin markups on the bill until late October. 

One driver of the timing of the bill is the UN climate summit in Copenhagen, Denmark, which begins December 7.   As Greenwire reported, during the August recess, a number of Senators have been speaking out about the climate bill, what they hope to see in it, who is likely to support the bill or oppose it, and how likely meeting the UN climate summit deadline will be.  It will be interesting to see how this delay affects that strategy.

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 Comprehensive Energy and Climate legislation is moving along through the Senate, and could come to a floor vote by October. Six Senate committees – Agriculture, Commerce, Energy & Natural Resources, Environment & Public Works, Finance and Foreign Relations -- have jurisdiction over portions of the bill, a tactic that Senate leadership hopes will give a number of influential, but as yet undecided, Senators input and a stake in the bill’s passage. Chair of the Environment and Public Works Committee Barbara Boxer (D-CA) will go first with a draft, and plans to unveil her climate bill September 8^th, following the Senate’s return from summer recess. As Greenwire reported, Senate Majority Leader Harry Reid (D-NV) hopes to do work out as many problems as possible before bringing the bill to the floor, but is still shooting for a vote as early as October.

So what’s going to be in the bill? A lot of what was in ACES, for one. Greenwire reports Chairwoman Boxer as saying that "the Waxman-Markey bill is the mark we're working off to write our bill. I would say tweaks are more of what you're going to see than major changes." 

But Senate Finance Committee Chairman Max Baucus (D-MT), who is also a member of the Environment & Public Works Committee, could be a roadblock to passage of the bill. Baucus has increased his climate, energy and trade staff, bringing as many as 10 aides into various meetings on the legislation, and said he plans to mark up climate provisions dealing with emissions allocations and trade. It is not yet clear if his Finance Committee will schedule a markup before the Environment & Public Works Committee, or whether Baucus will wait until after EPW reports out a bill. Either way, Baucus will play a critical role as the most senior Democrat on Boxer's committee and a leading centrist Democrat with a voice that carries tremendous weight in the leadership ranks. 

Members of the Senate Agriculture Committee will also play a key role in shaping the bill. The Committee plans to hold hearings to explore the role for agriculture and forestry in climate change legislation. Two major farm groups on opposing sides of the debate, as well as senior Obama Administration officials will all testify at the hearing. Agriculture Committee Chairman Harkin (D-Iowa) noted today that one of the provisions he would like to see changed is the allocation of allowances to the utility sector based on both historic emission levels and retail sales – a compromise that the Edison Electric Institute focused on including in the House bill.  

Meanwhile More liberal members such as Sens. Sheldon Whitehouse (D-RI), Bernie Sanders (I-VT), and Frank Lautenberg (D-NJ) are pushing for tighter emissions limits than the 17% target included in the House-passed bill. 

Ultimately, compromise is likely to be the name of the game, just as it was in the House. 

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Congress moved one step closer to adopting a federal renewable electricity standard ("RES") with the narrow passage of the American Clean Energy and Security Act by the House.  Twenty-nine states already have adopted some form of renewable energy portfolio standard, but a federal RES is widely thought to be important for creating a national renewable energy and energy efficiency market.  The House RES establishes a national compliance obligation overseen by the Federal Energy Regulatory Commission (“FERC”) under which large retail electricity suppliers (“Suppliers”) are required to invest in renewable energy and energy efficiency. For each compliance year, a Supplier must calculate its total volume of electricity sales during that year and then submit to FERC a sufficient number of federal renewable electricity credits (“Federal RECs”) and demonstrated annual electricity savings to meet the RES goal for that compliance year. Up to 25 percent (or 40 percent, upon a state’s request) of a Supplier’s RES obligation may be met through electricity savings rather than Federal RECs. The trade-off, however, is that the incentive to develop and deploy new renewable energy capacity may be diluted by allowing efficiency measures to count toward the RES goal.

The RES passed by the House would not preempt state programs with stricter compliance targets, meaning that the federal program would preserve to some extent the patchwork of state standards. If Congress does pass a federal RES, leveraging the resulting business opportunities will thus require an intimate understanding of how both federal and state programs work and, perhaps more importantly, how they interact.

