Note: A nearly identical version of this column appeared last week in Forbes Online. I am reposting it here with many additional hyperlinks so that readers may more easily access the evidence supporting my conclusions.

The November 2012 elections ensure that President Obama’s war on coal will continue for at least two more years. The administration’s preferred M.O. has been for the EPA to ‘enact’ anti-coal policies that Congress would reject if such measures were introduced as legislation and put to a vote. Had Gov. Romney won the presidential race and the GOP gained control of the Senate, affordable energy advocates could now go on offense and pursue a legislative strategy to roll back various EPA global warming regulations, air pollution regulations, and restrictions on mountaintop mining. But Romney lost and Democrats gained two Senate seats.

Consequently, defenders of free-market energy are stuck playing defense and their main weapon now is litigation. This is a hard slog because courts usually defer to agency interpretations of the statutes they administer. But sometimes petitioners win. In August, the U.S. Court of Appeals struck down the EPA’s Cross State Air Pollution Rule (CSAPR), a regulation chiefly targeting coal-fired power plants. The Court found that the CSAPR exceeded the agency’s statutory authority. Similarly, in March, the Court ruled that the EPA exceeded its authority when it revoked a Clean Water Act permit for Arch Coal’s Spruce Mine No. 1 in Logan County, West Virginia.

A key litigation target in 2013 is EPA’s proposal to establish greenhouse gas (GHG) “new source performance standards” (NSPS) for power plants. This so-called carbon pollution standard is not based on policy-neutral health or scientific criteria. Rather, the EPA contrived the standard so that commercially-viable coal plants cannot meet it. The rule effectively bans investment in new coal generation.

We Can Win This One

Prospects for overturning the rule are good for three main reasons.

(1) Banning new coal electric generation is a policy Congress has not authorized and would reject if proposed in legislation and put to a vote. Once again the EPA is acting beyond its authority.

The proposed “carbon pollution” standard requires new fossil-fuel electric generating units (EGUs) to emit no more than 1,000 lbs of carbon dioxide (CO2) per megawatt hour (MWh). About 95% of all natural gas combined cycle power plants already meet the standard, according to the EPA. No existing coal power plants come close; even the most efficient, on average, emit 1,800 lbs CO2/MWh.

A coal power plant equipped with carbon capture and storage (CCS) technology could meet the standard, but the levelized cost of new coal plants already exceeds that of new natural gas combined cycle plants, and “today’s CCS technologies would add around 80% to the cost of electricity for a new pulverized coal (PC) plant, and around 35% to the cost of electricity for a new advanced gasification-based (IGCC) plant,” the EPA acknowledges.

In short, the EPA has proposed a standard no economical coal plant can meet. Not surprising given President Obama’s longstanding ambition to “bankrupt” anyone who builds a new coal power plant and his vow to find other ways of “skinning the cat” after the 2010 election-day slaughter of 29 cap-and-trade Democrats. But the big picture is hard to miss: Congress never signed off on this policy.

The only time Congress even considered imposing GHG performance standards on power plants was during the debate on the Waxman-Markey cap-and-trade bill. Section 216 of Waxman-Markey would have established NSPS requiring new coal power plants to reduce CO2 emissions by 50% during 2009-2020 and by 65% after 2020 – roughly what the EPA is now proposing. Although Waxman-Markey narrowly passed in the House, it became so unpopular as “cap-and-tax” that Senate leaders pulled the plug on companion legislation.

Team Obama is attempting to accomplish through the regulatory backdoor what it could not achieve through the legislative front door. The “carbon pollution” rule is an affront to the separation of powers.

(2) The “carbon pollution” standard is regulation by misdirection – an underhanded ‘bait-and-fuel-switch.’

In Massachusetts v. EPA (April 2007), the Supreme Court held that GHGs are “air pollutants” for regulatory purposes. This spawned years of speculation about whether the EPA would define “best available control technology” (BACT) standards for “major” GHG emitters so stringently that utilities could not obtain pre-construction permits unless they built natural gas power plants instead of new coal power plants.

