CO2 Regulation under the Clean Air Act: Economic Train Wreck, Constitutional Crisis, Legislative Thuggery
Call it an economic train wreck, a constitutional crisis, or legslative thuggery. Litigation-driven regulation of carbon dioxide (CO2) under the Clean Air Act (CAA) is all of the above.
The Supreme Court case of Massachusetts v. EPA (April 2, 2007) has set the stage for a policy disaster. Mass v. EPA’s second anniversary rapidly approaches, and in a Power Point presentation leaked to Greenwire last week, EPA reveals how it plans to respond to the Court. But first, some background on the case and the Pandora’s Box it has created.
In October 1999, a gaggle of environmental groups led by the International Center for Technology Assessment (ICTA) petitioned EPA to regulate greenhouse gas (GHG) emissions from new motor vehicles under CAA Sec. 202.
Although Clinton EPA officials asserted EPA’s authority to regulate GHG emissions (as early as March 1998), and preached the gospel of climate doom, they took no action on the petition, leaving it for the Bush Administration to deal with.
In January 2001, Bush’s EPA issued a request for comment on the ICTA petition. In late August 2003, EPA General Counsel Robert Fabricant issued a memorandum concluding that the CAA does not authorize GHG regulation. Two weeks later, EPA published its denial of the ICTA petition in the Federal Register.
Mass v. EPA
In October 2003, the ICTA gang, joined by the attorneys general of Massachusetts and 11 other states, challenged EPA’s decision in the D.C. Circuit Court of Appeals. Parties filed briefs during June-December 2004. In July 2005, the appelate court held that EPA acted lawfully in denying the petition, but it did not rule on the core legal issue: whether the CAA authorizes EPA to regulate GHG emissions.
Petitioners appealed to the Supremes, who, on April 2, 2007, by 5-4, overturned the appellate court’s decision. The Court held that GHGs are “air pollutants” within the meaning of the CAA, and gave EPA three options: (1) issue a finding that GHG-related “air pollution” “may reasonably be anticipated to endanger public health or welfare,” (2) issue a finding of no endangerment, or (3) provide a “reasonable explanation” why the agency cannot or will not exercise its discretion to make such a determination.
The Court further held that if EPA makes a finding of endangerment, then it has a duty, under CAA Sec. 202, to develop and adopt GHG emission standards for new motor vehicles.
The Bush Administration at first was gung-ho to make an endangerment finding. In his 2006 State of the Union Address, President Bush declared that “America is addicted to oil.” He set a goal of reducing U.S. oil imports 20% in 10 years, and by executive order directed EPA and the Departments of Energy, Transportation, and Agriculture to develop rules increasing federal fuel economy and renewable fuel standards. No law on the books explicitly authorizes EPA to revise the existing standards. No problem, said Bush’s advisors, an endangerment finding would give EPA CAA authority to implement the President’s ”20-in-10“ program. The endangerment finding and associated regulations would also satisfy EPA’s obligations to the Court–a twofer!
There was just one problem. The CAA is a highly interconnected statute. As Attorney Peter Glaser cautioned in congressional testimonies, once you start regulating CO2 under one provision of the Act, you end up having to regulate CO2 under multiple provisions. The endangerment finding would initiate a regulatory cascade that could give the greenhouse lobby everything it had ever demanded–and more. Bush’s EPA could tee up Al Gore’s regulatory agenda on steroids but without any of Gore’s allies on the Hill voting for it or taking responsibility for the compliance burdens and economic fallout, energy realists warned.
For starters, establishing GHG emission standards for new motor vehicles would by definition make CO2 a CAA-regulated air pollutant. As such, CO2 would automatically be ”subject to regulation” under the Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program. Under the CAA, any firm that plans to build a new “major stationry source,” or modify an existing source in a way that would significantly increase emissions, must first obtain a PSD permit from EPA or a state environmental agency.
A PSD source is “major” if it is in one of 28 listed categories and has a potential to emit 100 tons per year (TPY) of a CAA-regulated air pollutant, or if it is any other type of establishment and has a potential to emit 250 TPY.
And there’s the rub. Whereas only large industrial facilities have a potential to emit 250 TPY of air contaminants such as sulfur dioxide or particulate matter, an immense number and variety of entities–office buildings, hotels, big box stores, enclosed malls, small manufacturing firms, even commercial kitchens–have a potential to emit 250 TPY of CO2. A U.S. Chamber of Commerce study estimates that 1.2 million previously unregulated buildings and facilities actually emit 250 TPY of CO2. All would be vulnerable to new PSD regulation, controls, paperwork, and penalties.
