Old Roads to a New Destination

This article originally appeared in the May/June 2011 edition of The Environmental Forum (www.eli.org), and is reposted with permission.

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Given the dim prospects for climate change legislation in the 112th Congress, all eyes have turned to federal agencies and the states as the primary drivers of climate and energy policy in the United States. In a July 2010 report for the World Resources Institute titled “Reducing Greenhouse Gas Emissions in the United States Using Existing Federal Authorities and State Action,” we examined the emissions reduction potential of federal authorities on the books and announced state actions to determine whether the United States could reduce its emissions of heat-trapping gases that cause global warming, even as Congress refuses to tackle the problem. We concluded that federal agencies and states could indeed put the United States far along on a path to meet its international commitment to reduce emissions by 17 percent from 2005 levels by 2020 if the Obama administration pursues a go-getter approach.

Since issuance of the report, we have been tracking actions by federal agencies to reduce global warming pollution. While it is too early to know whether the administration’s actions will be enough to substantially reduce U.S. emissions of heat-trapping gases, it has made significant steps in the right direction. Additional steps can and should be taken, using a variety of laws and regulations under the aegis of several agencies. This article identifies additional steps to drive significant short-term abatement.

As the administration takes action to reduce greenhouse gas emissions, some in Congress have mounted efforts to stop them. A number of bills and amendments have been advanced that, if enacted, would delay or stop EPA and other agencies from driving reductions in greenhouse gas emissions. At the time this article was finalized for publication, no significant anti-regulatory measure had made it to the president’s desk. Should such a measure be passed, the administration has signaled that President Obama would veto the bill. To overcome that veto, anti-regulatory legislators would need to muster a two-thirds vote in both the Senate and House of Representatives — a feat that appears unlikely. Congressional pressure on the administration can nevertheless have a dampening effect on its policy decisions even if Congress fails to strip federal agencies of their authority to regulate greenhouse gases. Political pressure could result in less ambitious regulations and fewer reductions.

As we watch the administration, hope for meaningful reductions also comes from the states. In the past, states have demonstrated capacity to effect change when the federal government has not acted. While the outlook has shifted with last fall’s elections, recent actions by EPA, which require state participation under the federal Clean Air Act, will provide impetus for states to resume some work in this space. Federal agencies currently possess regulatory authority over a wide range of greenhouse gas emitters in the United States. The most significant of these authorities are contained in the Clean Air Act. In 2007, the Supreme Court decided that greenhouse gases fit within the expansive definition of a pollutant under the act. That decision made a range of regulatory tools to reduce emissions available to EPA. The CAA does prescribe limits on EPA action, however, as the major statutory authorities likely to be employed under the act — Title II vehicle emissions standards, Section 111 performance standards for power plants and industry, and Title VI regulation of hydrofluorocarbons, require that EPA base emissions standards not solely on scientific determinations of what is required to stave off the worst effects of global warming, but also on careful considerations of cost and other impacts.

Fortunately, EPA is not alone in its endeavor to reduce emissions of the heat-trapping gases that cause global warming. The National Highway Traffic Safety Administration shares with EPA the authority to establish Corporate Average Fuel Economy standards for light, medium, and heavy-duty vehicles, which together account for nearly one-quarter of all U.S. GHG emissions. The Department of Energy has the ability to drive reductions in emissions through efficiency standards for appliances and equipment, and the Federal Aviation Administration is empowered to regulate the aviation industry. Meanwhile, the Department of the Interior, through its Bureau of Land Management, and the Department of Agriculture, through its Forest Service and farm programs, have the ability to improve the way that public and private lands are managed.

Predicting what EPA and other federal agencies will be able to accomplish when they use the regulatory tools afforded them under current federal law is not an exact science. Because we cannot forecast what each federal agency will do, we developed three scenarios meant to capture the range of reductions we might see. The scenarios are based on a careful reading of the statutory language and published technical studies. The range of reductions projected under these scenarios is depicted in Figure 1. Our analysis finds the United States falling short of the its international commitment to reduce emissions to 17 percent below 2005 levels by 2020 even if federal agencies are aggressive about achieving reductions. If federal agencies fully take advantage of the regulatory authorities and pursue reductions like go-getters, they could reduce U.S. emissions to 12 percent below 2005 levels by 2020, five percentage points shy of realizing the U.S. commitment. If federal agencies fail to capitalize on available reduction opportunities, however, middle-of-the-road or lackluster reductions will result, and the U.S. will fall far short of the 2020 goal. Emissions reductions continue past 2020 as standards are made more stringent and as old, inefficient sources are replaced. Thus, a go-getter approach would net 22 percent reduction from 2005 levels in 2030 due to federal action alone. We depict the president’s international commitment, to reduce greenhouse gas emissions by 17 percent below 2005 levels by 2020, and by 83 percent in 2050, with the straight line labeled 17% and 83% reduction pathway. For comparison purposes we have indicated the reductions necessary to prevent greenhouse gases from rising above 450 parts per million of carbon dioxide equivalent, to prevent global average temperatures from rising more than 2 degrees Celsius.

