Environmental Law ReSource : Environmental Lawyer & Attorney : Reed Smith Law Firm : Climate Change, Sustainability

Federal Climate Change Legislation is Dead in Congress
 

What's Left of Energy Measures in the 111th Congress and What Will We Get Before the August 9 Recess?

Senate Majority Leader Harry Reid (D-Nev.) has declared that the proposed legislation he will bring to the Senate floor this week will address energy efficiency and will encompass issues related to the oil spill. A draft of the bill, titled "Clean Energy Jobs and Oil Company Accountability Act," discloses that such a bill will raise the $75 million spill-liability cap for oil companies under the short title "Big Oil Bailout Prevention Unlimited Liability Act of 2010." Further, Division C of the bill would provide $5 billion in incentives for the "Home Star" energy-efficiency retrofit program, which would provide sale rebates to encourage homeowners to make energy efficient upgrades. Further, the bill would provide tax breaks for natural gas vehicles and electrification of transportation infrastructure (Division B), and boost money for the Land and Water Conservation Fund (Division D).
In sum, the Senate is moving toward an energy measure that addresses offshore drilling and energy conservation measures. Would the president sign such a bill? Likely yes.
 

Will There be Action on Comprehensive Climate Legislation in September or in "Lame Duck" November Congressional Activity?

Probably not. Congress is expected to wrap up major legislative action by early September, at the latest – and most say that if any action is to occur, it will occur before the August 9 recess. As indicated above, there will be no comprehensive climate change legislation before the August 9 recess. Following the August 9 recess, the fall campaign season begins for the midterm Congressional elections and the Senate likely would lose focus on GHGs.
 

There is the possibility of Democrats adding cap-and-trade provisions to a House and Senate energy conference during the November "lame duck" session of Congress. The lame-duck session occurs after the November election, when much of the political pressure on lawmakers has dissipated.
 

Some observers have speculated that the House-passed Waxman-Markey bill (that includes cap and trade) could be back in play during conference, or that Democratic leaders could use a conference to ratchet up the climate provisions in a final bill. However, Republican leadership is taking pains now to ensure that does not happen. Sen. Mike Johanns (R-Neb.) recently introduced an amendment that would require the support of two-thirds of the Senate, or 67 votes, to include cap-and-trade climate legislation in a House-Senate conference report if the Senate has not already debated and approved it with the normal 60-vote threshold.
 

There is also the possibility of Congressional preemption of USEPA action. West Virginia Sen. Jay Rockefeller, a Democrat, has proposed suspending the EPA's greenhouse gas regulations for two years. Reid has not yet announced whether he will take up Rockefeller's amendment before the end of the year. Reid may face pressure to do so from within his own caucus, as several moderate Democrats voted against Sen. Lisa Murkowski's (R-Alaska) resolution to revoke EPA's "endangerment finding" on carbon emissions because they were promised a later vote on Rockefeller's toned-down version.
 

But Federal Climate Change Lives at USEPA: The Agency is Moving Ahead with Technological Controls

The Endangerment Finding

On December 7, 2009, in response to the decision of the Supreme Court in Massachusetts v. EPA, 549 U.S. 497 (2007) that GHGs were air contaminants, the USEPA Administrator made two distinct findings regarding GHGs. The first, known as the Endangerment Finding, is applicable to stationary and mobile sources and concludes that GHGs threaten (endanger) the public health and welfare of current and future generations. The second finding, known as the Cause or Contribute Finding, states these same GHGs, when emitted from new motor vehicle engines, cause or contribute to GHG pollution that threaten public health and welfare. See Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202 of the Clean Air Act, Final Rule, 74 Fed. Reg. 66496 (December 15, 2009). The Endangerment Finding has the effect of triggering USEPA action under the stationary source provisions of the Clean Air Act. The Endangerment Finding has come under attack both through petitions to reconsider and legal challenges. On June 18, 2010, the District of Columbia Circuit Court of Appeals decision set aside one group of challenges to the Endangerment Finding until EPA considers pending petitions to reconsider the Endangerment Finding.
 

