EPA ‘On Course’ for Carbon Market, Cantor Unit Says (Update4)
February 22, 2010, 08:17 PM EST
By Simon Lomax
Feb. 22 (Bloomberg) -- The Environmental Protection Agency might act alone to set up a U.S. carbon market if legislation that would establish a cap-and-trade program for greenhouse gases fails to pass Congress, said CantorCO2e, the emission markets unit of Cantor Fitzgerald LP.
“If Congress doesn’t pass legislation, EPA is clearly on a course to develop its own approach to cap-and-trade,” Allan Bedwell, a vice president at CantorCO2e, said in a telephone interview.
The Supreme Court ruled in 2007 that the EPA has the authority to regulate greenhouse gases under the existing Clean Air Act. So far, the agency has used this authority to propose tougher fuel economy standards for cars and a requirement that new and modified industrial facilities, such as power plants, use the “best available” technologies to minimize pollution.
Instead of the EPA regulating greenhouse gases under current law, President Barack Obama last year called on Congress to amend the Clean Air Act by adopting cap-and-trade legislation, which would allow companies to buy and sell a limited number of pollution rights. After narrowly passing the House, legislation stalled in the Senate.
Budget Request
With the passage of a cap-and-trade program in doubt, the EPA “signaled” in its budget request for fiscal 2011 that an emissions trading system might still be possible through agency regulations, Bedwell said.
The agency’s Feb. 1 request, which is subject to congressional approval, calls for $7.5 million to “assess and potentially develop” further greenhouse gas regulations that include “where possible, market-oriented mechanisms and flexibilities to provide lowest cost compliance options.”
When environmental regulators talk about market-oriented ways to cut emissions, it is usually “code for cap-and-trade,” said Bedwell, a former deputy secretary at the Florida Department of Environmental Protection.
While carbon traders still want Congress to pass cap-and- trade legislation, “in the meantime EPA should explore market- based approaches,” said David Hunter, U.S. director for the Geneva-based International Emissions Trading Association, which counts Goldman Sachs Group Inc., JPMorgan Chase & Co. and American Electric Power Co. among its members.
“It makes a lot of sense for EPA to assess its existing authority to implement cap-and-trade,” Hunter said in an e-mail.
The EPA wants the $7.5 million to examine its options for regulating “specific industries” rather than developing “economy-wide approaches or systems,” Brendan Gilfillan, an agency spokesman, said in an e-mail.
“No final decision has been made on any action to address greenhouse gases beyond what EPA has previously announced,” Gilfillan said.
Lawmaker Decision
Because Congress passes the spending legislation that funds federal agencies, lawmakers could block the EPA from setting up a carbon cap-and-trade program under the existing Clean Air Act by denying money for such an effort, Bedwell said. Still, the Democrats, who hold majorities in both the House and the Senate, are likely to let the EPA “investigate” the feasibility of a carbon cap-and-trade program under the Clean Air Act, he said.
Republicans and some Democrats in Congress have said the EPA shouldn’t start regulating carbon dioxide and other greenhouse gases from industrial activity that scientists have linked to global warming until new legislation is passed.
Murkowski’s Plan
Senator Lisa Murkowski, an Alaska Republican, plans to force a vote next month on a motion disapproving the EPA’s Dec. 7 finding that greenhouse gases pose a danger to the public health, her spokesman, Robert Dillon, said in a telephone interview. The agency’s so-called “endangerment finding” opened the way for regulation of the emissions under the Clean Air Act.
Three Senate Democrats, Blanche Lincoln of Arkansas, Mary Landrieu of Louisiana and Ben Nelson of Nebraska, co-sponsored Murkowski’s resolution when she introduced it last month.
Eight more Senate Democrats sent a letter to EPA Administrator Lisa Jackson on Feb. 19 to express “serious economic and energy security concerns relating to the potential regulation of greenhouse gases” under the Clean Air Act.
The eight senators, led by West Virginia Democrat Jay Rockefeller, are from states that rely on coal mining and electricity generated from the fossil fuel. While they support the agency’s proposal to toughen fuel-economy standards for new cars and trucks, “we remain concerned about the possible impacts on American workers and businesses in a number of industrial sectors,” the Senate Democrats said in the letter.
Jackson is scheduled to testify tomorrow on the EPA’s fiscal 2011 budget request in the Senate Environment and Public Works Committee.
‘Bipartisan Reaction’
Murkowski doesn’t believe the existing Clean Air Act allows the EPA to set up a carbon cap-and-trade program, Dillon said. There has been a “bipartisan negative reaction” to the steps the EPA already plans to take to regulate industrial greenhouse gas emissions and “that would only grow if they continue to push the envelope of their authority,” he said.
In the House, Democrats Ike Skelton of Missouri, Collin Peterson of Minnesota and Earl Pomeroy of North Dakota have joined Republican calls for a halt to the EPA’s proposed greenhouse gas regulations.
Under President George W. Bush, the EPA tried to set up a cap-and-trade program for mercury pollution from coal- and oil- fired power plants through agency regulations after proposed legislation to establish the trading system stalled in Congress. A federal appeals court overturned that regulation in February 2008, saying the Clean Air Act didn’t allow for a cap-and-trade program for mercury.
Court Challenges
Existing law would permit the EPA to set up a cap-and-trade program for greenhouse gases, Jonathan Wiener, an environmental law professor at Duke University, said in an e-mail.
The EPA is already facing federal court challenges from more than a dozen companies, industry groups and U.S. states over its decision that greenhouse gases are a threat to human health and should be regulated.
Whether the EPA decides to try a cap-and-trade program or some other means of regulating greenhouse gases, more litigation is almost certain, Jonathan Cannon, a University of Virginia School of Law professor and former EPA general counsel during the Clinton administration, said in a telephone interview. He said the agency is routinely sued on the grounds that it has overstepped the bounds of the Clean Air Act.
“That’s just a historical pattern and I would expect it to be repeated with virtually any rule that EPA adopts under the Clean Air Act to deal with climate change,” Cannon said.
Top environment stories: GREEN <GO> Stories about U.S. and climate: TNI US CLIMATE <GO> Global emissions data: EMIS <GO> Northeast U.S. trading: RGGI <GO>
--With assistance from Mathew Carr in London. Editors: Dan Stets, Jane Lee.
To contact the reporter on this story: Simon Lomax in Washington at +1-202-654-4305 or slomax@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at +1-212-617-4403 or dstets@bloomberg.net.
