Carbon Rationing by Other Means

After Congress fails to regulate greenhouse gases, the president hands the job to the EPA.


Plan A was to get Congress to adopt a massive cap-and-trade carbon rationing scheme. The idea was to impose mandatory cuts on U.S. emissions of the greenhouse gases, chiefly carbon dioxide, that are thought to be warming the atmosphere. Six months after President Barack Obama's inauguration, a cap-and-trade bill managed to squeak through the House of Representatives—once it was larded up with billions in pork.

But attempts to get cap and trade through the Senate foundered last July when Senate Majority Leader Harry Reid (D-Nev.) admitted he could not muster the votes. The midterm elections, in which the Republicans took control of the House and increased their membership in the Senate, ensured that Plan A was off the table.

Now on to Plan B. At a press conference after the elections, Obama declared: "Cap and trade was just one way of skinning the cat; it was not the only way. It was a means, not an end. And I'm going to be looking for other means to address this problem." The president then handed the cat-skinning job over to the Environmental Protection Agency (EPA), which is imposing limits on greenhouse gas emissions by means of regulations under the Clean Air Act. Not surprisingly, this attempt at atmospheric central planning has engendered considerable opposition.

A bit of history: Back in 1999, a bunch of environmental advocacy groups filed a petition with President Bill Clinton's EPA asking the agency to regulate greenhouse gas emissions under the Clean Air Act. The Clinton-era EPA issued a legal opinion asserting that the agency did indeed have the authority to regulate carbon dioxide emissions. In 2003 the EPA under President George W. Bush denied the activists' petition, asserting a lack of authority under the Clean Air Act.

The activists, joined by several state attorneys general, pursued their case to the U.S. Supreme Court. In 2007 the Court ruled 5 to 4 in Massachusetts v. EPA that the agency did have the power to regulate greenhouse gases if the agency had reason to conclude under the Clean Air Act that they were a form of "air pollution which may reasonably be anticipated to endanger public health or welfare." In December 2009, the agency issued a finding that concluded exactly that. That decision triggered the current EPA rulemaking process.

Traditionally, the EPA set national ambient air quality standards for a list of six pollutants: ozone, carbon monoxide, nitrogen oxides, sulfur oxides, particulates, and lead. Under the Clean Air Act, operating permits are required for any entity emitting more than 100 tons of these air pollutants per year or any new facility with the potential to emit more than 250 tons per year. New facilities must persuade regulators that they are installing the best available control technology before being allowed to operate. While the limits were set by the federal Clean Air Act, state environmental agencies generally administer the air pollution permitting programs.

The EPA acknowledged that millions of facilities emit as much as 100 tons of greenhouse gases annually, including small dairy farms, large apartment buildings, hospitals, schools, and churches. It would be "absurd" to impose greenhouse gas permitting requirements on that many sources, the EPA concluded, because the effort would overwhelm regulators. The agency's solution: Ignore the statutory thresholds and "tailor" the regulations to fit what the government could handle.

Under a "tailoring rule" that took effect in January, all new projects must use the best available control technology if they would increase greenhouse gas emissions by the equivalent of 75,000 tons of carbon dioxide per year. Essentially, any new or expanding industrial facility must show that it has reduced its proposed emissions by an amount that regulators deem acceptably cost-effective and technically feasible before it can obtain an operating permit. By July all industrial facilities that emit more than 100,000 tons of carbon dioxide must obtain such permits. The EPA promises no facilities that emit less than 50,000 tons annually will be regulated before 2016.

Last summer the EPA demanded that each state adopt implementation plans to meet the permitting requirements of its new greenhouse gas regulations. If the states didn't, the EPA would issue the permits itself. As the EPA's regulatory juggernaut steamed ahead, Sens. Lisa Murkowski (R-Alaska) and Jay Rockefeller (D-W.V.) proposed a resolution to rescind the agency's authority to regulate greenhouse gases. It was defeated in June by a vote of 53 to 47. In August, Texas Attorney General Greg Abbott sent a letter to the EPA saying his state refuses to comply with the new regulations.

Since September, a coalition of industry and farm groups, along with several state attorneys general, has failed three times to get a federal court to stay the implementation of the new EPA rules until they are fully adjudicated. The EPA has accepted the implementation plans of 42 states and given itself the authority to issue permits in seven states until they can revise their regulations. The agency will issue permits in Texas until further notice.

In addition to implementing these operating permit plans, the EPA in December announced a settlement agreement with 13 states and cities and four environmental lobbying groups. Under that agreement the agency plans by the end of 2012 to set limits on greenhouse gases emitted by electric power plants and oil refineries. Emissions from these facilities constitute about 40 percent of total U.S. greenhouse gas emissions. 

The state and industry lawsuits against the regulations are still wending their ways through the courts. The critics' chief concern is that the new regulations will boost the cost of energy and delay the construction of new factories and facilities.

Last December, a Wall Street Journal op-ed co-authored by Americans for Prosperity President Tim Phillips and the incoming Republican chairman of the House Energy and Commerce Committee, Rep. Fred Upton (Mich.), said the new EPA regulations represent "an unconstitutional power grab that will kill millions of jobs." Upton and Phillips want to overturn the regulations altogether, but if that can't be done they want the rules to be delayed until courts have sorted out the lawsuits. It is unlikely that congressional Democrats or the Obama administration would accede to such a proposal.

Most economists agree that the EPA's plan—a top-down scheme rife with uncertainty about what regulators will accept as the best available control technologies—is far from ideal. It is an absurdly expensive way to address any greenhouse gas problem.

The Obama administration may be strategically rushing these regulations as a way of ratcheting up the pressure on Republicans in Congress to adopt the lesser of two evils: something like the cap-and-trade carbon rationing scheme that failed last summer. In that case, the real Plan B is to make Plan B so odious that Plan A looks good by comparison. It just might work. 

Ronald Bailey (rbailey@reason.com) is reason's science correspondent.