This element of Obama’s impending energy policy hasn’t gotten nearly the attention it deserves. If he does it right, it could be the secret weapon that kills new coal plants for good — with far greater certainty than a middling cap-and-trade program. Obama has always said, to those who were listening closely, that he plans to prevent the construction of a new fleet of dirty coal plants, if not by carbon pricing then by other means. EPA regs are the other means. Beyond that, and perhaps even more importantly, EPA regs could hasten the demise of existing coal plants.

The background is interesting (see here), but the crux of the matter is that the U.S. Supreme Court ruled in 2007’s Mass. vs. EPA that the EPA does indeed have the authority to regulate CO2 as an air pollutant under the Clean Air Act. The EPA must determine whether greenhouse gas emissions are a threat to public health — that is, issue an “endangerment finding” — and if it finds a danger (duh), it must issue regulations.

Bush’s EPA chief Stephen Johnson delayed and dissembled until the clock ran out. However, Obama’s EPA chief Lisa Jackson has said explicitly that she will get the process underway soon. [In fact, as I write this, she got underway!] Some time in the coming year, likely before the passage of a carbon pricing bill, the EPA will make its endangerment finding and propose regulations that govern CO2.

There are two aspects to this — political and technical. Politics first.

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Political aspects: fear and loathing on the corporate right

There are scholars like Jonathan Adler and others who have reservations about the efficiency and cost of going this route (more on that in the technical section). But the stiffest resistance is coming from fossil-intensive industries and their right wing spokesfolk. They hate this idea. Hate, hate, hate it. Even as we speak, the internets are filling up with hysteria surpassing even the usual conservative doomsaying, warning that if this happens the EPA will soon be surveilling your neighborhood church and sending armed agents to repossess your weed eater. Expect the pressure to ramp up sharply in coming months.

Some of the trepidation comes from the fact that the regs won’t go through Congress, so there’s less opportunity for influence peddling. Dirty industries, including coal, at least have a shot of surviving carbon legislation, if they can lard it with enough loopholes, subsidies, and offsets. Regs, however, are hard legal limits. New dirty coal plants will be required by law to factor CO2 risk into their financial projections, and if any make it past that hurdle (unlikely), install expensive equipment to capture CO2. It’s unlikely any new coal plants will be built in those circumstances. Who would invest in them?

Depending on how they want to play it, the Obama administration could use the regs one of two ways, either:

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  • use them to put the screws to the economy’s biggest CO2 polluters, thereby easing some pressure off the economy-wide cap-and-trade program, allowing it to ramp up more gently and serve as the backstop rather than the primary means of transforming America’s dirtiest industries;
  • use the threat of regs to reduce industry opposition to cap-and-trade and force big polluters to the table; however much industry hates cap-and-trade, they’ll prefer it to hard regs.

Ultimately, if I had to guess, I’d say it’s the latter: ultimately, the EPA rulemaking will be a cudgel to force big polluters to play ball on cap-and-trade. When a cap-and-trade bill is passed, it will effectively supersede whatever regs EPA has passed, or if it hasn’t passed any, end the rulemaking process. Nobody but Obama, Jackson, and Browner knows for sure, though, so it’s worth digging into some of the wonky details.

Technical aspects: technocracy gone wild

The mechanics of developing and implementing CO2 regs under the Clean Air Act are incredibly, incredibly complex. I am far from an expert, so I’ll just try here to sketch out the bigger issues. I’m sure I’ll leave something out or mischaracterize something, so I’m eager to hear from the experts out there.

There are several potential pitfalls that could result from poorly planned EPA regs on CO2.

• First and possibly worst has to do with Section 109, which requires the EPA to set national ambient air quality standards (NAAQS) for air pollutants, with the goal of producing an “adequate margin of safety” for the public. States then have to develop state implementation plans (SIPs) that bring their cities in under the prescribed level. When you hear about cities being “out of compliance,” it’s because their pollution levels are over NAAQS. The EPA then has various enforcement tools to bring to bear.

The problems with this are twofold, both having to do with the fact that greenhouse gases are global, not local. First, bringing greenhouse gases down enough to create a “margin of safety” for the public, via U.S. action alone, would effectively require total deindustrialization. We just can’t create that margin of safety unless other countries also bring down their emissions. Secondly, no state can bring down its local CO2 level — there is, in effect, no such thing. CO2 levels are global; states have little local control over them. So it’s difficult to see what a SIP would look like in this context — no state is in compliance unless all states are. (See Adler.)

• Second, the endangerment finding could implicate the Prevention of Significant Deterioration (PSD) program, which applies to new “major” sources or “major modifications” of existing sources of air pollutants. (New Source Review is part of this program.)

What counts as “major”? For sources in a set list of industrial categories, “major” means 100 tons of pollution a year; for other sources, it means 250 tons. Major sources must get a PSD permit before building or expanding, and apply “best available control technology” (BACT) to limit their pollution. PSD permits are expensive and time-consuming to obtain.

Now, 250 tons is a lot of, say, NOX, but it isn’t that much CO2. If every single new (or modified) source of 250 or more tons of CO2 a year had to get a PSD permit and apply BACT … it would be an unholy mess. There are thousands and thousands of such sources, not only power plants and factories but everything down to mid-sized buildings. This is where the “EPA regulating your church!” freakout is coming from. (See CEI.)

• Third, speaking of BACT, EPA air regs tend to mandate particular pollution control technologies. For one thing, this tends to close off innovation (the solution is prescribed, after all). For another, most of those technologies are parasitic: they require energy to run. That means that for a polluting facility using those technologies to get the same output of useful energy services, it has to use more energy. That, in turn, means burning more fuel, and emitting more greenhouse gases.

In other words, the very pollution control technologies mandated by the CAA have the effect of increasing CO2 emissions. If the CAA then requires more technologies to reduce CO2 emissions, it will in effect be mandating contradictory goals. You don’t have to work at the Cato Institute to find that a bit goofy. (See Sean Casten.)

So, those are the potential pitfalls. Where does that leave us?

I am not an expert on the Clean Air Act. But let’s step back and use some common sense. If a certain method of regulating CO2 under the Clean Air Act would produce a situation in which the EPA has literally unlimited power over the U.S. economy, virtually every building and business in the U.S. is forced to apply for air pollution permits, and some pollutants are being mandated and prohibited simultaneously … then the EPA probably won’t use that method.

Such is my naive faith in government. There are lots of smart people at the EPA who have been thinking about how to approach this problem for many, many years. (Carol Browner was working on this stuff back when she was EPA administrator under Clinton.) If these possible perverse effects are clear to me, Random Blogger Guy, they’re probably clear to the technocrats steeped in this stuff.

How could they be avoided? My sense is that the CAA will have to be altered in some important ways before the CO2 rulemaking process starts. This is something I plan to look into more closely. For now I’ll just point you to Sean’s writing on output-based standards (here, here, here), which go a long way toward resolving some of the contradictions.

In fact, if the EPA can reform the Clean Air Act around output-based standards — if the agency can get it right — there’s reason to think its regs could supplement and increase the effectiveness (and cost-effectiveness) of a cap-and-trade system. A recent study by respected consultancy Ecofys found exactly that.

I’ve only scratched the surface here. Suffice to say, how the Obama EPA chooses to play this card will have huge, huge effects, not only on its efforts to reduce emissions generally but on its efforts to build support for a carbon pricing system specifically. This is one to keep a very close eye on.