The Obama administration is moving slowly but steadily toward regulating greenhouse gases even as a last-ditch effort to revive climate legislation in the U.S. Senate appears to be running out of steam.
The effort comes at a particularly odd time in Washington given the amazingly bitter negotiations around health care legislation that have proved so contentious that they threaten the viability of the Democratic majorities in both the House and Senate this fall. Still, the administration continues to pursue seemingly incongruous dual track efforts. Legislative strategists are using the threat of carbon regulation by administrative fiat to spur congressional action. Meanwhile, environmental activists see this as an opportunity to bypass Congress and regulate carbon.
In the next few weeks, the Environmental Protection Agency (EPA) is expected to issue new rules for limiting carbon-dioxide emissions from motor vehicles, and it could start laying the groundwork for regulating stationary sources by spelling out which facilities will need emission permits under the Clean Air Act.
EPA Administrator Lisa Jackson has pledged that the permitting process won’t begin until next year, and CO2 limits won’t be set for large emitters such as coal-fired power plants until late 2011 at the earliest. Jackson also committed to keeping the threshold for regulating emissions to well above 25,000 metric tons per year, which would exclude thousands of smaller plants and businesses, at least in the short term. But EPA’s plans have coal-state senators and others pushing hard to block or delay regulations while they continue working on climate and energy legislation.
Sen. Jay Rockefeller, D-W.Va., is drafting a proposal to postpone regulations for up to a year beyond EPA’s timetable, so Congress would have more time to develop an alternative to using the Clean Air Act to address climate change. Sen. Lisa Murkowski, R-Alaska, also has a resolution to block EPA action that has some Democratic support, reflecting the consensus in both parties that new legislation is preferable to administrative action using existing authorities.
“Congress is the appropriate body to address climate policy,” Murkowski said. “Until the specter of command-and-control regulations goes away, it will remain a counterproductive threat hanging over the work that must be done to find common ground.
“EPA regulation of greenhouse gases will increase consumer energy prices, add greatly to administrative costs for businesses, and create massive new layers of government bureaucracy. Such regulation, even slightly delayed, will endanger job creation, economic growth, and America’s competitiveness,” she added.
The bids to delay EPA regulations have taken on more urgency as Senate negotiations on climate legislation have bogged down. A bipartisan trio of Sens. John Kerry, D-Mass.; Joe Lieberman, I-Conn.; and Lindsey Graham, R-S.C., has been leading the effort to craft a climate bill that could get the 60 votes needed to break a likely filibuster. But Graham is threatening to drop out of the group if Democrats use budget reconciliation to enact health care legislation, a move he says would be “catastrophic.”
Graham’s withdrawal would put climate legislation on its deathbed, with no Republicans on board. Regardless, the chance of action on such a sweeping program is already growing slimmer as the midterm elections draw nearer.
Backers of energy and climate legislation haven’t given up yet, though. President Obama has stepped up pressure in recent weeks, telling 100 corporate leaders on Feb. 24, “we need to put a price on carbon pollution.” The administration also unveiled new incentives for nuclear power, carbon-sequestration technologies and solar energy last month.
Obama met on March 9 with key senators involved in the legislative effort, including a handful of Republicans, and asked for more details on a proposal by Sens. Maria Cantwell, D-Wash., and Susan Collins, R-Maine, to establish a “cap-and-dividend” program, in which most revenues from carbon permits sold to fossil fuel producers would be returned directly to U.S. consumers.
There is general agreement on one thing from all sides in the debate: The cap-and-trade plan approved by the House last year is a non-starter in the Senate.
While the debate goes on, the administration is pushing ahead with its regulatory scheme, arguing it was forced to act after the U.S. Supreme Court ruled in 2007 that greenhouse gases are covered by the Clean Air Act if it is shown they threaten public health. The EPA issued an endangerment finding last year that went on the books in January, and the stage was set for rules limiting CO2 emissions from vehicles and other sources.
“They are definitely on a glide path toward regulation,” said Roger W. Patrick, an environmental attorney at Mayer Brown LLP. “There is a school of thought that it’s a mechanism to put pressure on Congress, but these things tend to take on a life of their own. Once they start down that path it’s pretty hard to put the stopper back in the bottle.”
Overall, the Obama administration is seeking $1.1 billion for EPA’s clean air and global climate change program in its FY11 budget proposal, with $169 million for reducing greenhouse gases. It proposed substantial increases in several programs, including $4.1 million more for administering its GHG reporting rule (which would bring the program to $20.8 million), $7 million to develop New Source Performance Standards to control GHG emissions from major stationary sources, $6 million to develop regulations for mobile sources, and $5 million to develop guidance for Best Available Control Technologies to control GHGs.