For more details on the RES, please take a look at our recent client alert.

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 The House of Representatives narrowly passed H.R. 2454, the American Clean Energy and Security Act of 2009 by a vote of 219-212 on Friday, June 26.  The bill, the first piece of major legislation on global warming that has passed either house of Congress, is 1,428 pages long, and includes 5 titles covering everything from renewable energy and efficiency to adaptation and transitioning to a clean energy economy.  While it retains many key concepts from the draft introduced by Representatives Henry Waxman and Edward Markey, some of revisions and additions that ensured its passage were significant and have generated controversy as the sponsors made certain compromises in order to reach a majority. 

Attention now turns to the Senate, which, according to statements by key committee members and Obama Administration officials, will likely not reach a vote on global warming legislation until this fall, at the earliest.  Should the Bill fail to pass in the Senate, greenhouse gas emissions may still be regulated through other methods, such as state and regional climate change initiatives and possibly direct regulation by the EPA through the Clean Air Act, under its endangerment finding.

For more details on the bill and an in depth analysis of the Cap-and-Trade title, please take a look at our recent client alert. 

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According to a quote from House Energy and Commerce Chairman Henry Waxman in an E&E article this morning, the Waxman-Markey bill could reach a floor vote inside of 3 weeks.  Speaker Pelosi had set a deadline of next Friday, June 19, for the 8 House Committees still evaluating HR 2454 to conclude their review, but has not indicated when Democrats will bring the legislation to the House floor.  Waxman said yesterday that he wants debate to begin on June 22 and the bill to go to a vote before the July Fourth recess -- "I think the speaker and the majority leader and the administration agree with that timing, and we're going to do all we can to stick to it because after we come back from the July Fourth recess, it is health care for the rest of the month."

The tension in scheduling the Administration's dual priorities of energy and health care seems to be an issue.  Ways & Means Chairman Charles Rangel reported that in the Democratic committee members' meeting with the President this week , the President did not give lawmakers a specific deadline for sending him a climate bill -- a marked contrast with the firm deadline for health care legislation.  Rangel told reporters that in order to concentrate on both climate and health care, the Ways & Means Committee might skip markup of the climate bill and instead work out their concerns with Chairman Waxman before a floor vote or during floor vote, via amendments.

What the bill will look like when when it reaches the floor is still under discussion.  One committee expected to offer substantial amendments on hot-button issues like biofuels and offsets is the House Agriculture Committee.   While the offsets debate may be even more heated than that for the allocation of credits, biofuels may be the first amendment offered.  As Climate Wire reported Wednesday, House Agriculture Committee members are considering a legislative fix for EPA's proposed regulation of biofuels.  At EPA's public hearing on the recent proposal, which involves the requirement of a 100-year long lifecycle analysis for biofuels international impact, testimony from both biofuel advocates and environmentalists urged changes.  Particularly since the lifecycle emissions of petroleum production are not evaluated in the same way, calculation of biofuels' carbon footprints will have a huge impact on whether the Congressional mandate to ramp up biofuel use to 36 billion gallons a year by 2022 can be met. 

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I know it’s hard to believe, but some of you may not have realized that today is World Oceans Day. In connection with World Oceans Day, Senator Jay Rockefeller has written a letter to the White House in support of the concept of “ocean zoning.” Senator Rockefeller will also be holding hearings on the issue tomorrow. Among those testifying will be Deerin Babb-Brott, who is the Assistant Secretary in the Massachusetts Executive Office of Environmental Affairs and is in charge of Massachusetts’ first in the nation ocean zoning effort.

The Massachusetts effort is based on the Oceans Act of 2008, which called for development of a comprehensive ocean management plan. In other words, ocean zoning. Since enactment of the Act, EOEEA has been working on developing the required plan, with assistance from the Ocean Advisory Commission, which was created by the Act to help guide EOEEA’s development of the plan. The plan has yet to issue and, based on recent documents from EOEEA, it may be some time before the final plan sees the light of day.