It might be possible to close all or part of the gap through discrete legislative enactments that fill holes in federal agency authorities. For example, the Department of Energy could be granted the authority to establish national energy efficiency codes for buildings. Congress could improve the way that transportation funding is allocated to encourage smart planning that leads to reductions in the growth of vehicle miles traveled. In the long-term, our study suggests that we will need more significant legislative measures as the gap between the go-getter line and the reduction targets grows, and certainly if we are to achieve the much deeper reductions warranted by the science.

States can also help close the emissions gap. Traditionally states have exercised broad authority to regulate energy production and delivery within their borders. States have also been first movers when it comes to enacting environmental laws to reduce pollution. States are demonstrated innovators in the energy space, with over half adopting renewable portfolio standards, which require a stated percentage of renewable generation, and another half adopting energy efficiency promoting policies such as systems benefits charges and energy efficiency portfolio standards.

States have more recently begun to take advantage of their authority to regulate GHG emissions. New Hampshire was the first to pass a law to cap greenhouse gas emissions from power plants in January 2002, and Massachusetts sought to reduce GHGs from its dirtiest power plants through regulations shortly thereafter. In 2009, the Regional Greenhouse Gas Initiative began to regulate carbon dioxide emissions from large power plants in 10 northeastern and mid-Atlantic states. California and New Mexico subsequently passed regulations that would lead to the implementation of multi-sector cap-and-trade programs for GHGs. In addition, a number of states have begun developing low carbon fuel standards. Given this history, it is not a question of whether states will take action, but instead how many will act and how. In an effort to help understand their contribution, we developed state scenarios based on previously expressed ambition. The cumulative reductions that could result from various levels of combined state and federal ambition are depicted in Figure 2. Reductions in the 2020 time frame for a go-getter approach amount to 14 percent reductions from 2005 levels by 2020 if state action is factored in as well, still short of the 17 percent commitment.

Having briefly examined the available federal authorities and assessed the potential emissions reductions from federal and state action, and suggesting ways that additional reductions could be accomplished to close the emissions reduction gap, we turn first to the status of federal action. Federal agencies are at various stages of setting regulations that would affect approximately two-thirds of U.S. GHG emissions. In the space that follows we lay out the progress made to date across each major sector of the U.S. economy and identify the areas where significant potential remains. Just over one quarter of U.S. emissions come from the transportation sector. The bulk of these emissions (16 percent of total U.S. emissions) come from lightduty vehicles, a category that includes cars and small trucks. The next largest sources of transportation emissions are medium- and heavy-duty vehicles, categories that account for eight percent of total U.S. emissions and include tractor-trailers, refuse haulers, urban delivery trucks, and very large pickup trucks. Congress has vested authority in both the National Highway Traffic Safety Administration and EPA to drive improvements in these sources. The Energy Policy and Conservation Act of 1975, as amended by the Energy Independence and Security Act of 2007, provides NHTSA with the authority to establish Corporate Average Fuel Economy standards for light, medium, and heavy-duty vehicles. Meanwhile, Title II of the Clean Air Act provides EPA with the authority to establish GHG emissions standards for these sources. NHTSA and EPA have already finalized standards for lightduty vehicles of model years 2012 through 2016, and are currently working to develop standards for model years 2017 through 2025. That proposal is due to be released on September 1, 2011. In addition, NHTSA and EPA proposed the first ever standards for medium- and heavy-duty vehicles in October 2010. These rules will affect medium- and heavy-duty vehicles sold from 2014 through 2018.

The electric power sector represents approximately one-third of U.S. emissions of heat-trapping gases. Industry, chiefly manufacturing plants and refineries and the like, make up another 15 percent of U.S. GHG emissions. When EPA’s regulations for lightduty vehicles went into effect on January 2, 2011, CAA requirements for pre-construction permitting of certain large power plants and industrial facilities were triggered. Under the act, new and modified major stationary sources that emit more than 250 tons of GHGs must apply for pre-construction permits under the Prevention of Significant Deterioration/Best Achievable Control Technology permitting program. Because the statutory threshold would have required EPA to go through permitting processes for hundreds of thousands of sources, EPA issued the so-called “Tailoring Rule” in May 2010 citing “administrative necessity.” This limited what facilities will be covered to only very large greenhouse gas emitters such as new and modified power plants and industrial facilities and prevented regulation of small businesses, like the proverbial mom and pop grocery, under the pre-construction permitting program. The pre-construction permitting program only applies to new and modified units. In addition, it is carried out in a case-specific manner that provides little certainty about the environmental outcomes.

