EPA endangerment finding and petition for review - the court battle over GHG regulation begins
On December 23, 2009, a Petition for Review was filed in the U.S. Court of Appeals for the D.C. Circuit challenging the US Environmental Protection Agency’s (USEPA) final action and its December 7, 2009 findings that: 1) new motor vehicles and engines cause or contribute to greenhouse gases; and 2) greenhouse gases in the atmosphere threaten public health and welfare of current and future generations. (Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act).
Many of the same companies that filed the Petition are part of a coalition of companies and trade associations that submitted over 133 pages of comments in late June 2009 challenging the Proposed Rule for USEPA’s findings. The coalition questioned the process USEPA used to support its Findings. In addition the coalition asserted that USEPA relied primarily on synthesis reports published by the Intergovernmental Panel on Climate Change (IPCC) and U.S. Climate Change Program – not on underlying science and data. The coalition believes the synthesis reports are insufficient, uncertain, and inadequate to support the findings regarding manmade greenhouse gases and global warming. The coalition also asserted that USEPA did not consider evidence from scientists that disagree that all or most of the climate change that has occurred in the last few centuries is due to human causes.
The timing of the Coalition’s June comments and Petition For Review is worth noting in light of the fact that the USEPA findings came out just before the United Nations Climate Change Conference in Copenhagen (held on December 7th through the 18th), just after the November 23 disclosure that data had been taken from the Climatic Research Unit (CRU) of University of East Anglia and the October 2009 petition filing by the Competitive Enterprise Institute (CEI) to reopen the proceedings for the EPA’s Proposed Findings because the CEI was concerned about evidence concerning the destruction of data at the CRU. Lastly while the USEPA denied the CEI’s request, the CRU is now in the process of doing an internal review and expects results of its review in Spring 2010. CRU stated that the purpose of the review is to determine whether there is any evidence of the manipulation or suppression of data, which is at odds with acceptable scientific practice and may therefore call into question any of the research outcomes.
Given all of the above, it is likely that the comments by coalition of companies mentioned above, the CEI, and others (including OMB) will likely be a road map of the issues that will be addressed in the Petition motions to be filed in February 2010. Clearly, the battle in the courts over how to regulate greenhouse gases is just beginning.
EPA makes endangerment finding for greenhouse gases
In a bold move that attempts to force the Senate’s hand on climate change legislation, the U.S. EPA today announced a final rule that regulates greenhouse gases as an air “pollutant” under the federal Clean Air Act. In announcing the rule, Administrator Lisa Jackson justified the rule by stating that there is an overwhelming amount of scientific studies and evidence showing that greenhouse gas emissions are “deteriorating the natural balance in our atmosphere and hurting our climate.” EPA's decision to regulate greenhouse gases as a pollutant, however, has the potential to spin out of control, triggering other areas of the Clean Air Act, such as Prevention of Significant Deterioration and New Source Review standards, which could delay thousands of new construction projects nationally by imposing time-consuming and stringent permit requirements at a time of near historic unemployment.
In its 284-page final rule, EPA made the much disputed “endangerment” finding that current and projected concentrations of the mix of six key greenhouse gases -- carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6) -- in the atmosphere threaten the public health and welfare of current and future generations. EPA also finalized its “cause or contribute” determination under the Clean Air Act for greenhouse gases from new motor vehicles and motor vehicle engines by finding that these sources contribute to the atmospheric concentrations of greenhouse gases and hence to the threat of climate change. The final rule may be challenged in the U.S. Court of Appeals for the District of Columbia within 60 days of publication in the Federal Register.
EPA’s final rule is certain to pressure the Senate to act on climate-change legislation. The House of Representatives already passed the American Clean Energy and Security Act ("ACES," H.R. 2454, Waxman-Markey) bill by a very narrow margin in June, but the outcome in the Senate is uncertain with a number of Democrats and Republicans from key energy states opposed.