In March 2011, the EPA published a guidance document assuring stakeholders that BACT for CO2 would not require a permit applicant “to switch to a primary fuel type” different from the fuel type the applicant planned to use for its primary combustion process. The agency specifically disavowed plans to “redefine the source [category]” such that coal boilers are held to the same standard as gas turbines.

The EPA reiterated this assurance in a Q&A document accompanying the guidance. One question asks: “Does this guidance say that fuel switching (coal to natural gas) should be selected as BACT for a power plant?” The EPA gives a one-word response: “No.”

This bears directly on the legal propriety of the “carbon pollution” standard. In general, NSPS are less stringent than BACT. NSPS provide the “floor” or minimum emission control standard for determining an emitter’s BACT requirements. BACT is intended to push individual sources to make deeper emission cuts than the category-wide NSPS requires.

Yet despite the EPA’s assurance that BACT, although tougher than NSPS, would not require fuel switching or redefine coal power plants into the same source category as natural gas power plants, the “carbon pollution” rule does exactly that.

In April 2011, the House passed H.R. 910, the Energy Tax Prevention Act, sponsored by Rep. Fred Upton (R-Mich.), by a vote of 255-172. H.R. 910 would overturn all of the EPA’s GHG regulations except for those the auto and trucking industries had already made investments to comply with. Sen. James Inhofe’s companion bill (McConnell Amdt. 183) failed by one vote. In June 2010, Sen. Lisa Murkowski’s (R-Alaska) Congressional Review Act resolution to strip the agency of its Mass v. EPA-awarded power to regulate GHGs failed by four votes. One or both of those measures might have passed had the EPA come clean about its agenda and stated in 2009 that it would eventually propose GHG performance standards no affordable coal power plant can meet.

(3) The “carbon pollution” rule is weirdly contorted, flouting basic standards of reasonableness and candor.

Under the Clean Air Act, an emission performance standard is supposed to reflect “the degree of emission limitation achievable through the application of best system of emission reduction” that has been “adequately demonstrated.” The EPA picked 1,000 lbs CO2/MWh as the NSPS for new fossil-fuel EGUs because that is the “degree of emission limitation achievable through natural gas combined cycle generation.”

But natural gas combined cycle is not a system of emission reduction. It is a type of power plant. The EPA is saying with a straight face that natural gas combined cycle is an emission reduction system that has been adequately demonstrated for coal power plants. By that ‘logic,’ zero-carbon nuclear-, hydro-, wind-, or solar-electric generation is an emission reduction system that has been adequately demonstrated for natural gas combined cycle.

A coal power plant could meet the standard by installing CCS, but, as the EPA acknowledges, CCS is too costly to qualify as “adequately demonstrated.” The only practical way for utilities to comply is to build new gas turbines instead of new coal boilers. This is the first time the EPA has defined a performance standard such that one type of facility can comply only by being something other than what it is.

The EPA sets performance standards for specific categories of industrial sources. A coal boiler is different from a gas turbine, and up to now the agency reasonably regulated them as different source categories, under different parts of the Code of Federal Regulations – Subpart Da for coal boilers, Subpart KKKK for gas turbines. The EPA now proposes to regulate coal boilers and gas turbines as a single source category — “fossil-fuel EGUs” — under a new subpart numbered TTTT. But only for CO2! Coal boilers and gas turbines will continue to be regulated as separate source categories for criteria and toxic pollutants under Subparts Da and KKKK.

Why hold coal boilers and gas turbines to different standards for those pollutants? The EPA’s answer: “This is because although coal-fired EGUs have an array of control options for criteria and toxic air pollutants to choose from, those controls generally do not reduce their criteria and air toxic emissions to the level of conventional emissions from natural gas-fired EGUs.”

The same reasoning argues even more strongly against imposing a single GHG standard on coal boilers and natural gas turbines. Coal boilers do not have an “array of control options” for CO2 emissions, and have no “adequately demonstrated” option for reducing CO2 emissions to the level of gas-fired EGUs. Subpart TTTT is an administrative contortion concocted to kill the future of coal generation.