A much more appealing program for the regulation of large sources such as power plants and industry is performance standards under CAA Section 111. Section 111 provides for the establishment of performance standards for new and modified sources under Section 111(b) and mandatory emissions guidelines that require states to regulate existing sources under Section 111(d). In December 2010, EPA announced that it will propose the first GHG performance standards and mandatory emissions guidelines under Section 111 for power plants by July 26, 2011, and finalize those standards and guidelines by May 26, 2012. The agency also announced that it will propose corresponding standards and mandatory guidelines for refineries by December 15, 2011, and finalize those by November 15, 2012. States must follow the guidelines and propose performance standards to cover existing power plants and refineries. Together these sources account for nearly 40 percent of the U.S. emissions inventory.

While EPA is working to reduce emissions by making power generation less carbon intensive, the Department of Energy is doing its part to reduce emissions by driving down energy demand. According to the Appliance Standards Awareness Project, DOE updated 10 different efficiency standards between January 2009 and February 2011 and is scheduled to update another 13 standards by the end of 2011. While the transportation, electric power, and industrial sectors tend to get the most attention when considering policies to reduce emissions, our study finds that some relatively small sectors such as landfills, coal mines, natural gas systems, and hydrofluorocarbons can contribute in major ways at relatively low cost. These sectors only account for 7 percent of U.S. emissions, but can account for 37 to 60 percent of the reductions in 2020.

HFCs are a rapidly growing source of emissions. They are primarily used in refrigeration and air conditioning. Congress granted EPA the authority to regulate these emissions through CAA Title VI. The first indication that the administration intended to regulate these sources was provided by its 2009 joint U.S., Canadian, and Mexican proposal to amend the Montreal Protocol submitted to the United Nations Environment Program Ozone Secretariat. Those amendments were resubmitted in 2010, but have not yet passed. EPA and the State Department have indicated that they intend to continue working with signatories over the coming year in effort to pass those amendments. Once those amendments are adopted, the CAA automatically vests EPA with the authority to meet its commitments under the Montreal Protocol. Independent of this pathway, EPA could also begin to pursue delisting of approved substitutes under its Significant New Alternatives Policy program, which implements CAA Section 612. Though the substitutes currently only account for only two percent of the GHG emissions inventory, significant growth in emissions is expected if action is not taken. If the ramp-down schedule put forth in the joint proposal is followed, then considerable reductions from business-as-usual projections are possible.

The case for reducing GHG emissions from large non-agricultural methane sources such as landfills, coal mines, and natural gas systems is just as strong, though EPA has not yet indicated it intends to regulate these sources. Even though such sources only represent a combined 5 percent of the U.S. GHG inventory, reductions from these sources are available at a relatively low cost. For example, EPA estimates that landfills can reduce their emissions by about 60 percent at $8 per ton of carbon dioxide equivalent emissions (CO2e) and 74 percent at $20 per ton of CO2e, and that coal mines can reduce emissions by 86 percent at only $5 per ton of CO2e.

The contribution of these sources becomes even more significant when one considers the 20-year global warming potential. Global warming is a long-term problem due to the inertia behind our existing energy infrastructure and the fact that the leading greenhouse gas, carbon dioxide, resides in the atmosphere for hundreds of years. Therefore, the most commonly accepted measure of a greenhouse gas’s impact is the 100-year global warming potential. However, recent data suggest that we are starting to see impacts of climate change now, and so some have suggested that we look at short-duration gases as a way to buy ourselves time to make the steep reductions necessary. If we do that, and instead consider the impact that the gases will have over the next 20 years, we find that in 2020 reductions from non-agricultural methane sources could mitigate climate change impacts as much as emissions reductions from power plants and several times the reductions possible from manufacturing. EPA, however, has not yet signaled its intent to begin regulating these sources.