NYU Law School sponsors cap-and-trade petition; proposes market-based approach to controlling motor vehicle emissions
The Institute for Policy Integrity (IPI), a nonprofit advocacy think-tank organization at NYU School of Law, has filed a petition for rulemaking with Lisa P. Jackson, the Administrator of the EPA. The petition proposes a cap-and-trade system to control greenhouse gas emissions from fuels used in the transportation sector. The petition is apparently the first to address emissions from motor fuels. The comprehensive proposal encompasses emissions from motor vehicles, non-road vehicles, and aircraft. IPI emphasizes the benefit of a market-based approach to emissions control, as opposed to a “command-and-control” system. The petition reflects the IPI’s lengthy April 2009 report that assessed the EPA’s options for regulating greenhouse gas emissions.
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.
House Agriculture Committee contributes to a bumper crop of proposed climate change legislation
On March 12, 2009, House Agriculture Committee Chairman Collin C. Peterson (D-Minn.) announced that the committee, which has jurisdiction over the Commodity Futures Trading Commission ("CFTC"), is seeking comments from agricultural, environmental and other groups and members of the public on priorities for future climate change legislation. The committee has prepared an instruction letter and a questionnaire, with responses due by April 10, 2009.
Rep. Peterson’s announcement follows the committee’s February 12, 2009, passage of H.R. 977, The Derivatives Markets Transparency and Accountability Act of 2009 (“DMTAA”). Although the DMTAA has received attention primarily for its provisions addressing financial derivatives – including authorizing the CFTC to suspend U.S. trading of so-called “naked” credit default swaps under certain circumstances and requiring that most over-the-counter derivatives be cleared through central clearinghouses – the bill would also require carbon offsets and emissions allowances to be traded on a designated contract market under CFTC oversight.
The DMTAA finds itself in the midst of a Congressional turf battle on both the financial derivatives and carbon emissions fronts. Introduced by Rep. Peterson, the DMTAA has been sent for review to the House Financial Services Committee, whose chairman, Rep. Barney Frank (D-Mass.), has reportedly expressed displeasure that the Agriculture Committee jumped ahead on derivatives reform without input from the Financial Services Committee and has said that he plans to tackle legislation for a new systemic risk regulator first, with hearings scheduled for mid-to-late March 2009.
The bill’s future in the carbon emissions arena is equally hazy. Edward Rosen, testifying on behalf of the Securities Industry and Financial Markets Association, argued that the prohibition of off-exchange trading in carbon offsets and emission allowances would create an exchange monopoly and thus impede the successful development of cap-and-trade programs. Paul N. Cicio, President of Industrial Energy Consumers of America, expressed his concern that adoption of the DMTAA would prejudice the outcome of the debate on how to control GHG emissions and recommended that Congress consider regulatory options other than a cap-and-trade system.
Meanwhile, Congress is awash in competing legislative efforts, among them:
- February 4, 2009: Rep. Edward J. Markey (D-Mass.) introduced H.R. 889, the Save American Energy Act, which would create a federal energy efficiency resource standard for retail electricity and natural gas distributors.
- February 4, 2009: Rep. Markey joined Rep. Todd Platts (R-Pa.) to introduce H.R. 890, the American Renewable Energy Act, which would create an electricity standard requiring that by 2025, 25% of electricity be generated from renewable sources like wind, solar and geothermal.
- March 5, 2009: Rep. John B. Larson (D-Conn.) introduced H.R. 1337, America's Energy Security Trust Fund Act of 2009, intended to reduce carbon dioxide emissions by imposing a tax on “taxable carbon substances,” which the bill defines to include coal, petroleum and petroleum products and natural gas.
- March 5, 2009: Sen. John Thune (D-S.D.) and Sen. Charles E. Schumer (D-N.Y.) introduced S. 527, which would amend the Clean Air Act to prohibit requiring farmers to purchase permits “for any carbon dioxide, nitrogen oxide, water vapor, or methane emissions resulting from biological processes associated with livestock production.” According to a press release from Sen. Thune’s office, the bill “will once and for all prevent the government from imposing an onerous ‘cow tax’ on farmers across the country.” S. 527 has been referred to the Committee on Environment and Public Works.
- March 11, 2009: Rep. Jeff Fortenberry (D-Neb.) introduced a similar bill, H.R. 1438, with the announced goal of “prohibit[ing] any Federal agency or official, in carrying out any Act or program to reduce the effects of greenhouse gas emissions on climate change, from imposing a fee or tax on gaseous emissions emitted directly by livestock.” A press release from Rep. Fortenberry’s office quotes the Congressman as observing that “As climate change issues are debated, the consideration of a tax on natural livestock emissions is unreasonable and peculiar.”
