We are rapidly approaching national greenhouse gas legislation, either through a congressionally-led cap-and-trade bill or an EPA-led amendment to the Clean Air Act. However passed, these regulations will then immediately face a practical problem: how do you enforce a law that is in conflict with itself?

This problem arises because of the Clean Air Act’s core failing: It compels businesses to increase their CO2 emissions. The moment we compel businesses to reduce those same emissions is the moment we expose this flaw and invite waves of litigation that will not only delay the implementation of CO2 policy, but also invite compromise and negotiation that will likely be forced to sacrifice some of the Act’s environmental intent. How on earth did we get here? And what are we to do about it?

The clean air act mandates greenhouse gas pollution

Broadly characterized, the Clean Air Act does three things:

  1. It sets limits on the concentration of regulated pollutants at regulated point sources;
  2. It steadily tightens those limits over time, and;
  3. It requires any new pollution sources to meet the most current (stringent) pollution standards.

By any measure, the act has done a commendable job of reducing non-CO2 air pollution. But it has unwittingly increased CO2 pollution as well.

The first reason is the political tension in the act’s structure, which led to the concept of “grandfathering.” In essence, grandfathering says that if you get an air permit, you can always operate under that permit, regardless of future environmental rules. Many of us have direct experience with this concept in practice: when cars were forced to no longer burn leaded gasoline, we didn’t have to scrap our old Dodge Darts and buy new cars; we simply had to come into compliance once we bought a new car. Similarly, a coal plant permitted to release 200 parts-per-million of nitrogen oxide pollution can emit at those levels in perpetuity, even though new plants must comply with standards that are 10-times more stringent.

Seen from the perspective of the polluter, this makes a lot of sense. It would be hard to contemplate buying a car if you might be forced to buy a new one a year later because of tightening environmental regulations. However, for power plants and industrial facilities that generate pollution as a byproduct of selling a product (power, steel, etc.) grandfathering serves to give a decided economic advantage to the dirtiest and oldest sources, since they compete in a market that is set by the costs of pollution controls which they do not have to bear.

The perverse result is that rules designed to clean the air provide direct economic incentives to the dirtiest sources. Recognizing this potential, the Act has a built in trap-door in the form of “New Source Review.” NSR says, in essence, that your permit is revoked the moment you do a “major modification.” This line is not nearly as sharp as one might hope, but it has generally been interpreted to mean that while regular maintenance won’t jeopardize your permit, plant upgrades will.

That sounds reasonable, except for this awkward fact: the cheapest and most environmentally beneficial way to increase plant capacity is to increase fuel efficiency. Generate more power with the same amount of fuel combustion and associated pollution and the world is a better place, right? Wrong. Because that upgrade would constitute a major modification, revoking your air permit and taking away the economic advantage that your old, dirty plant has. The result is that our electric and industrial sector has, since the passage of the Clean Air Act, been incentivized to keep old, dirty facilities running rather than build new, clean ones. In the transportation sector, this largely hasn’t mattered: Dodge Darts weren’t built to last. But for the rest of the economy, we are intentionally driving 12-mpg, 1960s-vintage power plants, furnaces, and boilers, spewing needlessly high levels of CO2 into the atmosphere.

There are laws in process that would fix some parts of these problems and cause some of the dirtiest of the grandfathered coal facilities to be shut down. But even if the problems innate to grandfathering were fixed, the Act would still mandate increased CO2 emissions. This reason is mathematical.

Suppose you want your kids to eat healthier. Which is the more effective approach? (a) Tell them they can only have one scoop of ice cream with dinner, or; (b) Tell them their meal cannot exceed 10 percent ice cream?

Option A clearly limits their ice cream consumption. Option B most likely leads to fat kids, who quickly figure out that if they can scarf down a few more bites of spaghetti, they’ll get a pro rata increase in their ice cream allowance. The Clean Air Act takes the fat kid approach.

The overwhelming majority of the exhaust gas in a stack is CO2 and combustion air. Both of these are a direct function of the volume of fuel burned. The Clean Air Act sets pollution limits not based on total pollution release, but based on the concentration of pollutants in the stack exhaust. The perverse result is that if you increase the efficiency of your combustion process — e.g., you burn less fuel — you will very likely violate your air permit, even if your actual air pollution is unchanged. Thus, like the kid who tempers his desire to eat less pasta with the pain of less ice cream, our power plants and industrials are forced to temper their desire to save money on fuel purchases with the pain of losing their operating permit. The result is massive, needlessly inefficient combustion of fossil fuels, raising the cost and pollution of US goods and services.

To date, this has been an egregious environmental failure, but it is about to become a legal issue as well. Stealing from Peter to pay Paul may be short-sighted, but only presents a legal problem at the point when both Peter and Paul have equal rights under the law. The moment CO2 becomes a regulated pollutant is the moment when Peter files his first lawsuit.

The easy fix

The solution is surprisingly simple. We ought not compromise our environmental principles — we simply need to fix the math. But EPA needs to make the fix now, before CO2 regulation is passed, when the changes can be made administratively, and on the the agency’s terms. If we instead wait until the inevitable litigation starts, those changes will be directed by the courts, the Congress, and any number of self-interested parties — not all of which will have the long-term health of the environment in mind.

Fixing the math requires only that we shift existing pollution standards to an output-basis. (Note that this need not initially address CO2 — but it must address currently-regulated pollutants to avoid conflict.) Replace parts-per-million permits with parts-per-kilowatt-hour permits (or parts-per-Btu, in the case of many industrial processes. As is often the case, the states have led the way in this effort (See here [PPT] for an overview of Connecticut’s efforts, to pick just one example.) Moreover, the EPA already has a deep internal understanding of the issue and how to best implement.

This simple change would immediately convert energy efficiency from a permit-killer to a pollution control device on its own merits. Perhaps more significantly, it immediately would allow businesses to profitably meet their environmental requirements (af
ter all, burning less fuel saves money). A world facing economic and environmental challenges inevitably asks which of those goals must be sacrificed in the name of the other. Output-based standards is that rare policy tool that succeeds on both fronts. But the moment for reform is now, before litigation forces us down a path that is only indirectly shaped by the broader public interest.