Mandatory GHG Emission Reporting Rule

Prior to the issuance of its Endangerment Finding, on September 22, 2007, USEPA adopted a Rule (40 C.F.R. Part 98) requiring the mandatory reporting of greenhouse gases from certain sources that emit 25,000 metric tons or more of GHGs per year. USEPA's mandatory reporting regulations do not require sources to control their GHGs emissions, but it was not long after the initial rules were promulgated that USEPA moved in that direction, further pressuring Congress to act.
 

 USEPA Acts to Control GHG Emissions from New or Modified Stationary Sources: The GHG 'Tailoring' Rule

 
On May 13, 2010, USEPA issued a final rule setting thresholds for sources of GHGs that defined when permits will be required for new sources under the Prevention of Significant Deterioration ("PSD") provisions of the Clean Air Act. This rule applies only to relatively large commercial sources of GHGs and is to be implemented in two steps.

The first step (January 2, 2011 through June 30, 2011) will require GHG sources subject to PSD permitting because of other types of emissions to also address GHG emissions. For these projects, GHG increases of 75,000 tpy will, inter alia, trigger the requirement that best available control technology ("BACT") is to be used to control GHG emissions.

In the second step (July 1, 2011 to June 30, 2013), PSD permitting will cover new facilities that emit GHG emissions of at least 100,000 tpy, and modified facilities that increase emissions by at least 75,000 tpy, even if they do not exceed the permitting thresholds for any other pollutant.

Requirements for new sources that are built after June 30, 2013 have not been established by USEPA, but the Agency has said it would undertake another rulemaking in 2011 on a third step for phasing in GHG in which it will address whether certain smaller sources can be permanently excluded from permitting.

This rulemaking is known as the "tailoring rule" because it limits which facilities would be subject to PSD permitting. USEPA promised to provide states with guidance related to BACT requirements for GHG sources.

In the absence of ambient air quality standards for GHGs, it is difficult to see how the Tailoring Rule will be justified under the PSD provisions of the Clean Air Act.

USEPA Cap-and-Trade Programs

USEPA has a number of successful cap-and-trade programs in place. The oldest and most successful is its Acid Rain allowance trading program designed to reduce sulfur dioxide emissions for the utility sector. It was established under Title IV of the Clean Air Act and could be a model for a GHG trading program, particularly if it is limited to electric utilities and retains the simplicity of the Acid Rain Program. There are major differences, however, between the comprehensive, economy-wide cap-and-trade programs proposed by Congress and the Acid Rain Program. Most notably, the Acid Rain Program allows no offsets. Offsets, or emission reduction credits from non-covered sources in a cap-and-trade program, are a large part of many of the economy-wide cap-and-trade programs proposed in Congress, and are widely seen as a great tool for economic development and as a way to "bring in" non-covered sources under the cap. So far, however, USEPA has eschewed cap and trade as a regulatory scheme to regulate GHG and has decided to proceed with technological controls perhaps, in part, because it believes that will encourage industry to support the more flexible cap-and-trade legislation – and, in part, because of USEPA's recent woes in the Federal Circuit Courts of Appeal with getting approval of the Clean Air Interstate Rule ("CAIR") and its progeny (discussed below).

USEPA's Cap-and-Trade Programs Vacated

If USEPA does go ahead and regulate greenhouse gases by a cap-and-trade system, it must consider how to do so with a plan that will survive judicial review. Since 2005, USEPA has seen Bush Administration cap-and-trade programs to reduce mercury, and nitrogen oxide and sulfur dioxide emissions, vacated by the D.C. Circuit Court of Appeals. The Clean Air Mercury Rule ("CAMR") and the CAIR both would have utilized a cap-and-trade system. Both approaches were rejected by the D.C. Circuit Court of Appeals: (1) CAMR was vacated in 2007, NRDC v. EPA, 489 F.3d 1364 (D.C. Cir. 2007); and (2) CAIR was vacated in 2008, North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008). The U.S. Circuit Court of Appeals, however, reinstated CAIR – including the cap-and-trade system – until USEPA issued a new rule, 531 F.3d 896, 901 (D.C. Cir. 2008). On July 6, 2010, USEPA released a draft of the proposed replacement rule, the Transport Rule. It contains limited cap-and-trade provisions. It is obvious that if USEPA decides to adopt a cap-and-trade program without the benefit of legislation, it must do so very carefully. It is therefore likely that if USEPA moves forward to regulate GHGs from the utility and manufacturing sector, it will be under a "command and control" approach and technological (BACT) limitations.

