Typically, when a law is passed or a regulation proposed, its champions believe that the action will be beneficial to society. But thats not the case when it comes to steps that the Obama administration took last week, when Environmental Protection Agency Administrator Lisa Jackson issued an endangerment finding that greenhouse gases like carbon dioxide are harmful pollutants and therefore subject to EPA regulation under the Clean Air Act. Jackson issued the finding largely because the Obama team believesor at least thinks that Congress believesthat EPA regulation of CO2 would be devastating to the economy.
The endangerment finding was designed to strike fear into the hearts of those worried about the economic harm of severe government action. The aim is to terrify industry and move public opinion to such a degree that Congress feels compelled to pass cap-and-trade legislationno matter how economically harmful it would bein order to pre-empt a much worse, EPA-imposed regulatory regime. It is, essentially, environmental blackmail.
Up to this point, Congress has seemed unwilling to pass global warming legislation, largely because of the perceived economic damage that would ensue. A 2007 MIT study suggested that cap-and-trade would cost the average American family $3,900 each year in economic losses and taxes. A more recent Heritage Foundation study reached a similar conclusion. Even candidate Obama said, Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket. What Obama is saying to Congress today is: If you dont pass cap-and-trade, which I have already acknowledged is costly, Ive got something coming down the pike that will be even costlier. Its a very cynicaland very riskystrategy.
United Nations climate chief Yvo de Boer explained the strategy to reporters in Copenhagen: If I were a businessman, I would say, Please, please, please do a deal in Copenhagen, and please, please, please make it market-based. Because if we fail to get a market-based deal here, and if the U.S. Senate fails to pass cap-and-trade legislation, then the EPA will be obliged to regulate. And every businessman knows that taxes and regulations tend to be a lot more expensive and lot less efficient than market-based approaches.
An unnamed White House official was more explicit, telling Fox News, If you dont pass this legislation, then . . . the EPA is going to have to regulate in this area. And it is not going to be able to regulate on a market-based way, so its going to have to regulate in a command-and-control way, which will probably generate even more uncertainty.
The Clean Air Act would indeed be a bad instrument for regulating greenhouse-gas emissions. The act and its subsequent amendments were designed to apply to pollutants harmful to human health, like nitrogen dioxide, lead, and sulfur dioxide. Carbon dioxide is not a pollutant in the traditional sense; indeed, large concentrations are needed to make plants grow and to sustain life on earth. In passing later amendments to the Clean Air Act, Congress discussed but ultimately decided against including greenhouse gases like CO2, largely because of that distinction.
Despite the explicit nature of the act and its amendments, the Supreme Court ruled 5 to 4 in a 2007 case not only that EPA could regulate carbon dioxide as a pollutant, but that it had to do so unless it could come up with a scientific rationale for avoiding such action.
Still, thats a pretty shaky foundation for wholesale federal regulation of CO2, especially when its not clear just how far government can go. The Obama administration prefers that Congress set the parameters of CO2 regulation, affording greater legal legitimacy and avoiding the legal challenges that would surely result from EPA actionto say nothing of the economic harm. The administration seems to grasp that, too, but claims its hands are tied. Its obligated to move forward with CO2 regulations that apply in the same way as rules for other, more legitimate pollutantsunless, of course, Congress acts.
When we think about the agencys history, its always controlled air pollutionpollution coming out of a tailpipe or a smokestack, said former EPA general counsel David Martella in an interview with Energy & Environment News. This decision will give EPA the authority to regulate the energy going in to a processa much broader scope.
The new regulations would, in accordance with the Clean Air Act, apply to any entity with annual emissions of 250 tons or more. Thats a reasonable threshold when talking about emissions of particulate matter from a power plants smokestacks, but its laughably low for CO2. The average American household emits around 10-12 tons of CO2 per year, and an average commercial building or office building is likely to be responsible for more than 250 tons. As one former EPA official told me, The potential impacts of this are mind-boggling. Any change to your facility, any modification, and virtually all new building construction would be subject to Clean Air Act regulation. Were not just talking higher energy costs. It will be real economic chaos.
All year long, Washington observers have expected that Congress would pass cap-and-trade, particularly because of the looming threat that EPA would issue the endangerment finding. But Congress didnt take the bait. The House of Representatives narrowly passed a bill in June, but during the summer recess members in both houses were excoriated by their constituents over cap-and-trade and health care. The Senate punted, signaling that it wont even consider a global warming bill in 2009and 2010 is an election year, making it even less likely that climate-change legislation could win passage from this Congress. The threat implicit in the administrations CO2 endangerment finding probably wont change that legislative calculus. Acting to save the economy with a measure for which theyll get flayed by voters is political suicide. Better to let President Obama take the blame for imposing the regulations.
Looking for a political hedge in the event Congress stands pat, the EPA made an important claim in announcing its finding: that the regulations will apply only to facilities with a minimum 25,000 annual tons of CO2, not the Clean Air Acts stipulated 250 tons. The higher threshold would remove the suffocating blanket of regulation from many smaller enterprises, while keeping it firmly on power plants, refineries, and large manufacturing facilities. Such a threshold would likely prevent a complete economic meltdown, though the regulation would still impose considerably higher costs across the economy. Theres just one problem: the EPA has no legal authority to raise the threshold arbitrarily. If the agency is compelled to regulate CO2 under the Clean Air Act, as the Supreme Court suggested, then it is obligated to do so under the acts terms.
Right now, proponents of greenhouse-gas regulation in the Obama administration are walking a fine line. They know that the proposal they prefer, cap-and-trade, will entail some economic drag. They also know that the course to which they presently are committedEPA regulation under the Clean Air Actthreatens truly grave economic harm. Perhaps Congress will save them and choose the less damaging option, but thats doubtful. Perhaps the courts will bail them out by allowing EPAs arbitrary 25,000-ton threshold to apply. Thats doubtful, too.
The likeliest scenario? Chaos, here we come.
Max Schulz is a Manhattan Institute senior fellow.