To obtain a PSD permit, firms must document their compliance with ”best available control technology” (BACT) standards. Even apart from any technology investments needed to comply with BACT, the PSD permitting process is costly and time-consuming. In 2007, each permit on average cost $125,120 and 866 burden hours for a source to obtain, and $23,280 and 301 hours for EPA or a state agency to process, EPA estimates. No small business could operate subject to the PSD administrative burden.
An even larger number of entities could be swept into the CAA Title V operating permits program, which defines as “major” any source with a potential to emit 100 TPY of a CAA-regulated pollutant. Title V permits typically do not impose new obligations on sources, because the program’s purpose is to facilitate compliance with other CAA provisions. But most of the entities potentially subject to Title V for CO2 have no other CAA obligations. They would be filling out pointless paperwork. And for their pains, they’d also have to pay emission fees (the going rate is $43.30 per ton) for every ton of CO2 in excess of 100 tons.
Petitioners in Mass v. EPA denied the case posed any risks to the U.S. economy, claiming, for example, that, “The NAAQS [National Ambient Air Quality Standards] program is entirely separate from the mobile source program at issue in this case” (Initial Brief of Petitioners, August 31, 2006, p. 28). Not so.
As just explained, GHG regulation of motor vehicles would activate PSD regulation of stationary sources, and PSD is an essential adjunct of the NAAQS program. PSD’s central purpose is to prevent significant deterioration of air quality in areas that comply with NAAQS.
More importantly, the endangerment finding prerequisite to establishing GHG emissions standards for new motor vehicles would be precedential for similar endangerment findings under other CAA provisions, including CAA Sec. 108, the cornerstone of the NAAQS program.
A NAAQS is an allowable pollution concentration standard. It determines how many parts per million (or billion) of a targeted pollutant are permissible in the ambient air. Petitioners in Mass v. EPA asserted that current GHG levels already harm public health and welfare. Similarly, a spate of endangerment petitions filed since Mass v. EPA (to regulate GHG emissions from aircraft, marine vessels, off-road engines, etc.) assert that GHG emissions already harm public health and welfare. These allegations raise an obvious policy question–what kinds of measures would be required to lower GHG concentrations below current levels?
The Kyoto Protocol, even if implemented by all industrialized countries, including the United States, would only barely slow the increase in GHG concentrations. Actually reducing GHG concentrations below today’s levels (~385 ppm) may well exceed human capability in this century. Even outright de-industrialization of the United States might not be enough to lower GHG levels, since most emissions growth in the 21st century is projected to occur in developing countries.
Yet, the CAA requires EPA to ensure that areas designated to be in non-attainment with a “primary” or health-based NAAQS come into attainment within five years, or at most 10 years if EPA grants an extension. Because GHGs are well-mixed throughout the global atmosphere, GHG NAAQS set below current atmospheric levels would turn the United States (indeed, the world) into a single giant non-attainment area.
One consequence of the nation’s non-attainment with NAAQS for GHGs is that EPA would have to regulate major stationary CO2 sources under the Non-Attainment New Source Review (NNSR) pre-construction permitting program, which is more stringent than PSD. The NNSR cutoff for regulation as a major source is 100 TYP, not 250 TPY as would be the case for most PSD-regulated stationary sources. NNSR-regulated entities must comply with Lowest Achievable Emission Rate (LAER) standards, the most stringent in EPA’s arsenal. Moreover, major sources would have to “offset” any emissions increase from a new or modified source by reducing emissions from an existing source somewhere else. Roughly speaking, nothing could be built or expanded anywhere in the United States unless something else shuts down–a de-facto moratorium on growth.
Most troubling, under CAA 110(a)(2)(D), sources in one state are prohibited from contributing to NAAQS non-attainment in another state. Given the long residence time of GHGs in the atmosphere, an argument could be made that almost any quantity of emissions anywhere contributes to NAAQS non-attainment everywhere. Hence, to avoid contributing to NAAQS non-attainment in other states, most sources would simply have to shut down!
Bear in mind that under established legal interpretation, EPA is forbidden to take compliance costs and economic impacts into account when setting NAAQS. In short, applying the NAAQS program to CO2 could turn the CAA into the equivalent of an economic suicide pact.
Absurd, you say? Yes, but the fault lies not in my analysis, but in the premises adopted by the majority in Mass v. EPA. The majority interpreted CAA Sec. 302(g) to mean that anything “emitted” into the ambient air is by definition an “air pollutant” and, thus, potentially subject to EPA regulation. But on that reading, even pollution-free, absolutely-clean air is an “air pollutant,” if it is emitted. That is absurd. Nonetheless, that formalistic definition of “air pollutant,” whereby a thing can be a pollutant even if it does not pollute the air, was the lynchpin of the majority’s (and petitioners’) argument. (For more detail on this, see pp. 5-7 of my comment on the ANPR.)