Why Care Even If You Don’t Mine or Combust Coal for a Living

At this point you may be wondering why anyone outside the coal industry should care about this cockamamie rule. There are several reasons.

First and most obviously, banning new coal generation could increase electric rates and make prices more volatile. For generations, coal has supplied half or more of U.S. electricity, and still provides the single largest share. The “carbon pollution” standard is risky because coal’s chief competitor, natural gas, has a history of price volatility and a future clouded by the environmental movement’s hostility to hydraulic fracturing, the technology transforming gas from a costly shrinking resource to an affordable expanding resource.

The “carbon pollution” standard itself could put the kibosh on new gas-fired generation if the EPA concludes, as Cornell researchers contend, that fugitive methane emissions from hydraulic fracturing make gas as carbon-intensive as coal.

The EPA is also developing GHG performance standards for refineries. “Unconventional” oil production from shale and oil sands is booming in North America, creating thousands of jobs, generating billions of dollars in tax revenues, and reducing U.S. dependence on OPEC oil. But unconventional oil production is energy-intensive and therefore carbon-intensive. It is unknown whether or how the forthcoming GHG standard for refineries will address the carbon intensity of unconventional oil. What we do know is that the environmental groups who litigated the EPA into proposing these standards are arch foes of unconventional oil.

In any event, the “carbon pollution” standard for power plants is just the start of a regulatory trajectory, not its end point. The EPA’s settlement agreement with environmental groups and state attorneys general obligates the agency to extend the standard to “modified” coal power plants and establish emission “guidelines” for non-modified units.

Moreover, the standard sets a precedent for promulgating NSPS for other GHG source categories, and for contriving new source categories (e.g. “electric generating units”) to hammer natural gas. As indicated above, if gas can set the standard for coal, then wind and solar can set the standard for gas. And at some point the refinery standard could undermine the profitability of unconventional oil. Although initially directed against new coal, the standard puts all fossil-energy production in an ever-tightening regulatory noose.

Pandora’s NAAQS

Taking a longer view, the “carbon pollution” rule moves the U.S. economy one step closer to the ultimate environmental policy disaster: national ambient air quality standards (NAAQS) for GHGs.

In December 2009, the EPA issued a rule under Section 202 of the Clean Air Act declaring that GHG emissions from new motor vehicles endanger public health and welfare. The endangerment rule was both prerequisite and trigger for the agency’s adoption, in January 2011, of first-ever GHG motor vehicle standards. The agency now claims that it need not issue a new and separate endangerment finding under Section 211 to adopt first-ever GHG performance standards for power plants, because subsequent science confirms and strengthens its Section 202 finding.

An implication of this argument is that the EPA need not make a new endangerment finding to promulgate NAAQS for GHGs under Section 108, because the Section 202 finding would suffice for that as well.

Section 108 of the Clean Air Act requires the EPA to initiate a NAAQS rulemaking for “air pollution” from “numerous or diverse mobile or stationary sources” if such pollution “may reasonably be anticipated to endanger public health and welfare.” Carbon dioxide obviously comes from numerous and diverse mobile and stationary sources, and the EPA has already determined that the associated “air pollution” – the “elevated concentrations” of GHGs in the atmosphere – endangers public health and welfare. Logically, the EPA must establish NAAQS for GHGs set below current atmospheric concentrations.

Eco-litigants have already put this ball in play. The Center for Biological Diversity and 350.Org petitioned the EPA more than two years ago to establish NAAQS for CO2 at 350 parts per million (roughly 40 parts per million below current concentrations) and for other GHGs at pre-industrial levels.

The potential for mischief is hard to exaggerate. Not even a worldwide depression that permanently lowers global economic output and emissions to, say, 1970 levels, would stop CO2 concentrations from rising over the remainder of the century. Yet the Clean Air Act requires States to adopt implementation plans adequate to attain primary (health-based) NAAQS within five or at most 10 years. A CO2 NAAQS set at 350 parts per million would require a level of economic sacrifice vastly exceeding anything contemplated by the Waxman-Markey cap-and-trade bill or the Copenhagen climate treaty, which aimed to stabilize CO2-equivalent emissions at 450 parts per million by 2050.