Additional reductions may be possible through improved management of public and private lands. For example, the Forest Service could increase sequestration on federal forest lands while the Bureau of Land Management could increase sequestration on some of the 264 million acres of public lands that it administers. The Department of Agriculture could also encourage practices that would reduce greenhouse gas emissions or increase sequestration on farmland. In the first iteration of the report we could not identify any literature that would allow us to accurately quantify the magnitude of sequestration possible using existing regulatory policies without expanding program budgets. As a result, we did not include such policies in our analysis. We hope to close this gap in subsequent updates to the report. Following our approach in other sectors, once we can associate meaningful greenhouse gas abatement with specific policies, we will track progress towards their implementation. Just as the outlook in Congress has changed, so too has the outlook at the state level. The northeastern and mid-Atlantic Regional Greenhouse Gas Initiative, which covers CO2 emissions from large power plants, was launched in January 2009. RGGI was followed by the Western Climate Initiative and the Midwestern Accord, both of which are designed for implementation in the 2012 timeframe. If fully implemented by all participants, these initiatives would have covered 23 U.S. states. However, of the 13 states engaged in the WCI and Midwestern Accord, only New Mexico and California have taken steps to promulgate regulations to implement the cap-and-trade program, suggesting that these two initiatives will fall considerably short of their goals.

Beginning in 2011, however, states will have new impetus to regulate emissions from existing large stationary sources, such as power plants and industry. EPA sets performance standards for new and modified units under CAA Section 111(b). EPA then establishes guidelines that require states to regulate existing units under CAA Section 111(d). States have considerable flexibility in how they meet those guidelines so long as they can demonstrate that their program is no less stringent than the guidelines established by EPA. States already moving forward with cap-and-trade programs are expected to ask EPA to allow those programs to be used for compliance with emissions guidelines established by EPA via New Source Performance Standards. In our joint WRI and Columbia Law School Center for Climate Change Law working paper “What’s Ahead for Power Plants and Industry, Using the Clean Air Act to Reduce Greenhouse Gas Emissions, Building on Existing Regional Programs,” we find that there is room for EPA to honor such a request. In short the argument is that while Section 111 does not expressively provide for the states’ establishment of a cap-and-trade program for greenhouse gases, it requires states to develop a plan that establishes a “standard of performance” for the air pollutant. EPA has previously interpreted “standard of performance” to allow for cap-and-trade. This was done in both the mercury and greenhouse gas context. While this interpretation was contested in a legal challenge to the Clean Air Mercury Rule, the D.C. Circuit Court of Appeals never decided the legal challenge to the CAMR cap-and-trade program, and instead vacated CAMR on other grounds. The Bush EPA’s Advance Notice of Proposed Rulemaking on greenhouse gas regulations issued in July 2008 recapitulated this interpretation of the CAA, concluding that cap and trade is a permissible option for regulation under Section 111(d).

The Obama EPA, however, has neither endorsed nor disavowed the previous administration’s interpretation of the act to allow cap and trade. Although the Supreme Court in 1978 held in ASARCO v. EPA that trading is not permitted for new plant standards under Section 111(b), EPA has argued that this decision was later overturned by the Court in Chevron v. NRDC and furthermore to the extent that ASARCO is still good law, it applies only to standards of performance for new units under 111(b), and not the more flexible process for existing units under 111(d). Though we find that there is likely to be considerable flexibility afforded to states as they propose plans to comply with EPA’s emissions guidelines, there are likely to be some limitations around certain provisions, such as scope, offsets, and cost-containment. These issues are explored in more detail in the working paper.

Moving forward it is likely that states will continue to develop and implement new programs that drive reductions in greenhouse gas emissions. For example, states may adopt programs that encourage investment in renewable energy and energy efficiency, drive improvements in building efficiency, improve land use management, or reduce the greenhouse gas footprint of transportation fuels. Such policies could drive greenhouse gas emissions reductions beyond what can be achieved through federal action alone, helping us to reach the Obama administration’s 17 percent reduction target.

In the absence of comprehensive climate and energy legislation, federal agencies and states can be major drivers of greenhouse gas emissions reductions. As our WRI report reveals, Congress has provided federal agencies with valuable tools that can help the nation achieve significant reductions in the near term. EPA and other federal agencies have begun the significant task of regulating emissions across a number of economic sectors, including transportation, electricity and some industry. Additional sectors, such as coal mines, natural gas distribution systems, and landfills, present promising areas for low-cost regulation that EPA should address in the near term. While some members of the 112th Congress have expressed an interest in eliminating these authorities, no such legislation has passed, and the Obama administration retains the power of the veto. So, the possibility for significant action remains, and the 17 percent reduction target is still within sight. Readers can track the administration’s progress towards this goal using WRI’s web-based regulations tracker at www.wri.org/federalclimateaction.

Finally, it is worth keeping an eye on the states to see what role they will assume moving forward in crafting creative solutions to the climate problem as they comply with new EPA regulations, and also to see to what extent they will help drive deeper reductions than federal agencies can achieve alone.