The Year Ahead in Energy and Environmental Law: Climate Change

Late 2009 saw an unprecedented focus on climate change, as 110 world leaders gathered in Copenhagen to discuss greenhouse gases. However, the international climate negotiations sputtered to an inconclusive end, amid fighting between developed and developing countries.[1] Back at home, U.S. climate legislation stalled in the Senate. Meanwhile, EPA continued its march toward regulating greenhouse gases under the existing Clean Air Act. Politics may intervene to slow EPA as well, as Congress is expected to consider amendments in the next few weeks aimed at blocking the Agency’s efforts.[2] The year 2010 is certain to be one of continuing positioning by members of Congress and the administration, EPA, and the states. One thing that is for certain: no one is certain how it will end up. Potentially millions of jobs and billions of dollars are on the line.

Congress Divided, Distracted

Congress returns this month to a bruising health care fight that kept the Senate in session until Christmas Eve. With high unemployment and mid-term elections ten months away, many pundits have all but written off prospects for climate change legislation this year. By late December of last year, moderate Senate Democrats were urging the White House to give up on cap-and-trade for this year.[3] But nevertheless, a test vote on greenhouse gas controls could occur in the Senate as early as next week, as Senator Murkowski considers offering an amendment that would block EPA from following through on its greenhouse gas endangerment finding with regulations to limit greenhouse gas emissions (EPA’s likely actions, absent Congressional action, are outlined below).[4]

The current state of affairs is an abrupt change from the spring of 2009, when climate change legislation moved successfully through the House. Energy Committee Chairman Henry Waxman put a massive bill before his Committee in May,[5] and the House passed the legislation on June 26, 2009.[6] But progress slowed as the action shifted to the Senate. While the Senate Energy Committee reported out a bill containing many of the energy provisions of the House-passed package (the “American Clean Energy Leadership Act,” S.1462), in July, a bill to cap greenhouse gas emissions was not introduced until the end of September, 2009, and then ground to a halt as Senators and the White House focused their attention on health care reform.

In a somewhat surprising move, Senator Kerry – who, with Senator Barbara Boxer had introduced the Senate’s version of a cap-and-trade bill in September– trumped his own legislative proposal by offering a related but different “framework for legislation” in December together with independent Joe Lieberman and Republican Lindsay Graham.[7] Senators Kerry, Lieberman, and Graham were vague on details, but indicated their support for a greenhouse gas cap-and-trade system that would reduce emissions “in the range of” 17 percent by 2020, as well expanding offshore oil and gas development, increasing the number of nuclear power plants, and putting more money into reducing emissions from coal-based power.[8] Meanwhile, also in December, Senators Cantwell and Collins introduced a climate bill with a different approach – one which would auction off most emission allowances and distribute most of the funds back to taxpayers in monthly payments.[9] Clearly, no consensus on a path forward has emerged yet in the Senate, even among backers of greenhouse gas legislation.

While there is continued uncertainty as to what a Senate bill will contain, and when (and whether) it will be brought to the Senate floor, Republicans are making an effort to stop EPA from regulating greenhouse gases under existing Clean Air Act authority. A test vote of support for climate legislation this year is expected to take place in the Senate as early as next week.[10] Following EPA’s issuance of an “endangerment finding” under the Clean Air Act last month, Senator Murkowski announced that she will offer an amendment aimed at preventing EPA from using its existing authority under the Clean Air Act to regulate greenhouse gas emissions before Congress acts on the issue. The vote could prove risky for all sides. If successful, it could effectively halt efforts to limit greenhouse gas emissions at the federal level. That is a long shot, however, since a similar provision would have to pass the House, which seems unlikely. Even a close vote on the Murkowski amendment, however, would probably undermine the likelihood of the Senate taking action this year, as Senators already bruised by the health care debate are unlikely to be looking for another big battle with Senate Republicans and moderates in their own party. If, however, the vote on the Murkowski bill is not close, then Republican efforts could backfire by energizing supporters of cap and trade legislation. Adding it all up, our Magic 8 ball says that the prospects for sweeping federal greenhouse gas legislation are dim in 2010, and that the more likely focus of the Administration’s efforts will be at the regulatory level under existing statutes implemented by EPA.