The EPA has yet to decide on the CBD-350.Org petition. Perhaps this is another case of punting unpopular regulatory decisions until Obama’s second term. The one instance where the administration addressed the issue is not reassuring. In a brief submitted to the Supreme Court in American Electric Power v. Connecticut, the Obama Justice Department described Section 108 as one of the provisions making the Clean Air Act a “comprehensive regulatory framework” for climate change policy.

Ultimately, only the people’s representatives can protect coal generation, hydraulic fracturing, and unconventional oil from hostile regulation. But nixing the “carbon pollution” standard would be a big setback to both the EPA and the eco-litigation fraternity, and would help safeguard America’s energy options until a future Congress reins in the agency.

Concerning the “Price Carbon Campaign/Lame Duck Initiative” meeting of center-right and ‘progressive’ pols, wonks, and activists yesterday at the American Enterprise Institute (AEI), herewith a few additional thoughts.

Today’s Greenwire quotes AEI economic policy director Kevin Hassett saying that AEI was just playing host and the meeting was just information sharing. Well, okay, let’s assume he experienced it that way, but what about the ‘progressives’ who set the agenda? They must really be into sharing, because this was their fifth meeting. Whatever the AEI folks thought the event was about, the agenda clearly outlines a strategy meeting to develop the PR/legislative campaign to promote and enact carbon taxes.

During the cap-and-trade debate in the last Congress, there was something of a consensus among economists that EPA regulation of greenhouse gases (GHGs) is the worst option, a ‘comprehensive legislative solution’ (i.e. cap-and-trade) has less economic risk, and a carbon tax is the most efficient option. But the ‘progressives’ in the “Price Carbon Campaign” are pushing for carbon taxes on top of EPA regulation.

Because the meeting was non-public and hush-hush, we may never know who said what. Here are some points the ‘conservative’ economists  should have made:

(1) With unemployment still above 8%, the last thing the U.S. economy needs is a massive new tax on energy. (2) The EPA’s UMACT Rule and GHG Standard Rule each effectively bans the construction of new coal-fired power plants. (3) The GHG Standard Rule is a slippery slope that sooner or later will constrain gas-fired generation. (4) Adding carbon taxes to the GHG Rule could snuff out the shale gas revolution, especially if lifecycle analysis demonstrates that natural gas is actually as carbon intensive as coal or more so. (5) The UMACT/GHG Standard/Carbon Tax Combo could play havoc with electricity prices and reliability almost as much as Al Gore’s goofy plan to ‘repower America‘ with ‘zero carbon’ energy sources in 10 years.

In short, the only defensible reason for ‘conservative’ economists to discuss carbon taxes is as a TOTAL replacement for ALL EPA greenhouse gas regulations. But that ‘progressives’ would agree to any such swap is unimaginable. So what really is there to talk about?

Another pre-condition for any ‘conservative’ worthy of the name is that the carbon tax be ‘revenue neutral.’ That is, whatever revenues the carbon tax generates should be offset by reductions in other taxes. But how likely is it that ‘progressives’ would agree to apply Grover Norquist’s no-net-increase Taxpayer Protection Pledge to their beloved carbon tax? Again, unless ‘conservatives’ are willing to sell out, there’s no point in forming a left-right coalition on carbon taxes.

Finally, whatever policy objectives the ‘conservative’ participants might have had in mind, the timing of the AEI-hosted pow-wow was all wrong. Any GOP expression of interest in carbon taxes at this time can only muddy the election-year battle lines between what may loosely be called the pro-tax/anti-energy party and anti-tax/pro-energy party. It is also entirely unclear at this point what kinds of concessions might have to be made in 2013 to rein in the EPA. For example, a clean sweep in the November elections might make the GOP strong enough to limit the regulatory fallout from Massachusetts v. EPA without endorsing carbon taxes.

Despite the disappointing decision yesterday, it would be well to remember that the real damage was done in the Supreme Court’s 5-4 Massachusetts decision, where EPA was found to have authority to regulate GHGs under the CAA so long as it determined that GHGs endanger the public health and welfare. 