Notwithstanding the complexities of the issue – or perhaps because of them – Senator Rockefeller apparently believes that federal ocean zoning would be appropriate. He may be right. Issues such as renewable energy and deepwater aquaculture may be of local concern, but do we really want a patchwork of local laws and regulations dictating policy on issues of broad national concern?  If we go that route, it won’t be very long before there is a yet more complicated set of exemptions and preemptions.

I’m sure that Deerin will not be advocating federal preemption of local ocean zoning efforts, but there is a part of me that hopes that Deerin’s testimony is so effective that he talks himself out of a job.

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For those of you looking for a cogent and concise economic analysis of the current debate regarding the distribution of allowances in the Waxman-Markey bill, take a look at this post from Rob Stavins.  Rob makes several important points, but I think that two are most fundamental.  First, with some caveats, how allowances are distributed does not affect the environmental results attained by the program.  Second, the allocation proposed in the Waxman-Markey bill is by no means a “give-away” to industrial interests. 

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As highlighted in yesterday's issue of Greenwire, one of the controversial aspects of the  American Clean Energy and Security Act (ACES) passed by the House Energy & Commerce Committee last night is that 35% of the allocated allowances created in the cap-and-trade program will go for free to the electric power industry.  30% will go to Local Distribution Companies, or LDCs, traditional regulated utilities who sell power directly to consumers, and 5% will be allocated to independent merchant energy generators that sell power to wholesale power markets, primarily in the Northeast, Great Lakes, California and Texas.

Not surprisingly, the allocation between LDCs and merchant generators is the subject of substantial political infighting. Merchant generators own 40% of the nation's generating capacity, but as Greenwire reports, the National Association of Regulatory Utility Commissioners, which represents the LDCs, is campaigning to knock out any share of allowances for merchant generation.  

Following an amendment to ACES that passed Committee yesterday, the emission allowances given to local distribution companies must be used exclusively for the protection of retail ratepayers against rising electricity rates.  In other words, utilities have to pass on the savings from their 30% of allocated allowances to their customers.  Not so for the allowances given to merchant generators, who sell power into the grid, rather than directly to consumers.  Their 5% share could apparently be worth $2.7 billion to $5.5 billion a year, depending on how high the price of carbon allowances are in the program's first years. 

The 5% allocation to merchant generators is seen as necessary to obtain support from House members from Texas and the Midwest who represent a number of coal-fired merchant generators.  Such votes could be critical in a House floor vote, which is the next hurdle for ACES.

Even though ACES was voted out of the Energy and Commerce Committee last night, the allocation debate is not necessarily finished.  Chairman Waxman said he would accommodate Republican requests to have at least one more day of additional hearing testimony over the distribution of emission allowances next month. 

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Congressmen Waxman and Markey today released their proposal for allocating allowances under a cap-and-trade program. At least 15 different categories of entities will receive a piece of the allowance pie. Here’s the list:

Local Distribution Companies –                           30%

Merchant Coal and PPAs –                                      5%    

Natural Gas Distribution Companies –                   9%

States (for home heating oil users) –                     1.5%

Low/moderate income households –                   15%

Energy intensive / trade-exposed industries –    15%

Domestic oil refiners –                                          2%                                                     

Carbon capture / sequestration –                          2%    

Renewable Energy / energy efficiency –             10%

Advanced automobile technology –                       3%

Research and development –                                1%

Tropical deforestation / offsets –                         5%

Domestic adaption –                                             2%

International adaptation/technology transfer –    2%

Worker assistance / job training –                        0.5%

If you think that this adds to more than 100%, you are correct, though it is also true that these numbers vary over time. Most significantly, the first four items above would phase out in the period from 2026.

What’s notable here? The total amount of allowances allocated to LDCs and merchant generators is about what was expected, but of that 35%, the merchant generators may have expected to get more than they did.  We’ll see how the coal industry responds to this proposal. 

The phase-out period is almost certainly more generous than environmentalists expected or hoped for, and is evidence that the vote counters did not believe that the votes would be there for the bill otherwise.  For allowances to utilities and power producers not to begin to phase out until 2026 would be a major victory for the industry.