Conclusion

The next few weeks will likely solidify the fact that there will be federal regulation of emission from GHGs sources, but by everyone's "second best" source choice, USEPA. It is important to note that a failure by Congress to come to a consensus on regulating GHG emission leaves the probability (some may say certainty) of GHG emission controls by USEPA in the industrial and utility sectors starting in January 2011.

Also, the leaders of the AWG-KP were asked to name their biggest frustration so far in the negotiations, and all unanimously agreed that “lack of time” haunted them.  If it is to meet its mandate under the Bali plan (again, see Day 2 post), the AWG-KP only has two days to finalize negotiations and report to the COP.  AWG-KP leaders admitted there was still no consensus on major issues: what gases would be covered under the Kyoto Protocol in the new compliance period, what the length of time was for the new compliance period, the base year applicable to the new compliance period, and most important, the reduction commitments by Annex B countries (remember, not the United States) for the new commitment period. 

The most interesting question came from the floor regarding Canada’s lack of compliance and what, if anything, the AWG-KP was doing about it in this or the next compliance period. The Chair answered quickly and correctly that the commitment period under Kyoto Protocol ends in 2012, followed by a true-up period that ends 2015. So it’s not until 2015 that any determinations regarding non-compliance can be made. If there is a party in non-compliance, the Chair said there was a “complex committee” who would deal with that. He joked, “Thanks for the heads up” regarding Canada and they would be on the lookout for Canada’s compliance.

USEPA and its Endangerment Finding: Still in the News

Also today, David McIntosh, USEPA’s Associate Administrator in the Office of Congressional and Intergovernmental Relations, addressed BINGOs.  Perhaps to allay industry’s fears of little transparency if USEPA is solely responsible for regulating GHGs and in contrast to many expert opinions that the Endangerment Finding is “the most significant” action of USEPA in recent years, Mr. McIntosh stressed that the Endangerment Finding triggers three (and only three) USEPA actions under the Clean Air Act.  First, he said it triggered the GHG reporting rule.  This might be a bit disingenuous as my understanding was the GHG reporting rule was triggered by a congressional mandate buried in a budget bill.  Nonetheless, in an attempt to preempt challenges to the reporting threshold of 25,000 pounds, Mr. Mcintosh explained that the mandate required reporting at “reasonable” level and USEPA set that at 25,000 carbon dioxide equivalent, or roughly 2300 times the carbon footprint of the average US household. 

Second, Mr. McIntosh explained that the Endangerment Finding required USEPA to take steps under the Clean Air Act to regulate mobile sources. To meet this mandate, USEPA proposed (in September 2009) and will finalize in March 2010 the rules for light duty vehicles for model years 2012-2016.  Mr. McIntosh clearly inferred that these were the only rules USEPA would publish - that this covered all mobile sources.  This is clearly disingenuous as Title II of the Clean Air Act covers all mobile sources (that is, anything with wheels, aviation included) not just light duty vehicles.  Finally, McIntosh explained that the only other automatic implication of the Endangerment Finding is that once the light-duty rule is finalized (that is, as of March 2010), any new (or major modification to an existing) large stationary source must include GHGs in the best available control technology (BACT) demonstration for permitting.