. . .the Massachusetts decision was a real travesty.  It is impossible to review the history of the public debate on GHG regulation in this country beginning in the 1980s, when potential climate change first came to prominence, and conclude that authority to regulate GHGs was always available, hiding in plain sight in the CAA as first enacted in 1970. The Supreme Court said in the 2001 American Trucking Associations decision, in language that is often cited, that Congress does not “hide elephants in mouseholes.”  Evidently, in the case of EPA GHG regulation, Congress did.

In the end, the most rational thing for the country to do on GHGs is for Congress to enact legislation that gets EPA out of the GHG regulatory business entirely.  — Peter Glaser

In Massachustts v. EPA, the 5-4 majority argued: (1) The Clean Air Act (CAA) defines “air pollutant” as any airborne substance whatsoever; (2) the EPA has a mandatory duty to regulate air pollutants emitted by automobiles if the associated “air pollution” “may reasonably be anticipated to endanger public health and welfare”; and (3) “welfare” effects include changes in “weather and climate.” Given these premises, the Court basically left the EPA one way to avoid regulating GHGs: Cancel its membership in the self-anointed “scientific consensus” — the climate alarm movement – that the agency had spent years promoting and leading. No chance of that happening.

For reasons discussed here and here, the lynchpin of the Massachusetts Court’s argument, premise (1), was a misreading of the CAA definition of “air pollutant.” At a minimum, respondent EPA’s opinion that carbon dioxide (CO2) is not an air pollutant was a “permissible construction” of the statute and thus should have been accorded deference under the Court’s Chevron Step 2 test. If the GHG regime EPA is building were proposed in legislation and put to a vote, Congress would reject it. Congress would surely have rejected the EPA’s GHG agenda in 1970, when it enacted the CAA and defined “air pollutant.” The terms “greenhouse gas” and “greenhouse effect” do not even occur in the CAA. Only as amended in 1990 does the CAA even obliquely address the issue of global climate change. Congress considered and rejected regulatory climate policies in the debates on the 1990 CAA Amendments. The very provisions tacitly addressing climate change – CAA Secs. 103(g) and 602(e) – admonish the EPA not to adopt “pollution control requirements” for CO2, and not to regulate substances based on their “global warming potential.”

With the case law on GHG regulation hopelessly botched by the Supreme Court, only Congress can rein in the EPA — and only if there is a change of management in the White House and the Senate in November.

Peter Glaser’s full commentary on the D.C. Circuit Court decision follows.

The Morning After:
Some Personal Thoughts on Yesterday’s D.C. Circuit Greenhouse Gas Decision
and the Future of EPA GHG Regulation

There’s no sugar-coating it.  Yesterday’s decision was an across-the-board smack-down for industry and the states that sought to overturn EPA’s first foray into GHG regulation following the Supreme Court’s 2007 Massachusetts v. EPA decision.  Not only did the Court reject every argument petitioners made, the tone of the decision suggested real hostility.

I had personally grown pessimistic about our chances when the panel was appointed, but had thought there were arguments we could win and that we might get a good dissent from Judge Sentelle at least on the authority of EPA to “tailor” the statutory PSD permitting thresholds.  Such a dissent would have enhanced the prospects of a motion for the full court to rehear the case en banc and a petition for certiorari to the Supreme Court.

In the end, we got nothing.  Known as a bear on standing, Judge Sentelle did not dissent from the panel decision that none of the petitioners had standing to challenge EPA’s tailoring of the statutory thresholds, since (in the panel’s view) none are injured by EPA narrowing the class of sources subject to GHG regulation.  Hence, petitioners’ strongest argument and the most glaring legal defect of the rules never got decided on the merits.  I don’t think the Court correctly characterized industry petitioners’ arguments as to standing and therefore never confronted those arguments head on, but by the time the opinion got around to that issue the overall direction the Court was going was clear.