The administration is also moving to require agencies to include climate impacts in all environmental reviews of federal projects, and it seeks $171 million for adaptation initiatives at the Interior Department, an increase of more than $35 million from 2010 levels.
Other agencies are also getting into the act. The Securities and Exchange Commission voted 3-2 in January to provide guidelines for public companies to evaluate the impact of climate-change laws and regulations when assessing what information to disclose to investors.
The pace of the administration’s initiatives has raised concerns, even within the government. The Small Business Administration’s Office of Advocacy wrote the EPA late last year complaining that it failed to conduct a Small Business Advocacy Review for its proposed GHG regulations. “Instead, EPA certified under the Regulatory Flexibility Act (RFA) that each rule would not have a significant economic impact on a substantial number of small entities,” since small emitters would not be regulated for at least six years, wrote the office’s assistant chief counsel, Keith Holman.
“Advocacy believes that EPA’s RFA certifications are improper because they lack a factual basis,” Holman said. “More than 6 million small businesses will be regulated by GHG permitting requirements after the six-year deferral ends, while at least 1,200 small businesses will immediately become subject to GHG permitting. The economic impact on each small entity can be significant, including permitting application costs, delay costs, and consultant’s and attorney’s fees.”
Energy companies are clearly worried about the cost impacts as well, with some already saying the threat of regulations has created enormous investment uncertainty. Karen St. John, director of regulatory affairs for BP America, recently told an environmental conference that permitting requirements could delay many natural gas and refinery projects, or even lead to some new construction being scrapped.
Other delays will be caused by litigation that is certain to follow every EPA action. The Competitive Enterprise Institute (CEI) and several other groups are already challenging the GHG endangerment finding in federal court, and the CEI, a free-market think tank, has raised questions about EPA’s ability to change the threshold level for regulating gases considered harmful under the Clean Air Act.
The National Cattlemen’s Beef Association also filed a petition in the U.S. Circuit Court in December, arguing that EPA climate regulations would hurt large farms. And in February, the state of Texas joined a coalition of groups asking the federal appeals court to review EPA’s endangerment finding, calling it scientifically invalid. “Texas is aggressively seeking its future in alternative energy through incentives and innovation, not mandates and overreaching regulation,” said Gov. Rick Perry, a Republican. “The EPA’s misguided plan paints a big target on the backs of Texas agriculture and energy producers and the hundreds of thousands of Texans they employ.”
Other states have joined the chorus against federal regulations. The Louisiana Department of Environmental Quality wrote EPA in December that efforts to mandate GHG reductions would have a ‘‘devastating economic impact.’’ And Arizona’s Republican Gov. Jan Brewer recently pulled the state out of a regional cap-and-trade market that was organized by California and is scheduled to open in 2012. Brewer said the program would raise costs for consumers and slow the state’s economic recovery.
Both sides in the climate debate argue that we are entering a period of peak uncertainty which is having a dampening effect on business investment and job creation.
The Heritage Foundation’s Patrick Tyrrell makes this point in The Foundry blog. “Businesses have to deal with nearly unprecedented levels of uncertainty due to Washington’s inability to give them a clear roadmap of what policy changes lay ahead. A large part of this uncertainty is about the level of future taxes and increased regulations. Businesses are reluctant to hire when they could be facing additional labor costs due to government policies. This, at a particularly vulnerable time due to the credit crunch and financial crisis, spells a death sentence for many small businesses, and stunts the growth of others.”
Michael Tubman of the Pew Center on Global Climate Change argues in his blog post on the Alaskan natural gas pipeline that the lack of a carbon policy is hindering growth. “Backers of the gas pipeline are excited about its prospects to bring about a new round of growth in the local and national economies. Yet the project needs regulatory certainty to move forward, and national climate legislation this year is an important step in that direction. It should be no surprise that major companies involved in discussions over a gas pipeline, including USCAP members BP and ConocoPhillips, are, for a variety of reasons, looking for certainty in climate regulation; without this certainty, investment will almost certainly be stalled. Congress needs to act this year in order for business to move forward with new projects, innovate, and grow our economy.”
For our part, we continue to believe that climate change legislation is highly unlikely this year, and surely dead if Republicans take control of either chamber in the November election. We have made this prediction several times in the Report but it has become increasingly clear in recent weeks, even proponents of climate change.
While administrative action might provide some certainty, the EPA has started down the road of no return on carbon regulation. What started as a strategic tactic to spur Congress to take action on climate change may have turned into its own Don Quixote-like crusade, despite the widespread opposition from Democrats and Republicans in Congress and the statehouses. Given the current melee over health care legislation and lack of legislative success on climate change, the real concern is that the Obama administration’s approach will harden and it will seek to enact its carbon policy through regulation only. Unfortunately, the period of peak uncertainty is here to stay.
