The following is the third in a series of guest posts from the Constitutional Accountability Center, a progressive legal think tank that works on constitutional and environmental issues. It is written by online communications director Hannah McCrea and president Doug Kendall, who also help maintain CAC’s blog, Warming Law. (Part I, Part II)

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A debate has been rumbling over whether it is possible for the EPA to establish a cap-and-trade program for carbon emissions under the existing Clean Air Act. We’ll discuss that debate in Part IV of this series. Setting aside that debate for a moment, the Act can still serve as an important catalyst for congressional action on climate change, if used effectively by the new Obama administration. Happily, Obama’s all-star climate team seems to clearly understand this important truth.

The history here by now qualifies as environmental lore. Back in 1999, a group of concerned organizations, led by the tiny but bold International Center for Technology Assessment, petitioned the EPA to regulate greenhouse gases under the CAA, arguing that the threat to human populations posed by climate change meant each of these chemicals fell within the Act’s definition of an “air pollutant” that “endangers public health or welfare.” After several years of legal prodding, and under Bush-appointed leadership, the EPA denied the petition. EPA claimed it did not have the authority to regulate GHGs and that, even if it did, it would defer regulation until climate science and policy, including foreign policy, became better developed.

Several U.S. states and environmental groups then challenged the EPA’s decision in federal court, ultimately resulting in a landmark 5-4 Supreme Court ruling against the EPA issued in April 2007. The Court not only held that the EPA had the authority to regulate GHGs under the CAA, but that it was unjustified in delaying its action based on policy considerations not enumerated in the CAA itself.

The Court’s ruling in Massachusetts v. EPA [PDF] was an historic moment in the fight against climate change. With federal action at an alarming standstill, the highest court in the land informed former President Bush that his administration already had the power it needed to address GHG emissions on a national level. Specifically, the Court held that the EPA could apply its broad authority under the CAA to regulate CO2 as a pollutant, and therefore did not need to wait for Congress to begin aggressively addressing climate change on a more comprehensive basis.

The Bush administration, unsurprisingly, acted as though this ruling never occurred. It endlessly delayed making the endangerment finding necessary to regulate auto emissions under Section 202 of the Act. It also continued busily granting permits for the construction of major GHG-emitting sources, eventually leading to an important ruling in the now-famous “Bonanza” case. In Bonanza, the Sierra Club challenged EPA’s refusal to consider CO2 emissions in evaluating a proposed coal-fired power plant subject to Prevention of Significant Deterioration permit requirements, arguing that because CO2 is “subject to regulation” under the CAA’s monitoring and reporting requirements, EPA was required to impose Best Available Control Technology emissions limits for CO2 as part of the permit.

In November 2008 the EPA’s highest administrative panel, the Environmental Appeals Board, rejected the reasoning employed by EPA for not limiting CO2 and instructed the Agency to go back and reconsider whether CO2 is “subject to regulation” under the pertinent permitting provisions. Acting with speed notably lacking in its response to Massachusetts v. EPA, Bush EPA Administrator Stephen Johnson reacted by issuing a memo designed to blow off the decision and continued issuing permits for new coal-fired power plants.

This history illustrates how much untapped power the EPA has to regulate GHGs today. As President Barack Obama’s EPA Administrator Lisa Jackson told the Senate in her confirmation hearing, these legal decisions have laid the groundwork for an aggressive strategy by the new administration to start combating climate change.

The Obama EPA should begin this strategy by pulling Johnson’s midnight memo and instructing states that BACT for CO2 emissions should be required in permits for new coal-fired power plants in PSD areas, in compliance with the Bonanza decision. The EPA should then make the endangerment finding that formally triggers CAA regulations so that it can lay out and follow a more comprehensive schedule for reducing CO2 emissions. This includes using its authority under Section 111(b) of the Act to develop New Source Performance Standards for new major stationary sources of emissions, as well as its authority under Section 111(d) to set Standards of Performance for existing major stationary sources.

Next, President Obama should continue to tackle nationwide fuel economy standards. These are controlled by two federal agencies — the EPA, which sets vehicle emissions standards under Section 202 of the CAA, and the Department of Transportation-led National Highway Traffic Safety Administration, which sets federal corporate average fuel economy (CAFE) standards for new vehicles on a fleet-wide basis.

In an ideal world, this complicated arrangement would change so that only the EPA controls federal auto emission standards (which in turn, dictate fuel economy standards). However, given the President’s recent decision to order NHTSA to finalize higher fuel economy standards, the NHTSA-EPA dual system of setting federal fuel economy standards will likely stay in place. Within this framework, then, President Obama should continue to use his regulatory authority to put the maximum possible amount of upward pressure on CAFE standards for the nation’s entire fleet of vehicles.

What Ms. Jackson could not say so blatantly in her confirmation hearing (though she certainly implied it) is that these relatively straightforward measures will force Congress’ hand on cap-and-trade. Not only, as authors Michael Northrop and David Sassoon strongly argued in a recent issue of Environmental Finance, can the EPA “jump-start” federal regulation of GHGs with the CAA, but it can also signal to industry that it intends to fully exploit its authority to restrict CO2 emissions using rigid “command-and-control” measures. In the face of this undesirable (from their perspective) regulatory environment, firms can be expected to quickly throw their weight behind a more flexible, market-based approach like cap-and-trade, which would provide them with long-term, predictable targets around which they can plan for the future.

President Obama has therefore entered office with significant tools for prompting cap-and-trade through legislative action. Through the authority that his administration already has under the CAA, which has been affirmed by the U.S. Supreme Court, President Obama should be able to convert the greatest opponents of cap-and-trade (including the auto industry, the utility industry, a
nd the coal industry) into supporters, thereby laying the groundwork for an aggressive, comprehensive federal cap-and-trade bill in the very near future.