Despite the disappointing decision yesterday, it would be well to remember that the real damage was done in the Supreme Court’s 5-4 Massachusetts decision, where EPA was found to have authority to regulate GHGs under the CAA so long as it determined that GHGs endanger the public health and welfare.  For someone like me, who has been involved in the issue of potential EPA regulation of GHGs under the CAA since the Clinton Administration (when then EPA Administrator Carol Browner casually mentioned in a House Committee hearing that the Senate didn’t need to ratify the Kyoto Protocol in order for the country to regulate GHGs; EPA could do so under the CAA), the Massachusetts decision was a real travesty.  It is impossible to review the history of the public debate on GHG regulation in this country beginning in the 1980s, when potential climate change first came to prominence, and conclude that authority to regulate GHGs was always available, hiding in plain sight in the CAA as first enacted in 1970.  The Supreme Court said in the 2001 American Trucking Associations decision, in language that is often cited, that Congress does not “hide elephants in mouseholes.”  Evidently, in the case of EPA GHG regulation, Congress did.

I had two reactions to the Massachusetts decision that are still pertinent today.  First, EPA regulation of GHGs is really concerning.  Carbon dioxide is the inevitable byproduct of combusting fossil fuels (of oxidizing carbon).  Fossil fuels constitute 85 percent of the energy Americans use.  Hence, EPA authority to regulate carbon dioxide is essentially the authority to regulate everything.

The danger in EPA’s authority to regulate GHGs is amplified by the fact that EPA’s source of regulatory authority is the CAA.  To trigger regulation under the CAA, EPA must make a finding that GHGs “may reasonably be anticipated to cause or contribute” to the endangerment of public health or welfare.  We learned again from yesterday’s decision what a permissive standard this is.  At oral argument, one of Judge Sentelle’s first statements to petitioners’ counsel was something to the effect of “I hope you’re not going to ask us to make a judgment on the science.”  Personally, I am a climate skeptic – I have read through the climategate emails and have been appalled.  But the courts continue to show reluctance to truly engage EPA’s science findings (or even to allocate sufficient words to adequately brief these highly technical issues).

And the concern about EPA GHG regulation does not just stem from the CAA’s very permissive “endangerment” standard.  The CAA programs under which EPA can regulate also grant EPA great discretionary authority in setting standards.  Some CAA programs (the NAAQS, for instance) do not authorize consideration of costs; others do authorize consideration of costs but give EPA authority to weigh cost and environmental factors in its judgment.

To make matters worse, no matter what regulation EPA adopts, it will make no meaningful difference to overall global atmospheric GHG concentrations, as the developing world continues to develop and take advantage of fossil fuels.  So the benefits of EPA GHG regulation will be all symbolic, while the costs may be immense as the country risks losing its ability to take advantage of what should be one of its great competitive strengths – abundant domestic supplies of fossil fuels.

Having said all that, my second reaction to Massachusetts, which I still have today, is that it is like being back in 1970, when Congress first enacted the CAA, all over again.  Reflecting the mentality of that time (and the significant pollution problems this country had), the 1970 CAA mandated clean air in five years.  It didn’t happen, because the goal was unrealistic.  What followed since 1970 has been a long hard continuing fight to balance the desire for clean air and the need to maintain the economy.  There have been countless EPA rulemakings over the decades since 1970, most of which were appealed, many of which were upheld, and some of which were not.

That’s where we are now with GHGs.  We are going to get more or less GHG regulation over time depending on who is in the White House and whether the particular GHG regulations that EPA issues are legally defensible.  Thus, each regulation is going to have to be attacked (or defended) on the merits.  My own view is that EPA’s latest GHG proposal, for new source performance standards for coal-based electric generation, is not legally defensible and will be overturned in Court.  But there will be many more GHG regulations to come, and we are in for another long, hard rule-by-rule slog under the CAA, in this case to shape the timing and stringency of GHG regulation in this country.

Of course, as we move forward with more EPA GHG rulemaking, it matters critically who the President is.  But even if Mitt Romney is elected President, he will find it very difficult to eliminate EPA GHG regulation completely.  To do so, he would have to pull the endangerment finding, which would be difficult to accomplish both legally and politically.  However, the discretion that the CAA gives EPA to fashion GHG regulations, while dangerous in the wrong hands, also presents an opportunity to an EPA Administrator who wishes to have a moderate approach to GHG regulation.

