June 17, 2009

The Waxman-Markey Bill's Federal-State Partnership

The Waxman-Markey bill, in its current form, continues the nation’s wise respect for the complementary roles of the federal government and the states. By establishing a national cap and a national trading program, the bill would draw all states into the essential task of reducing greenhouse gas (GHG) emissions. But, like the federal environmental laws before it, the bill simultaneously provides states with the power to achieve more stringent reductions. Although industry may resist the prospect of state control, Congress should maintain the balance between federal and state power the bill has established.

The Clean Air Act, which the bill amends, already allows states to set more stringent regulatory standards for facilities in their states. In a national cap-and-trade program, however, that power could be rendered meaningless due to the interconnections among the states created by a national trading system. For example, if a state were to impose more stringent GHG standards on in-state facilities, the facilities would, as a result, use fewer allowances from the national trading system. But the emissions reduction would be illusory: less heavily regulated facilities in other states would simply buy up the allowances freed up by sources in more-heavily regulated states. Thus, even though the Clean Air Act already includes language that appears to allow states to be more stringent, the dynamics of a trading system would erase that ability.

The Waxman-Markey bill provides a mechanism that allows states to continue to set more stringent goals – in practice, not just in theory. Section 334 of the bill would amend the Clean Air Act’s existing savings clause by giving states the explicit authority to set their own more stringent emissions caps. It also gives states a mechanism to “retire” extra allowances, making sure that allowances generated by the state’s additional reductions are not used by facilities in other states. The provision gives states the capacity to “require surrender to the state . . . of emissions allowances or offset credits established or issued under this act ….” So if the federal government distributes more allowances to a facility than it needs in light of state restrictions, the state could require the facility to surrender the extra allowances to the state, rather than having the facility simply sell those allowances to willing takers in other states.

Similarly, the provision’s language appears to allow a state to achieve its additional reductions by requiring in-state facilities to submit a greater ratio of federal allowances per ton of emissions than is required under the federal program. The language makes clear that states can “require the use of [federal] … allowances or credits as a means of demonstrating compliance with requirements established by a state ….” While the law precludes states from establishing their own trading programs – from issuing and controlling state-generated allowances - the states’ ability to control their facilities’ use of federal allowances gives them considerable power.

The bill’s language preserves a long tradition of allowing states to be more stringent than the federal government, and recognizes the importance of allowing states to express their citizens’ willingness to achieve more stringent reductions.

But what of the potential for a “patchwork” of discordant state requirements? First: If the federal program is stringent and tightly managed, few states are likely to assert their power to be more stringent. States are unlikely to impose additional burdens on their state’s industry or utilities due to concerns, justified or not, about detrimental impacts on in-state businesses. A patchwork is unlikely to emerge. On the other hand, if political compromises or administrative headaches result in federal lapses, then the provision allows the states to pick up the slack – a benefit for the nation as a whole. Thus, states are unlikely to impose more stringent requirements unless the federal program proves weak and ineffective: precisely the situation in which such state control is both necessary and justified.

Second: industry has coped well with the existing system, a system which allows states to impose more stringent requirements on stationary sources. There is no reason to believe that, if states do adopt more stringent programs, companies cannot cope with variations among states in the greenhouse gas context. While product manufacturers might face certain challenges if every state imposed different requirements on the products a given facility produced, the argument for uniformity is much less compelling for stationary sources of pollution. In most instances, these sources already receive their air permits from the states. Meeting federal and state GHG requirements is not a more significant administrative burden than the existing system. We have long recognized that the benefits of allowing states some control over the facilities in their jurisdiction outweigh the benefits of absolute uniformity.

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

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