EPA Regulation

EPA took several climate-related actions in 2009, beginning with the release in April of a proposed finding that greenhouse gas emissions from new vehicles endanger public health and welfare.[11] Comments at the time by EPA Administrator Lisa Jackson made it clear that at least part of the motivation for EPA’s actions was to keep pressure on Congress.[12] But as Congressional action faltered, EPA set itself on a path that may make greenhouse gas regulation under existing Clean Air Act provisions inevitable – absent a vote by Congress to halt EPA’s progress.

During 2009, EPA’s actions included granting a waiver that allows California to regulate greenhouse gas emissions from cars, issuing a final federal greenhouse gas reporting rule that applies to 2010 emissions,[13] and finalizing the greenhouse gas “endangerment finding.”[14] Looking ahead to 2010, EPA’s main work will involve implementing its endangerment finding. This is perhaps the most significant of the recent EPA initiatives. Having made the finding that greenhouse gases endanger public health and welfare, EPA is required by the Clean Air Act to limit emissions of those gases from new motor vehicles.[15] EPA has indicated it will release greenhouse gas emission standards for light-duty cars and trucks by March 2010, applicable to the 2012 model year.

Once the vehicle standards are finalized, greenhouse gases will officially become regulated pollutants under the Clean Air Act. EPA’s view is that this will automatically bring greenhouse gas emissions within the Clean Air Act’s existing new source review and operating permit programs.[16] Major new sources and major modifications to existing sources would be required to install the best available pollution control technologies (“BACT”) to control greenhouse gas emissions,[17] and to obtain Title V Air Operating Permits, or incorporate greenhouse gas requirements into their existing operating permits.[18] EPA has recognized that applying the Clean Air Act’s existing 100 ton and 250 ton thresholds for what is considered a “major source” to greenhouse gases could have catastrophic consequences, requiring up to 40,000 new source review applications a year, and up to 6 million operating permit applications. EPA has proposed to “tailor” the statute’s permitting thresholds through a regulation that it plans to finalize contemporaneously with its greenhouse gas vehicle standards.[19] The tailoring rule is likely to be challenged, as it attempts to alter the express requirements of the Clean Air Act through agency rulemaking. Even if it the tailoring rule avoids or survives challenge, most of the implementation burden will fall to the states, which are delegated responsibility for administering the Clean Air Act’s permitting programs. State programs, however, lack the funding and resources to even begin to regulate all of the sources potentially covered by the new rules. Our crystal ball says that something will have to give.

Prospects for New International Climate Treaty: The Copenhagen Talks

In the run up to the Copenhagen talks in December, 2009, it was clear that there were sharp divisions between developing and developed nations, and between the European Union, the United States, and emerging major emitting nations (particularly China).[20] Those divisions eventually produced a stalemate. Early in the first week of the Copenhagen conference, the tiny island nation of Tuvalu brought the talks to a halt when it offered aggressive emission reduction targets that were endorsed by other small and least-developed nations, and by NGOs, but that were rejected by China, India, and other large nations.[21] As the Conference wore on, the divisions among developed and developing nations became more pronounced and were brought out into the open when President Obama and leaders from other developed countries -- China, India, Brazil, and South Africa -- negotiated their own accord which they then asked the other Conference members to endorse. The Copenhagen Accord calls for limiting global warming to 2 degrees Celsius, without binding any individual nation to emission reductions, and promises $100 billion in yearly payments to poor nations by 2020, without committing any individual nation to provide the funds.[22] An all night debate which ensued after President Obama boarded a plane and left the Conference elicited an acknowledgement, but not an endorsement, by Conference participants.