More importantly, the real issue in Mass v. EPA was not, as petitioners and the majority argued, whether CAA Sec. 302(g) could be interpreted (or tortured) to justify regulating GHG emissions from one subset of mobile sources (new motor vehicles) under one provision of the Act (CAA Sec. 202). The real issue, rather, was whether Congress, when it enacted and amended CAA Sec. 202 in 1970 and 1977, authorized EPA to implement a Super-Kyoto regime under the CAA as a whole. To state this question, is to answer it. Sadly, that question was never squarely before the Court.
EPA’s Advanced Notice of Proposed Rulemaking
It’s unclear when the Bush team decided to mothball the endangerment finding and associated regulations, but a key event was enactment of the Energy Independence and Security Act (EISA) in December 2007. EISA directs federal agencies to implement new fuel economy and renewable fuel standards similar to those proposed in Bush’s 20-in-10 plan. The statute directly and immediately gave the Bush team the authority they needed to curb oil imports. So they put EPA’s draft endangerment analysis and the associated motor vehicle emission regulations under wraps, much to the consternation of Sen. Boxer (D-CA), Rep. Waxman (D-CA), Rep. Markey (D-MA), and numerous environmental groups.
Turnabout is fair play, and just as the Clinton Administration punted the ICTA petition to Bush, so the Bush Administration punted EPA’s Mass v. EPA response to Obama. But whereas Clinton’s EPA simply ducked the ICTA petition, Bush’s EPA in July 2008 published an Advanced Notice of Proposed Rulemaking (ANPR) exploring numerous options and issues connected with potential GHG regulation under the CAA.
The usual suspects denounced the ANPR as a “climate delayer” tactic. However, any fair-minded reader (the ANPR spans 166 pages in the Federal Register plus 11 technical support documents) will see that CAA regulation of GHG emissions abounds with administrative conundrums and economic risks never addressed by petitioners in Mass v. EPA. Bypassing this crucial exploratory analysis would have preempted public debate on the full range of legal, economic, and scientific issues. When EPA published its ANPR and opened a 120-day comment period, it struck a small blow for “good government.”
Not that the ANPR is anti-regulatory or skeptical about climate alarmism. For example, the ANPR warns that global warming will increase smog-related mortality, even though EPA’s own data and reports show three decades of steady progress in reducing smog despite increasing urban air temperatures, and even though EPA regulations already on the books or in the pipeline will eliminate most U.S. air quality problems regardless of how the climate changes.
It’s also obvious from the ANPR that EPA relishes the prospect of dominating federal fuel economy regulation (GHG emission standards being de-facto mpg standards) and is hot to establish New Source Performance Standards (NSPS) for CO2 emissions from power plants and refineries.
Although far more forthcoming than petitioners in Mass v. EPA, the ANPR repeatedly downplays the economic risks of applying CAA regulatory provisions to CO2.
For example, the ANPR estimates that designating CO2 as a regulated air pollutant would produce a tenfold increase in the number of PSD permit applications–from about 200-300 per year to 2,000-3000 per year. This, the ANPR acknowledges, could “overwhelm” the administrative resources of EPA and other agencies, and firms seeking to build or modify sources would “face new costs, uncertainty, and delay.”
But this considerably understates the risks. If just 1% of the 1.2 million facilities that would become “major stationary sources” of CO2 undertake new construction or modifications, EPA and its state counterparts would have to process 12,000 PSD permits per year. The ensuing administrative quagmire would bring new construction and economic development to a screeching halt. PSD for CO2 potentially turns the CAA into a gigantic Anti-Stimulus package.
The ANPR outlines several administrative remedies to shield small entities from PSD requirements, all of doubtful legality. For example, the ANPR proposes to redefine “major” source as a source with a potential to emit 10,000, 25,000, or even 100,000 TPY even though the statute says 250 TPY. Under Chevron v. NRDC, EPA has considerable discretionary authority in interpreting the CAA where the statute is “silent or ambiguous with respect to the specific issue.” But there is nothing ambiguous about 250 TPY.
The ANPR also suggests that an endangerment finding under CAA Sec. 202 need not set a precedent for NAAQS regulation of GHGs, because CAA Sec. 108 lists three factors triggering a NAAQS rulemaking, one of which is that the agency “plans” to produce an analysis known as an air quality ”criteria” document. Thus, the ANPR opines, all EPA needs to do to avoid setting NAAQS for GHGs is simply not plan to do the requisite analysis.
