July 23, 2010

Climate Change: The Ball's Bounced Back to the States, EPA, and DOE

After endless negotiations and draft bills, the Senate has given up on climate legislation that would place any sort of cap on the nation’s emissions, and will likely settle for a few select energy initiatives. Congress’ failure to act is galling. Hand wringing is fully justified. But what now? State and local governments have become accustomed to federal paralysis, and will, I hope, continue to march on notwithstanding the tight lock that certain vested fossil fuel interests and industry have clamped on congressional action.  Moreover, EPA’s efforts to regulate greenhouse gases (GHGs) under the Clean Air Act have become all the more critical in the absence of comprehensive federal climate legislation. A key question, however, will be whether state, Clean Air Act, and existing federal energy laws can make up for the absence of more comprehensive federal climate legislation.

In the last several years, over half the states have moved forward with climate action plans that set climate reduction goals and provide a framework for comprehensive statewide emission reduction initiatives. The prospects for full implementation and achievement of state climate goals are, however, uncertain. Only 10 states have established their emissions targets through state legislative action that would give the states the legal authority to implement measures to achieve their goals. Many other states have established climate programs through executive initiatives that might not be fully implementable without additional state legislative action. 

While the Senate rejected efforts to cap GHG emissions and establish a cap-and-trade program for utilities, industry, and other sources, state programs continue to evolve. The Regional Greenhouse Gas Initiative (RGGI) a cap-and-trade program for utilities in northeastern and mid-Atlantic states, has been humming along since January 2009. Regulated utilities covered by the program buy carbon allowances at quarterly auctions that have operated smoothly and economically. The states are then using the revenue to invest in energy efficiency and other energy programs, programs that will help reduce emissions and make the emissions caps easier to meet.

California, which passed binding emissions caps in 2006 climate legislation, is slated to finalize regulations for its cap-and-trade program this year. Through the Western Climate Initiative, California is working with other western states, as well as a number of Canadian provinces, to establish a regional trading program. A number of Midwestern states are similarly planning a regional cap-and-trade program. The prospects for these emerging programs are promising but somewhat uncertain. A number of Texas oil companies helped finance an initiative on the California ballot that would effectively repeal California’s climate law, including its cap-and-trade program. While current polling indicates that the proposition would fail, that could change by next November. Arizona, a member of the WCI, has paused in the development of its trading program due to economic concerns.  In both the WCI and the Midwestern initiatives, participating states’ progress in creating a legal infrastructure for the regional trading programs varies.

State climate initiatives extend well beyond general climate action plans and cap-and-trade programs. Thirty-six states have renewable or alternative portfolio standards, directing their utilities to obtain minimum percentages from alternative energy sources. Some states are considering building codes, transportation and land use patterns, low carbon fuel standards, and other emission-reducing tools. To pool information and resources, they are banding together in a variety of regional initiatives to promote alternative energy and fuels.  Many states have recognized the threats posed by climate change and are developing adaptation assessments and strategies.

Still, the states cannot make up for federal inaction. In a study released today, Reducing Greenhouse Gas Emissions in the United States Using Existing Federal Authorities and State Action, World Resources Institute researchers concluded that all currently planned state actions, even if aggressively and fully implemented, would contribute only a small percentage to reducing emissions below 2005 levels by 2020, much less than the 17 percent reduction that would have been achieved under proposed federal legislation. And notwithstanding the initiatives taken in many states, a sizeable number of states are not controlling emissions. They continue to permit coal-fired power plants, are not pursuing vehicle or building efficiency opportunities, and are not creating requirements or incentives for clean energy alternatives. The states failing to take action are those where action is most necessary: those most dependent upon carbon-intensive fuels and industries. More broadly, absent nationwide controls, states are likely to face strong disincentives to implement existing policies aggressively or adopt new policies because of the persistent fear of leakage – the risk that regulated industries will simply migrate to unregulated states. Leakage concerns generated by the lack of comprehensive federal controls undermine the regulating states’ efforts and ultimately dull state initiative altogether. 

Under its existing authority, the federal government has some, but limited, capacity to make up for the lack of a nationwide emissions cap and the incentives that would flow from a nationwide carbon price. The much-feared regulatory power under the Clean Air Act is not really so powerful. For stationary sources, like utilities and industry, the Clean Air Act’s primary authority applies to new sources, not existing sources, and so has limited impact. Unless existing sources make major modifications to their plants that increase their emissions, they would not be subject to direct federal requirements, although they could be subject to state regulation. For large new sources, or existing sources that make major modifications, EPA can impose requirements based on proven technology. In May it finalized a "tailoring rule" that clarifies the sources to which it would apply such requirements. EPA could establish minimum new source performance standards, and could require the states to impose “best available control technology” (BACT) requirements for new and modified sources. The EPA rules and the states in their BACT determinations are unlikely to impose carbon capture and storage requirements, because that technology is not yet proven. EPA and the states might suggest energy efficiency requirements on new sources that would marginally, but not profoundly, decrease emissions. More controversially, EPA and the states may consider requiring new coal facilities to switch to natural gas, a significantly less carbon-intensive fuel source. EPA has not imposed fuel-switching requirements for conventional pollutants, however, so such a politically controversial move is unlikely (though not impossible) in the GHG context.

Other federal programs that could reduce emissions include the implementation of new vehicle emissions standards, EPA controls on landfill emissions, Department of Energy appliance efficiency standards, various incentive programs for renewable energy and energy efficiency, and Department of Agriculture programs to improve land management and associated carbon emissions and sequestration. As WRI’s report makes clear, however, even aggressive implementation of all of these existing federal options would achieve only a 12% reduction in emissions below 2005 levels by 2020, less than the 17% sought in federal legislation. Together, federal and state initiatives, if fully and effectively implemented, would add up to only a 14% reduction.

Federal legislation remains necessary. But given the uncertainty about when – and if – federal climate legislation will be forthcoming, it is incumbent upon federal agencies and the states to continue marching forward as vigorously as possible.

Alice Kaswan, CPR Member Scholar; Professor, University of San Francisco School of Law. Bio.

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