Greenhouse gases (GHGs) are the sexy pollutant. “Traditional” pollutants like sulfur dioxide (SO2) and nitrous oxides (NOx) get less attention, with media, legal, research, and to a lesser extent regulatory attention devoted to GHGs. These pollutants have much greater health impacts than GHGs, however. Moreover, how the EPA regulates them under the Clean Air Act (CAA) might shed some light on how they will regulate GHGs under the same statute.
Unfortunately, the EPA’s master plan for new SO2 and NOx regulations, the Clean Air Interstate Rule (CAIR) is in legal limbo. In North Carolina v. EPA, the D.C. Circuit found such substantial flaws in the rule that it vacated CAIR completely in 2008, before backing down somewhat and directing the EPA to fix a number of problems. In the meantime, the rule has remained in effect - CAIR is zombie regulation.
Nobody likes zombie regulation. It’s hard to determine environmental benefits and for industry to determine costs, and markets in tradable allowances don’t work very well when the future structure of those markets (and even whether they will exist) is unclear. Whatever the EPA does to address the court’s concerns with CAIR is therefore likely to be an improvement on the current situation.
The EPA is expected to release the required revisions to CAIR soon. Some of the issues the court identified with CAIR in its original form are that compliance deadlines for it and other regulations do not match, and that the EPA exceeded its authority by making changes to the congressionally-created Title IV trading program for SO2.
The largest problems for the court, however, were with the trading programs created or modified by CAIR. How the EPA addresses these concerns will be the most interesting part of the new CAIR and will shed the most light on how far the EPA can go in using emissions trading methods under existing CAA authority—something that may be important for future GHG regulation.
Will emissions trading survive?
The original CAIR created new interstate trading programs for SO2 and NOx or expanded existing ones. The court, however, cast real doubt on whether these trading programs are viable. Specifically, the court held that the CAA authority (NAAQS) used by the EPA requires actual reductions in emissions from each state that contributes to pollution in downwind areas (it is largely this interstate pollution “transport” problem that CAIR is designed to address). The trading programs in the original CAIR would have reduced pollution from upwind states, but free trading among states meant that the EPA could not guarantee that every upwind state would reduce its emissions.
It’s hard to see how the EPA can comply with the court’s interpretation of the CAA here and keep interstate trading as part of the revised CAIR. If you have interstate trading, you reduce costs of compliance but at the expense of certainty over where emissions will be reduced. It is just this certainty that the court claims the CAA requires. Trading may survive in the form of purely intra-state markets, or the EPA may devise some hybrid regulation that includes some command-and-control elements that would force reductions in emissions in all upwind states.
The structure the EPA chooses—and whether the court deems it permissible—is important. There is some chance that the EPA will choose (or be forced) to regulate GHGs under the NAAQS program. If the EPA does go down this route, CAIR and the courts’ treatment of it will provide the precedent for a GHG trading system. Can such a system be implemented nationwide under the CAA if only intrastate trading is permitted for other pollutants? If GHG regulations are not driven by contributions to other states' pollution problems, the EPA might be able to distinguish them from the CAIR regulations. But SO2 and NOx are the best examples by far of emissions trading programs under the CAA. If the new CAIR kills or guts these programs, the precedent for any GHG trading scheme - at least under the NAAQS - will be weakened.
The proposed new CAIR should be released by the EPA in the near future. The character of the emissions trading programs it creates will tell us a lot about the future of the CAA for GHGs and beyond.
Nathan Richardson is a Visiting Scholar at RFF.