Obviously, this is not the end; we’ll see over the next few days how the Waxman-Markey proposal is received. The bill itself is scheduled for release later today.

(If the percentages in the columns aren't justified, blame our blog host; I just couldn't make it work and still get this done this century.)

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It seems that news on the behind-the-scenes dance in the House in an effort to bring major energy and climate change legislation to a floor vote by Memorial Day emerges every few hours, changing pundits' predictions and analysis.  Even so, this morning's article by E&E contained enough interesting tidbits to warrant highlighting it here.  

In short, Energy & Commerce Chairman Henry Waxman has set his goal to produce an amended draft of ACES this week, and intends to stick to his Memorial Day deadline, although it remains unclear whether the markup will begin in the full committee or the Energy & Environment Subcommittee.   

E&E reports that lawmakers are focusing on finding consensus in four critical areas: targets and timetables for domestic cuts in greenhouse gas emissions (latest prediction: 14% cut below 2005 levels by 2020); distribution of allowances (latest prediction: at least some allocation during the first 10 to 15 years of the program); use of offsets to ease industrial compliance costs; and a nationwide renewable electricity standard (Waxman has apparently revised his 2025 target from 25% to 17.5%).

E&E also reports on lawmakers' discussions of alternatives and compromises, most interestingly the idea of coupling cuts in CO2 with increases in drilling.  This controversial idea was floated by an unnamed senior Obama official to a reporter for The New Yorker.  As the New Yorker reports, the idea is a "grand bargain" energy deal which would include a "'serious' and 'short term' increase in domestic production -- perhaps opening up for oil exploration places like the waters off the coast of California—that would appease the “Drill, baby, drill” crowd, while also adopting a cap-and-trade plan that could take effect one or two (or more) years after 2012, which is when Obama’s current plan would start."   The official characterized it as "something like T. Boone Pickens and Al Gore holding hands on a broad compromise."  

While Administration officials have not provided any more details and I have seen no reports that Waxman would include such changes in ACES, the move could come from elsewhere within the House.  E&E quotes House Natural Resources Committee Chairman Nick Rahall as saying that "it's certainly my feeling that this is the time to explore those options of exploring oil and gas drilling under protection of certain sensitive areas." 

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Based on the current pace of developments, weekly updates on climate change legislation seem to be about the right frequency. This week’s forecast is bullish on more free allowances.

The news this week has centered on the delay in scheduling a mark-up on the Waxman Markey bill in the house. It has been widely reported that the mark-up has been delayed because the sponsors don’t yet have enough votes to pass the bill in committee. I wouldn’t read too much into the difficulty at this point. It doesn’t mean that a bill won’t get out of committee or won’t get passed. It just means that these are difficult issues, which we already knew. As Senator Reid said: “Health care is easier than this global warming stuff.” Now that’s a quote likely to chill an environmentalist’s heart.

In terms of getting a sense where the substantive terms of the bill are headed, I thought that the most revealing quote was from Representative Gene Green (D-Texas), who apparently told reporters that the mark-up has to wait for another hearing, and that that hearing should take place after the bill’s sponsors fill in the blanks on how allowances will be allocated. This remains the $64,000 question – or perhaps it’s more like the $64,000,000,000 question (that’s a lot of zeros to type). 

We previously reported that the administration has pretty much acknowledged that some allowances would be allocated for free, at least initially, and it is looking more and more as though that will be the case. As each day passes, my prediction regarding the number of allowances that will be allocated for free to existing generators increases.  

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While not the most earth shattering development in recent times, I thought I would mention a new web site which sifts through the Congressional Record and identifies which words, other than common words such as prepositions, have been used the most by members of Congress. The site, capitolwords.org, is maintained by the Sunshine Foundation, which is dedicated to increasing government transparency. 

If you’ve got an obscure issue that you need to follow, it might actually be a very helpful tool. Otherwise, it’s just a few minutes of fun for policy geeks. Which Senator do you think used the word “climate” the most in recent years?

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