Most experts agree it will be harder for Congress to act to preempt USEPA with regard to regulating GHG from stationary sources once USEPA actually starts to regulate GHGs from stationary sources, so one could view the March 2010 date stated by Mr. McIntosh as a deadline given by USEPA to Congress and industry, that is, if you want cap and trade, pass it by March 2010 – otherwise you’ll get BACT and command and control permitting.  To ease industry’s fears with regard to BACT permitting, USEPA is preparing guidance.  Such guidance will focus on “available” technology, and Mr. McIntosh specifically said, for example, that the Agency would not consider carbon capture and storage as “available”.  In fact, the guidance will likely rely on merely requiring state of the art efficiency for existing stationary sources rather than require (at least immediately) any new control equipment for GHGs.  Mr. McIntosh also stated that USEPA will be coming out with carbon capture and storage regulations under the Safe Drinking Water Act, but such regulations will not address any CERCLA and RCRA concerns that may arise under carbon capture and storage.

Instead of Marvin Gaye, the Secretary of Interior Sings from the US Pavilion

Today at the US pavilion, Secretary of Interior Ken Salazar (accompanied by Deputy Secretary of Interior, David Hays) addressed a SRO crowd, stating the US understands the danger that climate change presents and that the United States is committed to confronting that danger “together with our partners in the international community”. As for its part to combat climate change, the U.S. Department of Interior (DOI) has three roles: (1) promote renewable energy (particularly mentioned at least in the near term was solar and wind, although nothing was ruled out), (2) identify the right places on public lands for carbon capture and storage, and (3) promote certain adaption measures (address shifting water supplies, wildlife corridors, and raising sea levels).  Specifically, Secretary Salazar stated that by the end of 2010, DOI expects to have more than 5300 MW worth of new solar and wind projects ready for construction - enough to meet the needs of 1.6 million houses and create 56,000 new jobs.  He elaborated on DOI’s recent announcement to open up a new office for renewable energy permitting in the Atlantic states, to promote, among other things permitting for wind energy on the outer continental shelf in Delaware and New Jersey.  In conclusion, Secretary Salazar stated his belief that those who believe climate change is not real are “wrong”, and that as a nation we will pass comprehensive energy and climate change legislation, we will build a clean energy future, and we will establish a comprehensive international framework to address GHGs.

So with that, it’s time to head for the best tasting “kaffe” I can find.

While it takes two in Copenhagen, it also takes two in Washington, DC. After Laurie Fulton, U.S. Ambassador to Denmark introduced USEPA Administrator Lisa Jackson, Ms. Jackson’s first comment was to note that “each of us” has responsibilities regarding GHG reduction to “make up for lost time”. She then touted USEPA accomplishments in addressing responsibilities to this point – the Administration’s Clean Energy incentives including $80 billion in renewable energy, the largest such investment in renewable energy in history, Energy STAR, Clean Cars program, GHG reporting requirements, and newly published Endangerment Finding. 

At the mention of the last, the room erupted into spontaneous applause. But Administrator Jackson was careful to clarify the significance of the Endangerment Finding. She stated that 2009 marks the year that the United States “seriously addresses” climate change, and stressed that USEPA only intends to continue as it always has under the Clean Air Act to address GHG - that is, to take “reasonable efforts” and “meaningful commonsense steps” to address GHG under the Act. She stressed that the Administration still expects to “work closely with Congress to pass Clean Energy reform” because only through Congressional action can the US get economy-wide legislation that sends a clear signal regarding the United States’ commitment to GHG and accomplish the buy-in that is necessary for national legislation through “give and take”. What does this mean? Again, it takes two. 

It also means that the Endangerment Finding opens the door to USEPA regulation of GHGs under existing regulation through the Clean Air Act and, although a blunt tool, technically no congressional action would be necessary to move forward with GHG regulation in this country. So when President Obama shows up here for negotiations next week, it is not necessary for him to only agree to GHG limits that Congress would agree to. But on the international level, Congress still holds the upper hand, because Senate approval (by a two-thirds vote) is required to ratify any international treaty. 