In the end, the most rational thing for the country to do on GHGs is for Congress to enact legislation that gets EPA out of the GHG regulatory business entirely.  Even proponents of GHG regulation don’t believe that the CAA is suited to that purpose.  We must therefore keep pushing on the legislative front, since new legislation is the right thing to do.  Still, the alignment of political forces is such at this time that comprehensive GHG legislation seems out of reach, although more targeted legislative approaches may be possible.  Without some intercession from Congress, we are left with possibly decades of hand-to-hand combat on GHG regulation.

In sum, it would have been good if we had won yesterday and even better if we had gotten that fifth vote in Massachusetts (that is also likely to be the decisive vote in the health care decision tomorrow).  We didn’t.  Petitioners will now at least ask the Supreme Court to take the case and may also seek rehearing en banc from the full panel.  Absent the Supreme Court granting certiorari and reversing the panel decision, we will have broad EPA authority over GHG emissions under the CAA.  If that is the case, there is nothing we can do but to continue fighting on a rule-by-rule basis with all the ammunition we have, political, legal, technical and scientific.

Peter Glaser
June 26, 2012

Today (June 25th) is the deadline for submitting comments on the EPA’s proposed Carbon Pollution Standard Rule, which will establish first-ever New Source Performance Standards (NSPS) for carbon dioxide (CO2) emissions from fossil-fuel electric generating units.

The proposed standard is 1,000 lbs of CO2 per megawatt hour (MWh). The EPA claims that 95% of all new natural gas combined cycle power plants can meet the standard — maybe, maybe not. One thing is clear — no conventional coal power plant can meet the standard. Even today’s most efficient coal power plants emit 1,800 lbs CO2/MWh on average.

A coal power plant equipped with carbon capture and storage (CCS) technology could meet the standard, but the EPA acknowledges that  CCS is prohibitive, raising the cost of generating electricity by as much as 80%.

So what the proposal is really telling the electric utility industry is this: If you want to build a new coal-fired power plant, you’ll have to build a natural gas combined cycle plant instead. Not surprising given President Obama’s longstanding ambition to “bankrupt” anyone who builds a new coal power plant.

In a comment letter submitted today on behalf of the Competitive Enterprise Institute, I recommend that the EPA withdraw the proposed regulation for the following reasons:

1. The EPA’s proposal would effectively ban construction of new coal-fired power plants, a policy Congress has not approved and would reject if proposed in legislation and put to a vote.
2. The proposal is an underhanded ‘bait-and-fuel-switch.’ The EPA assured electric utilities in March 2011 that it would not require fuel-switching from coal to natural gas. Had the EPA come clean about its agenda in 2010 and 2011, Senators Murkowski and Inhofe would likely have garnered more support for their efforts to overturn the agency’s greenhouse gas regulations.
3. The proposal relies on weird contortions – a consequence of the EPA’s attempt to use the Clean Air Act as a framework for regulating greenhouse gases, a purpose for which the Act was neither designed nor intended. For example, the EPA pretends that natural gas combined cycle – a type of power plant – is a “control option” and “system of emission reduction” that has been “adequately demonstrated” for coal-fired power plants.
4. The proposal will provide another precedent for establishing National Ambient Air Quality Standards (NAAQS) for greenhouse gases, taking America one step closer to policy disaster.

A word of explanation about point #4. The EPA argues that it need not undertake a new endangerment finding to adopt the proposed standard, because the agency already determined in December 2009 that “air pollution” related to greenhouse gas emissions “may reasonably be anticipated to endanger public health and welfare.” But if that is so, then the EPA also need not make a new finding to initiate a NAAQ rulemaking for greenhouse gases.

Since the EPA defines the relevant “air pollution” as the “elevated concentrations” of greenhouse gases in the atmosphere (Endangerment Rule, p. 66516), the agency would have to set the NAAQS below current atmospheric levels. Picking up on this logic, the Center for Biological Diversity and 350.Org petitioned the EPA more than two years ago to establish NAAQS for CO2 at 350 parts per million (roughly 40 parts per million below current levels) and other greenhouse gases at pre-industrial levels.

