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IPI claims that EPA’s response is mandatory under Massachusetts v. EPA, in which the Supreme Court held that 1) greenhouse gases are “air pollutants”; 2) in responding to a petition, EPA responses must have “reasoned justification” or must “conform to the authorizing statute”; and 3) “The harms associated with climate change are serious and well recognized.”

In its petition, IPI requests that the EPA first, make a positive endangerment finding, and second, propose and finalize regulations, pursuant to its “ample authority” under the Clean Air Act, in particular Sections 211 (motor vehicles) and 231 (aircraft). Notably, the EPA recently proposed such a finding for emissions from new motor vehicles.

The IPI espouses a system that creates market-based incentives that allow the market to naturally find the most cost-efficient way to reduce emissions. Because a command-and-control system would prescribe the particular conduct for many actors, IPI claims that this would impose costly requirements on the transportation sector. However, cap-and-trade would allow businesses to adhere to the Clean Air Act, while finding ways to comply at the lowest possible cost. IPI also notes the transparency of this system, and the possible benefits for international trade. A key feature of the proposed system is that allowances are auctioned off, as opposed to a permit give-away system. In short, the emissions cap will raise the cost of fuel, which will send a price signal to conserve and switch to cleaner fuels. According to IPI, the revenues from auctions will offset the price increase, prevent harm to the middle class, and avoid windfall corporate profits.

IPI emphasizes that this comprehensive approach will prevent the EPA from addressing individual petitions piecemeal. Also, IPI warns of a “collision course” with Congress, noting that Congress will likely pass broad cap-and-trade legislation that would supersede any command-and-control mechanisms that EPA creates. In fact, on June 26, the House passed the American Clean Energy and Security Act of 2009 (ACES), which establishes a cap-and-trade system for stationary sources. The IPI therefore claims that its proposed regulations would prevent EPA from wasting time and resources on new command-and-control regulatory measures.

In announcing the CMOA, Sens. Feinstein and Snowe emphasized that carbon market trading will be “integral” to the cap-and-trade system and that the CMOA was “designed to prevent Enron-like fraud, manipulation and excessive speculation in the new federal, state and regional carbon markets that will be established by such a system.” According to the CMOA’s co-sponsors, the bill grants full oversight authority to the CFTC, rather than splitting authority between the CFTC and FERC,

. . . because carbon allowances and carbon derivatives will both be based on cash for paper transactions and will effectively function as a single market. In physical commodity markets, on the other hand, the cash market is based on transactions of cash for a quantity of energy (like oil or natural gas), metal or an agricultural product, and the derivatives market is based on transactions of cash for paper, in which delivery is very infrequent.

In addition to lodging all oversight authority with the CFTC, key provisions of the CMOA would:

• Create an “Office of Carbon Market Oversight” within the CFTC.
   
• Require that within 180 days of enactment the CFTC enter into a memorandum of understanding regarding information sharing and coordination of oversight roles with FERC, the Environmental Protection Agency and all state and regional organizations that operate market-based greenhouse gas emissions control programs.
   
• Require that all trading of carbon allowances and standardized allowance derivatives take place through “registered carbon trading facilities” and be cleared by CFTC-regulated clearinghouses.
   
• Require that “registered carbon trading facilities”:
  • Create an electronic “central limit order book” to ensure every trade is recorded in real time.
  • Publish trading data on at least a daily basis.
  • Use electronic tools to monitor for manipulation on a real-time basis.
  • Establish and enforce rules to assure fair trading.
  • Utilize emergency authority to force traders to reduce positions.
     
• Establish a centralized, electronic database to track all trades and positions across multiple marketplaces.
   
• Prohibit price or market manipulation, fraud, false or misleading statements and excessive speculation.
   
• Authorize the CFTC to conduct investigations, bring cases and use subpoena power to protect the marketplace.
   
• Establish professional standards for registered carbon market brokers, dealers and traders and their associates.

