The EPA to the rescue?
With the Copenhagen meetings under way, the potential for a breakthrough on global carbon reduction targets looks better than it has for quite some time. Obama is set to arrive at the end of next week to help seal a deal, which he hopes will give increased momentum for the proposed cap-and-trade legislation that has passed the House but is stalled in the Senate.
On Monday, the first day of Copenhagen, the EPA announced that it has the authority to regulate greenhouse gases, which is a none-too-thinly-veiled warning to Congress that if it doesn’t act the EPA may. Since EPA’s regulatory powers under the Clean Air Act are quite extensive, many businesses view the cap-and-trade legislation, for which they can wield tremendous influence, as a lesser of evils. The game of chicken that is now underway between the EPA and Congress as to which body will ultimately set the terms of greenhouse gas regulation is a fascinating case study in political economy and gamesmanship.
The conventional wisdom seems to be that Congress will not want to cede the authority to the EPA and that the proposed cap-and-trade legislation will pass in some form (even if severely weakened) in 2010. While many in the environmental community rightly view this is a potential historic victory in the making (relative to the last eight years of obstruction under the Bush Administration), a weak cap-and-trade bill may actually do more harm than good.
This is because the investments that need to be made in order to make the major reductions in emissions required after 2020 are extensive, and will likely not be spurred by the low price of carbon (and other greenhouse gases) that is predicted should cap-and-trade pass. If the price of carbon were allowed to rise significantly as the cap tightened, perhaps reaching $75-100 per ton, this might be sufficient to unleash the market forces necessary for the push towards 80 percent reductions by 2050. However, it is highly unlikely that politicians would allow the price to get even close to this amount; all types of escape clauses are already built in or are being proposed for the current legislation.
It is not difficult to envision a scenario under which cap-and-trade passes and industry does what is necessary to reduce emissions in the range of 15 percent by 2020 by exploiting all of the “low hanging fruit” (e.g. energy efficiency and switching from coal to natural gas), but does not invest in the major infrastructure projects and economy-wide restructuring that is needed to take the big steps beyond that will get us to 40 percent, 50 percent, and ultimately our 80 percent reduction targets.
With another decade of lost, and politicians unwilling to let the price of carbon rise significantly, the U.S. could get stuck with very hard choices as to how, if at all, to proceed. Which brings us the issue as to whether letting the EPA take the lead now would ultimately lead to a better outcome.
The EPA has the power to enforce strict renewable energy requirements, absolute caps on emissions at individual facilities, and vehicle fuel economy standards (including electric vehicle mandates). In essence, the EPA could, if it wanted to, begin the paradigm shifting measures required to truly decarbonize the economy.
The more I learn about the imperfections in the current cap-and-trade legislation, and the potential for abuse in the carbon offset markets, coupled with the impossibility of passing a significant greenhouse gas tax, the more I believe that the EPA may be better suited to the task ahead.
I now find myself in the odd position of hoping that the dysfunction Senate calls the EPA’s bluff and refuses to pass a bill, and that the EPA responds with the type of measures I’ve outlined above. Or perhaps best case scenario, the Senate passes a bill and the EPA decides to complement it with these measures (some of which, to be fair, are already being considered in the proposed cap-and-trade legislation).
Here’s hoping the EPA uses its power and comes to the rescue.
P.S. It now appears that the Supreme Court’s 5-4 ruling giving the EPA the regulatory authority to regulate greenhouse gases may turn out to be the biggest environmental victory in the history of humankind.
*Special thanks to my colleague Jim Williams, Associate Professor at the Monterey Institute, who inspired this post.