Greenhouse Gas Limits: When, Not If

President Obama isn’t the only one pushing for legislation to control greenhouse gas emissions. Even businesses prefer it to a strictly regulatory approach.

By Andrew C. Schneider, Associate Editor, The Kiplinger Letter

March 5, 2009

Think greenhouse gas legislation will be expensive? Try regulation instead. The Environmental Protection Agency will soon officially declare that carbon dioxide emissions are a threat to public health and welfare because of their role in causing climate change. That finding will recognize CO2 emissions as a pollutant, triggering the start of the rulemaking process. And under the terms of the Clean Air Act, the agency is legally barred from considering cost as a factor in developing emission controls.

The EPA has been under orders to issue such a finding for nearly two years, since the Supreme Court rendered its verdict in Massachusetts v. EPA. In that case, a group of 12 states, three cities, one U.S. territory and 13 nongovernment organizations sued the EPA to force it to regulate four greenhouse gases, including CO2. The agency dragged its heels on complying with the Supreme Court ruling until the end of the Bush administration. Indications from White House climate change czar Carol Browner and EPA Administrator Lisa Jackson are that the announcement will come next month, either on the second anniversary of the Supreme Court ruling (April 2) or on Earth Day (April 22).

The prospect of regulation is a potential nightmare for businesses. Any initial rule would deal with auto emissions, the focus of Massachusetts v. EPA. That could turn into a double whammy for embattled carmakers, as it would come in addition to, rather than in place of, the higher corporate average fuel efficiency standards the Obama administration is also considering. While CAFE standards mandate fuel efficiency, the EPA rule would target the carbon content of such emissions, much as California's proposed greenhouse gas regulation would do.

Once it has regulated auto emissions, the EPA would come under tremendous pressure to develop similar rules governing any significant source of CO2 emissions. Very quickly, that would pull in electric utilities, steel mills, cement plants and a range of other carbon intensive manufacturers. Even comparatively small sources -- such as residential buildings and schools, each of which often has its own boilers -- would be subject to such rulemaking.

Not only would the cost of this approach be immense, but it isn't clear how well the agency would handle the burden. "The Clean Air Act wasn't designed to regulate the emissions we're talking about, where the sources are incredibly widespread in the economy," says Michael Levi, director of the Council on Foreign Relations' Program on Energy Security and Climate Change.

Many environmental groups are also less than enthusiastic about a regulatory approach. They worry that any new rules would get tied up in court challenges that go on for years, and they fear that time is already running out to address climate change before its effects become irreversible.

Their concerns will add to pressure on Congress to forge its own solution. "Congress has the ability to modify laws," says Stephen Seidel, vice president for policy analysis and general counsel for the Pew Center on Global Climate Change. "If they think there's a better way to regulate greenhouse gases, they're welcome to move forward."

The most likely alternative would be an economywide cap and trade system as an amendment to the Clean Air Act, defining the extent of the EPA's authority to regulate greenhouse gas emissions. Congress has proposed several versions of this in recent years, but each effort died in the face of opposition from the Bush White House. President Obama, by contrast, specifically calls for such legislation in his budget, proposing to reduce greenhouse gas emissions to 14% below 2005 levels by 2020 and to 83% below 2005 levels by 2050.

Rep. Henry Waxman (D-CA), chairman of the House Energy and Commerce Committee, will take charge of drafting and shepherding a bill through the lower chamber, with strong support from Speaker Nancy Pelosi (D-CA). In the Senate, Environment and Public Works Committee head Barbara Boxer (D-CA) will take the lead. Waxman and Boxer have both stressed that they aim to pass legislation in a matter of months. The combination of Republican opposition and competing priorities for floor time, such as the budget and health care reform, will delay action on climate change. But odds are that a bill will pass either late this year or early in 2010, months before any EPA regulation of CO2 emissions will be finalized.

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