Those who had hoped for binding emission reduction targets and strict timetables were left pointing fingers, and hoping that further agreements may be reached as international discussions continue in 2010.[23] Part of the difficulty experienced in Copenhagen was the U.N. requirement for consensus among all 193 participating countries. While U.N. climate talks will continue in Mexico City later this year, major players appear to be looking to other forums for international progress. European leaders, for example, have signaled they will begin working through the G-20.[24] Meanwhile Bolivia’s President Evo Marales has issued invitations to an “alternative” climate conference in April, which seems likely to produce demands that developed nations send more money to developing nations.[25] Bolivia was one of five nations that blocked consensus on the accord brokered by President Obama, resulting in the accord being “noted” rather than “adopted”.[26] While international talks will continue, apparently now on multiple tracks, any binding international commitments to emission reductions appear unlikely in 2010.

Regional Greenhouse Gas Initiatives

The uncertain fate of cap-and-trade legislation, and of EPA regulation, has energized at least one group of players -- the three regional greenhouse gas trading programs – the Regional Greenhouse Gas Initiative (“RGGI”), the Western Climate Initiative (“WCI”), and the Midwest Greenhouse Gas Reduction Accord (“MGGRA”). These programs currently cover 23 states and four Canadian provinces, and account for over half of the United States’ GDP and over 37 percent of the United States’ greenhouse gas emissions.[27] Late last year, representatives from RGGI, WCI, and MGGRA met to discuss potentially linking the regional trading programs in the event that Congress is unable to pass comprehensive climate legislation.[28] Although the regional trading programs would be an ineffective substitute for a federal program, they may be pushed as the only alternative by some states.

The three regional greenhouse gas trading programs are in varying stages of development. In September 2008, RGGI held the nation’s first auction of government-issued carbon dioxide allowances.[29] RGGI is designed to stabilize regional carbon dioxide emissions from coal- and natural gas-fired power plants at estimated current levels (188 million short tons of carbon dioxide per year) between 2009 and 2014, and then reduce those emissions 2.5 percent per year between 2014 and 2018.

Under the WCI, 13 Western states, five Canadian provinces, and six Mexican states, have agreed to reduce greenhouse gas emissions, in the aggregate, by 15 percent below 2005 levels by 2020.[30] The WCI’s cap-and-trade program is scheduled to take effect in January 2012. Unlike RGGI, which is limited to carbon dioxide emissions from approximately 200 power plants, WCI is intended to cap greenhouse gas emissions from all sectors of the economy, including emissions attributable to electricity generation, industrial sources, transportation, and residential and industrial fuel combustion.

The MGGRA commits six Midwestern states and one Canadian province to establish greenhouse gas reduction targets and develop a multi-sector GHG cap-and-trade program. In June 2009, the MGGRA Advisory Group released its draft recommendations for the program’s cap-and-trade program. The draft recommendations call for reducing participating jurisdictions’ greenhouse gas emissions 20 percent below 2005 levels by 2020. Similarly to the WCI, regulated emissions would include electricity generation, industrial processes, transportation fuels, and residential, commercial, and industrial fuel combustion.

While RGGI is currently operational, the fate of the WCI and the MGGRA remains in flux. California is currently the only WCI jurisdiction that is moving forward with the legal and regulatory measures necessary to participate in the program. For example, last fall, the California Air Resources Board (“CARB”) released its preliminary draft regulations establishing a cap-and-trade program pursuant to California’s bellwether climate change legislation – A.B. 32. However, Meg Whitman, the Republican candidate for governor of California, has indicated that her first act as governor would be to suspend work under A.B. 32.[31] Other WCI members, including Washington and Oregon, have failed to pass legislation necessary to implement the cap-and-trade program.[32] The viability of MGGRA is also dependent upon states adopting implementing regulations – an uncertain task in Midwestern states with manufacturing sectors hard hit by the current recession.