This won’t wash. It is tantamount to saying that EPA can avoid the obligation to establish NAAQS to control “air pollution” from “numerous or diverse mobile or stationary sources” that it has determined ”endangers public health or welfare” just by declining to do the paperwork.
In the 1970s, EPA Administrator Russell Train tried this dodge, claiming that EPA did not have to set NAAQS for lead emissions, because he had “no plan” to produce a criteria document for lead. The Second Circuit Court of Appeals rejected Train’s interpretation, finding that it would make EPA’s mandatory duties under the NAAQS program discretionary at the will of the Administrator. In other words, it would gut the NAAQS program.
What these and several similar (though less blatant) examples in the ANPR reveal is that EPA cannot regulate CO2 under the CAA and avoid the risk of severe economic damage without assuming legislative powers and effectively amending the Act. Mass v. EPA has set the stage for a constitutional crisis, because EPA may have to violate the separation of powers in order to avoid wreaking havoc on the economy.
The key constitutional point, though, is this: We could end up with a regulatory regime more onerous and intrusive than any climate bill Congress has rejected or declined to adopt, yet without the people’s elected representatives ever casting a vote.
WHERE THINGS STAND NOW
EPA’s leaked presentation reveals that the agency will propose an endangerment finding on April 30. There will be a 60-day comment period. Unlike all previous endangerment findings, EPA will not concurrently propose new regulations, but defer the latter to a future rulemaking or rulemakings.
Two things are noteworthy. First, EPA plans to find that “air pollution” related to GHG emissions endanger both health and welfare. This is a departure from the ANPR, in which EPA tried to make a case for finding endangerment only in relation to public welfare.
Bush’s EPA had hoped that if the agency only makes a welfare-based endangerment finding, it would only have to establish a “secondary” NAAQS for GHGs. The hoped-for advantage is that unlike a primary NAAQS, which states must attain in five or at most 10 years, a secondary NAAQS has no prescribed attainment date. Secondary NAAQS must be attained as “expeditiously as practicable,” which, in the case of GHGs, might be 50 years or longer.
But Obama’s EPA will propose endangerment on both health and welfare grounds. This inevitably will encourage litigation to establish primary as well as secondary NAAQS for GHGs, with all the economic peril that entails.
As you’d expect, petitioners in Mass v. EPA still deny that the public has anything to worry about. CAA provisions are not self-executing, they note. EPA must either initiate action under those provisions, or be compelled to do so by litigation. And according to them, nobody–not industry, not EPA, not the “environmental community”–wants to apply PSD to thousands of small sources, or promulgate NAAQS for GHGs.
What this overlooks is that the major environmental groups do not have a monopoly on CAA litigation. There are legions of NIMBY (“Not In My Backyard”) activists who would not hesitate to petition EPA to apply PSD and BACT requirements to halt or delay construction of big box stores, shopping malls, fast-food restaurants, and other development they find offsensive or contrary to “smart growth.”
Also, as noted in a previous post, NASA scientist James Hansen, the world’s leading voice of climate alarm, argues that atmospheric CO2 levels should be reduced to 350 ppm or lower. This viewpoint is gaining traction among eco-litigation groups, notably the Center for Biological Diversity, which recently launched a $17 million litigation campaign to ensure that existing environmental statutes (CAA, Clean Water Act, National Environmental Policy Act, Endangered Species Act) are “fully implemented to regulate greenhouse gas emissions” (emphasis added).
The second noteworthy feature about Obama EPA’s endangerment finding is that it will be the first ever not to be accompanied by proposed regulation. In part, the Obama Administration wants to use the prospect (threat) of future CAA regulation as a spur for Congress to enact cap-and-trade legislation. Energy realists have worried for some time that the greenhouse lobby would use the specter of litigation-driven CO2 regulation under the CAA to frighten industry and congressional fence-sitters into supporting cap-and-trade legislation. The message to cap-and-trade opponents would go something like this: “Pretty nice economy you used to have. Shame if something bad were to wreck what’s left of it. Everybody needs protection. You need protection. It’s called Lieberman-Warner.”
This is legislative thuggery, and energy realists should pounce it whenever it rears its ugly head. Our response should be always, “Take that gun away from our head, and then we’ll debate the merits of your cap-and-trade bill.”
We should be of good courage, because there’s probably another reason Obama’s EPA will issue a stand-alone endangerment finding. The Obama team has to know that EPA cannot control the regulatory cascade once it starts. They also must know that the economic repercussions could be devastating and that they won’t be able to blame G.W. Bush.
So if team Obama wants to play chicken, threatening CAA regulation if we won’t support cap-and-trade, then I say, call their bluff. They don’t want to take ownership of a regulatory nightmare. If they open Pandora’s Box, there will be political hell to pay, and they know it.