CFTC Commissioner Bart Chilton, who chairs the CFTC’s newly-expanded Energy and Environmental Markets Advisory Committee (“EEMAC”), has estimated that the cap-and-trade market could grow to $2 trillion in five years. Anticipating the possibility of a substantially larger regulatory role, on May 13, 2009, the CFTC appointed 11 new members to EEMAC, including representatives from Exelon Corporation, Harvard University, the Pew Center on Global Climate Change, the Regional Greenhouse Gas Initiative and Public Citizen. (A Webcast of the May 13 meeting is also available.) EEMAC membership also includes representatives from Goldman Sachs, Morgan Stanley, the Chicago Climate Exchange and a range of other organizations.

Sens. Feinstein and Snowe introduced the CMOA one day before the Senate began hearings on climate-change legislation. On July 7, 2009, the Senate Environment and Public Works Committee, chaired by Sen. Barbara Boxer (D-Calif.), convened a hearing on “Moving America toward a Clean Energy Economy and Reducing Global Warming Pollution: Legislative Tools.” The details of the committee’s ultimate legislative proposal, including the manner in which it addresses oversight authority for carbon-market trading, remain to be seen.

First, the proposed provision in ACES was broader than the citizen suit provision in the CAA. The ACES provision would have covered actual or reasonably expected harm from any effect of air pollution "currently occurring or at risk of occurring" regardless of whether a pollutant is a greenhouse gas or the effect is climate-related.

Second, the remedies available under the two provisions differ. The current CAA provision only provides for enforcement as a remedy; there is no damage remedy. The ACES provision would have provided for a damage remedy of $75,000 per lawsuit. Moreover, like the current CAA provision, the ACES provision would have allowed the recovery of costs of litigation, including reasonable attorneys fees.

Third, the ACES provision would have modified the standing requirement for a citizen suit. Standing under the CAA provision is limited to those who are actually harmed or face imminent harm. The ACES provision would have watered down the standing requirement in two significant ways. First, a plaintiff would not have needed not show imminent harm under the draft provision, only that the plaintiff "reasonably expects" to suffer harm. This subjective standard, focused on the mind of the plaintiff rather than on a more objective look at whether harm is imminent, would have made this standard difficult to apply (and more difficult for defendants to address). Second, the standard for showing "harm" would also have been diminished: the ACES provision talks about harm "at risk of occurring" (again, no notion of imminence, no measure for the significance of that risk), and states that harm includes "incremental exacerbation" of risk associated with even a "small incremental emission of any air pollutant." A final change under the ACES provision would have been that the risk need not be widely shared. As a result, the ACES provision would not have just lowered the bar for harm allegations; it would have put the bar on the ground.

The bottom line is that the ACES citizen suit provision would have been problematic for business defendants. While the provision included some limitations (e.g., citizen suit plaintiffs would have had to demonstrate violations of emission standards), even minor violations of emission standards with no actual harm could have spurred a plaintiff, encouraged by attorneys with hopes of recovering fees, to seek abatement and damages. The ACES provision likely would have spawned significant additional litigation because of the elimination of the requirement to show imminent or actual harm, which would have removed what has historically been a significant hurdle in citizen suit actions.

The citizen suit provision was set forth in Section 336 of the discussion draft version of ACES, and it would have given environmental groups and other activists standing under the Clean Air Act to “commence an action” when someone has “suffered, or reasonably expects to suffer, a harm attributable, in whole or in part, to a violation or failure to act referred to in subsection (a).” Harm under this section was defined as: “For purposes of this section, the term ‘harm’ includes any effect of air pollution (including climate change), currently occurring or at risk of occurring, and the incremental exacerbation of any such effect or risk that is associated with a small incremental emission of any air pollutant (including any greenhouse gas defined in Title VII), whether or not the risk is widely shared.”