- March 12, 2009: In response to reports that the administration was considering using budget reconciliation rules to shield a cap-and-trade bill from a threatened Republican filibuster, twenty-eight Senators wrote a letter to the leaders of the Senate Budget Committee, Chairman Kent Conrad (D-N.D.) and ranking member Judd Gregg (R-N.H.), voicing their opposition to “using the budget reconciliation process to expedite passage of climate legislation.” The group explained:
Enactment of a cap-and-trade regime is likely to influence nearly every feature of the US economy. Legislation so far-reaching should be fully vetted and given appropriate time for debate, something the budget reconciliation process does not allow. Using this procedure would circumvent normal Senate practice and would be inconsistent with the Administration’s stated goals of bipartisanship, cooperation, and openness.
- March 22, 2009: Asked about the idea of folding cap-and-trade legislation into a budget reconciliation bill, Sen. Conrad said on ABC’s “This Week”:
I'll put it this way: It is not included in the budget that I will present to my colleagues . . . . I have said for weeks, I don't think it is the right way to write substantive legislation, because if you get into the details – and we won't do that here – it just doesn't work very well.
- Rep. Markey – who chairs both the House Select Committee on Energy Independence and Global Warming and the Energy and Environment Subcommittee of the House Energy and Commerce Committee – is leading the effort on the House version of climate change legislation and has said that he hopes to complete that legislation by Memorial Day.
- Senate Majority Leader Harry Reid (D-Nev.) has indicated that he will combine measures on a nationwide renewable electricity standard, a modernized electrical grid and GHG cap-and-trade into a single bill. Commenting on the respective Senate and House legislative strategies, Sen. Reid told a reporter, “The House has decided to take them all up together. That’s probably where we’re headed,” adding, “We're not going to be able to get this [Senate package cleared] until sometime in the summer at the earliest.”
There has also been activity on the regulatory front:
- On March 10, 2009, the Environmental Protection Agency announced its proposal for “the first comprehensive national system for reporting emissions of carbon dioxide and other greenhouse gases produced by major sources in the United States.” The EPA’s proposed rule would require mandatory annual GHG emissions reports from suppliers of fossil fuel and industrial chemicals, manufacturers of motor vehicles and engines, and industrial facilities that emit 25,000 metric tons or more of GHG emissions per year.
- Last Friday, the EPA reportedly sent a proposal to the White House finding that global warming is endangering the public’s health and welfare. Greenwire had reported earlier this month that according to a leaked internal EPA PowerPoint, the EPA was moving quickly toward an endangerment finding but would not propose immediate GHG regulations.
A rather active year so far, and we’re still in March . . . .
EPA proposes GHG endangerment finding; briefing document states greenhouse gas emissions endanger human health and welfare
According to numerous reports, the US EPA proposed an "endangerment finding" on greenhouse gas emissions ("GHGs") to the White House last Friday. The substance of the finding has not officially been made public; however, according to reports from Reuters, the White House Office of Management and Budget showed EPA sent a proposed rule for an "Endangerment Finding for Greenhouse Gases under the Clean Air Act" and such a finding is only sent to the White House when EPA determines that human health and welfare are threatened. The finding could have broad implications, primarily triggering regulation of GHGs, including CO2, under the Clean Air Act. An internal EPA document (“Proposed Endangerment Finding for GHGs in Response to Mass. v. EPA: Guidance-Option Selection Briefing”), widely circulated earlier this month, suggests that the endangerment finding likely concludes that GHGs endanger both public health and welfare, potentially prompting nationwide regulation of GHGs.
In April 2007, the Supreme Court concluded in Massachusetts v. EPA that EPA has the authority to regulate GHGs under the Clean Air Act if they cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. According to a representative of the US Chamber of Commerce, regulation of CO2 would enlarge the regulated community from about 15,000 entities to 1.5 million entities.
The internal EPA document suggests that EPA Administrator Lisa Jackson will sign the proposal on April 16, which will be followed by a 60-day public comment period and two public hearings.
