The Clean Air Act

The Clean Air Act (“CAA”) was in the news a lot the past two months.   States moved forward with regulation of greenhouse gases believed to cause climate change.  Also, an appellate court struck down a rule designed to reduce emissions believed to cause acid rain in the Adirondacks.

EPA Issues Report on GHGs

In April 2007, the U.S. Supreme Court decided, in a 5-4 decision, that “greenhouse gases (“GHGs”) fit well within the Clean Air Act’s (“CAA”) capacious definition of air pollutant” and that carbon dioxide and other GHGs were “pollutants” under the CAA.  The Court found that the EPA had the authority to regulate automobile tailpipe emissions of GHGs under the CAA.  The Court rejected the EPA’s given rationale that it need not regulate greenhouse gases and sent the matter back to the EPA to either regulate GHGs or to articulate a reasonable basis for not doing so.  On June 26, 2008, the United States Court of Appeals for the District of Columbia Circuit rejected efforts by Massachusetts, California, and other states to impose a strict timeline for EPA to determine whether greenhouse gas emissions endanger public health or welfare.

In July 2008, the EPA issued its first formal response in light of this Supreme Court ruling, a 564-page Advanced Notice of Public Rulemaking (“ANPR”).  In the ANPR, the EPA concludes that the CAA is “ill-suited for the task of regulating global greenhouse gases.”  The Act was designed to control air pollution and improve local and regional air quality through source- and sector-specific regulation.  Unlike such “traditional” air pollutants, the ANPR states, tailpipe emissions are emitted across the globe and freely mix in the atmosphere, which would make it challenging to regulate under the existing CAA framework.  Further, the EPA would have to determine whether to define some or all of the six primary greenhouse gases as “air pollution” and what levels of GHG concentrations to use as a baseline for an endangerment determination.

The ANPR strongly concludes that Congress should enact new legislation to address tailpipe emissions rather than the EPA regulating such emissions under the Clean Air Act.  Congress would have to address whether a market-based approach (e.g., carbon tax or a cap-and-trade program), traditional command-and-control regulation under the Clean Air Act, or a combination of both is the appropriate framework for reducing the GHG emissions.  Congress, however, has been unable to move any legislation, and earlier this year shelved debate on the “Lieberman-Warner Climate Security Act” until 2009.

Publication of the ANPR triggers a 120-day public comment period, after which EPA could potentially proceed with formal rulemaking activities.  However, it appears unlikely any formal regulation of GHGs will occur in the final months of the current Administration.

Regional Greenhouse Gas Auction Underway

In the absence of federal regulation, several states (including New York) have banded together and formed the Regional Greenhouse Gas Initiative (“RGGI”).  RGGI requires power plant operating in the ten-state region to achieve CO2 emission reductions of 10% below 2005 levels by the year 2020.  Applications to participate in the multi-state carbon dioxide (CO2) auction were due on August 8, 2008, and the first auction is scheduled for September 25, 2008.  Six of the 10 states (Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont) participating in the RGGI cap-and-trade program will auction a total of 12.5 million allowances (i.e., 12.5 million tons) of CO2 in 1,000-ton lots.  The auction of allowances from Delaware, New Hampshire, New Jersey and New York will take place at subsequent auctions, once those states have completed necessary state-level rulemakings.  Regulated entities in any of the RGGI states may bid in the September auction, as may any other entities that qualify - including emissions brokers and traders.

The initial auction will take place from 9:00 a.m. to 12:00 p.m. EDT on September 25, 2008 on an Internet-based platform, and will consist of a uniform-price, single-round auction. A participant may enter multiple bids, although only one bid may be submitted at any given price and no single entity is allowed to place bids for more than 25% of the 12.5 million allowances subject to this first auction. RGGI will announce the auction results the week of September 29, 2008.

EPA Rule Meant to Reduce Acid Rain is Struck Down

State of North Carolina v. U.S. EPA (7/11/08)

On July 11, 2008, the U.S. Court of Appeals for the D.C. Circuit vacated the U.S. EPA’s Clean Air Interstate Rule (“CAIR”).  This Rule was issued in 2005 to address emissions of nitrogen oxides (NOx) and sulfur dioxide (SO2) that can travel long distances in the wind and cause smog and soot, and which have been linked to acid rain damage in the Adirondacks.  CAIR would have required 28 states and the District of Columbia to revise their state implementation plans with respect to such emissions.  An initial round of reductions would have applied in 2009 for nitrogen oxides and a second round would have applied to sulfur dioxide in 2010.  Additional reductions of both pollutants would have been implemented in 2015.

The appellate court found “more than several fatal flaws” in the Rule.  Some of the flaws were: (a) the EPA failed to explain how an interstate trading program – in which sources in covered states could buy and sell rights to emit – would ensure that the emissions from each covered state remain below a specific level that avoids “significant contribution” to nonattainment in downwind states; (b) EPA failed to give independent effect to the requirement that states avoid “interfering with the maintenance” of air quality standards in other states.  As a result, the CAIR may have omitted states that should have been subject to regulation; and (c) EPA’s establishment of state SO2 and NOx budgets was arbitrary and capricious because the budgets were based on factors other than each state’s “significant contribution.”   Because the flaws were numerous, the court scrapped the entire Rule and remanded the matter back to the U.S. EPA to come up with a new rule.