The citizen suit provision in ACES generated significant controversy. A staff member in the office of Sen. Jim Inhofe (R-OK) had warned that the subsection could result in a flood of “lawsuits filed by environmental groups who perceive some risk—and they undoubtedly will perceive it” and that “this provision will further empower the eco-trial bar to fight the ravages of climate change and the businesses it dislikes, with no effect on the former and disastrous consequences for the latter.” However, supporters of the bill, such as the Center for Progressive Reform, offered a contrasting view, arguing that an “extremely positive aspect of the bill is its approach to citizen enforcement of the laws. In addition to government enforcement provisions, the bill includes strong citizen suit provisions. It reaffirms the importance of citizen enforcement of the environmental laws against both potential violators and agencies that have the responsibility to implement the regime. Citizens have traditionally had this enforcement power under the environmental laws, but it has recently been threatened by a series of judicial decisions. The Waxman-Markey bill responds to these judicial decisions and strives to ensure the vitality of citizen suits.”

Concerns about a “landslide of litigation” appear to have been behind the elimination of the citizen suit provision. In the Committee on Energy and Commerce’s Report on ACES, the Minority noted that: “If citizen suits are allowed to go forward against any person, it is likely that there would be a substantial amount of new climate change litigation brought against companies throughout the United States in all of the sectors of the economy regulated by the bill. While a windfall to lawyers, such litigation would impose significant costs and burdens on those companies in addition to the already enormous direct and indirect costs imposed by the bill. An amendment to limit citizen suits would prevent excessive or unwarranted litigation and protect US companies and ultimately US jobs and consumers.”

The far-reaching, 648-page draft bill sets forth standards and incentives designed to promote clean energy and energy efficiency while reducing greenhouse gas emissions. Employing a comprehensive approach, the legislation is intended to enhance US energy independence, reduce energy costs to American consumers, create green jobs, and curb global warming pollution. The draft bill’s global warming regime is modeled largely on US Climate Action Partnership (USCAP) recommendations from the Blueprint for Legislative Action. To reduce global warming emissions, the bill broadly outlines a market-based cap-and-trade program with aggressive carbon reduction standards and offset-availability to covered entities. Relative to 2005 levels, the bill calls for reductions of 3% by 2012, 20% by 2020, 42% percent by 2030, and 83% by 2050.

The bill’s energy provisions require that 25% of the US energy supply be generated from renewable sources such as wind, solar, and geothermal by 2025. In addition, the bill promotes development of carbon capture and sequestration technology (CCS), modernization of the US electrical grid, increased production of electric vehicles, and heightened energy efficiency across all sectors of the economy, including building, appliances, and transportation. To facilitate transition to a clean energy economy, Title IV of the bill subsidizes domestic education and training for green jobs as well as exportation of clean technologies to developing countries abroad.

The Waxman-Markey draft has sparked a chorus of approval among commentators and policymakers alike. In an email statement, White House spokesman Ben LaBolt affirmed that “President Obama is committed to an energy policy that launches a new sector of clean energy jobs, makes our economy more competitive, and weans the nation off its dependence on foreign oil,” adding that “[i]t is clear that Chairman Waxman’s legislation would advance all of those goals.” Echoing the response from Pennsylvania Ave., Dr. Richard H. Moss, vice president for climate change at the World Wildlife Fund issued a statement praising the draft as “a major first step toward a strong cap and trade bill that will cut emissions, jumpstart a new clean energy economy and strengthen the ability of the Obama administration to negotiate a fair and effective global climate deal this December in Copenhagen.”

Opponents of the bill do not share Dr. Moss’s optimism. House Minority Leader John Boehner (R-OH) claimed that bill, as proposed, would “raise energy taxes in the midst of a serious recession.” Likewise, Sen. Joe Lieberman (I-CT), a longtime supporter of climate legislation, opined that the draft bill’s emissions targets “impose too much of a burden [on industry]” making it unlikely the bill would garner the 60 votes necessary to pass in the Senate.