So unless Administrator Jackson wants a repeat of what happened in Kyoto (delegation agrees to certain limits, only to have that agreement repudiated by Congress), the President must be careful from a political standpoint how he uses the Endangerment Finding. And based on Ms. Jackson's statement, the Administration is carefully signaling that regulation of GHGs in this country is “both/and” not “either/or” when the question is whether Congress or USEPA will regulate GHGs. Ms. Jackson also took pains to calm what might be jittery corporate nerves (corporation worry about the “lack of transparency” if USEPA solely has authority over regulation of GHG) by stating at least twice that any move by USEPA to regulate GHG under the Clean Air Act would be through “reasonable” and “common sense” approaches that has served as the hallmark of regulation under the Clean Air Act since its inception in 1970. 

So the Endangerment Finding should not be veiled as a red flag to be waived in the face of Congress with a warning that USEPA will act in the face of continued congressional inaction. Nor should it be viewed as a carte blanche pass for negotiation of the US delegation at the COP. Rather, according Administrator Jackson, it is merely a “clear signal” (to other countries and industry) that the United States “is on the road to putting price on carbon”. The Administrator also took a moment to refute the recent attack on climate science (i.e., Climategate) saying that climate change is a household word and that the data and the science behind it has been extensively “peer reviewed”. This statement anticipates the likely court challenge to the Endangerment Finding that will make the argument that there is no “scientific basis” for such a finding.

Potentially, USEPA’s endangerment finding could trigger a series of steps by the Agency beginning with the designation under the Clean Air Act of greenhouse gases as “criteria” air pollutants and concluding with development of new source performance standards for major categories of new and modified stationary pollution sources along with state implementation plans which contain enforceable emission controls for existing pollution sources within individual states. See Sections 108(a)(i), 111 and 110(a) of the Clean Air Act. On December 2, 2009 in anticipation of the endangerment finding the Center for Biological Diversity and an organization called 350.org filed a petition with USEPA asking the Agency to go forward and regulate greenhouse gases pursuant to the provisions of the Clean Air Act. Petitioners propose that EPA establish national primary and secondary pollution “caps” for greenhouse gases pursuant to Section 109(a) of the Clean Air Act and expeditiously facilitate and aid the states in the state implementation process. This petition has been criticized within the environmental community as being counterproductive to the development of comprehensive legislation.

            USEPA’s decision to announce its action has two apparent purposes. The first is to encourage the House and Senate to move forward with climate change legislation because it is generally seen in most quarters that, if USEPA undertakes to control greenhouse gases under the Clean Air Act, it will bring litigation, uncertainty and more onerous requirements than a comprehensive economy-wide legislative approach. At present both the House and Senate bills being debated contain provisions which would prevent or limit USEPA’s regulation of greenhouse gases under the Clean Air Act, so a vote for the legislation could allow legislators some cover even if it had provisions that were not constituent friendly. The second apparent purpose is that yesterday was the first day of the United Nations Climate Change Conference in Copenhagen and USEPA’s action will help President Obama reinforce his leadership position in Copenhagen, and according to Ms. Jackson will demonstrate to the world the United States’ strong commitment to action on climate change. Reed Smith attorneys are attending the conference as delegates.

            The greenhouse gases covered by the endangerment finding are carbon dioxide, methane, nitrous oxide, hydrofluoro carbons, perfluorcarbons and sulfur hexafluoride.

A complete review -- including White House consent -- is expected to be completed by April 10 and the proposal officially signed by EPA Administrator on April 16, according an internal document presented to White House officials earlier this month and leaked to the news media. The endangerment proposal would be subjected to a 60-day public comment period after publication in the Federal Register on April 30 before moving into the final rule stage.

A review of the leaked internal EPA documents on this issue reveals that the endangerment finding proposes to address all six GHGs listed under the Kyoto Protocol as a group (rather than individually) and not just the four transportation-related GHGs. As a practical matter, the finding would pave the way for federal regulation of motor vehicle emissions of GHGs but it could also have ramifications for the future regulation of GHGs from all stationary sources under the CAA, including power plants, oil refineries, cement plants and other factories.