Sooner or later, the EPA will have to address the NAAQS issue. Statutory logic (and precedent, if the Carbon Pollution Rule is not overturned) will favor the CBD/350.Org petition.

The potential for mischief is hard to exaggerate. The Clean Air Act requires States to adopt implementation plans adequate to attain a “primary” (health-based) NAAQS within five or at most 10 years. Implementing a CO2 NAAQS set at 350 parts per million would require a much higher degree of economic sacrifice than would be demanded by either the Waxman-Markey cap-and-trade bill or the Copenhagen climate treaty, which aimed to stabilize CO2-equivalent greenhouse gases at 450 parts per million by 2050. Even if the NAAQS for CO2 did not require much of the economy – all fossil-fuel-based power generation, manufacture, transport, and agriculture – to simply shut down, it would effectively prohibit growth in those sectors.

Nonetheless, some good may yet come from the EPA’s overreach. A policy crisis over NAAQS regulation of GHGs would finally make clear to the public and their elected representatives that Massachusetts v. EPA created a constitutional crisis by authorizing the EPA to enact policies that Congress has not approved and would reject if proposed in legislation and put to a vote.

On Monday, I noted that Team Obama plans to set new-car fuel-economy standards for model years (MYs) 2017-2025, a nine-year period, despite the fact that the authorizing statute, the Energy Policy Conservation Act, 49 U.S.C. 32902(b)(3)(B), restricts the setting of fuel-economy standards to “not more than 5 model years.” No matter how hard or long government lawyers squint at the text, 5 does not mean 9. In the words of House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.), the standards proposed for MYs 2022-2025, which reach 54.5 mpg in 2025, are “outside the scope of law.”

Since writing that post, I have learned that Team Obama will try to finesse the legal problem by basing the MYs 2022-2025 fuel economy standards solely on EPA’s authority to set emission standards under CAA Sec. 202. This is Bizarro World jurisprudence.

EPA will be setting de-facto fuel-economy standards, pretending that GHG standards are not fuel-economy standards, but specifying CO2 reduction percentages that the agency avows, and everybody knows, convert directly into percentage increases in fuel economy.

Nobody but the judicial activists who gave us Massachusetts v. EPA can say with a straight face that when Congress enacted CAA Sec. 202, it meant to transfer the power of setting fuel-economy standards from the National Highway Traffic Safety Administration (NHTSA) to EPA. Nor would any non-Bizarro lawyer contend that CAA Sec. 202 authorizes EPA to set fuel economy standards as many years into the future as the agency sees fit, despite EPCA’s explicit limit of “not more than 5 model years.”

Okay, maybe I was wrong. Just because the Supreme Court in Massachusetts v. EPA legislated from the bench in order to empower EPA to legislate from the bureau does not necessarily mean that lower courts will tolerate similar breaches of the separation of powers.

Yesterday (May 26, 2011), in Avenal Power Center v. EPA, District of Columbia Judge Richard Leon mockingly rejected EPA’s arguments for attempting to amend the Clean Air Act to suit the agency’s administrative convenience. Although not mentioned by him, Judge Leon’s reasoning may strengthen legal challenges to EPA’s greenhouse gas Tailoring Rule.

A quick overview of the case.

A company called Avenal Power Center seeks to build a state of the art 600 megawatt natural gas-fired power plant in California’s San Joaquin Valley. In February 2008, Avenal submitted to EPA an application for a Prevention of Significant Deterioration (PSD) preconstruction permit. Section 165(c) of the Clean Air Act (CAA) requires EPA to grant or deny a PSD permit application within one year. Almost two years later, EPA “still had no final or foreseeable resolution to its application.” On March 9, 2010, Avenal petitioned the District Court “seeking judicial relief to deal with EPA’s continued violation of Congress’s one-year deadline under Section 165(c) of the CAA.”

On February 4, 2011, the head of EPA’s Air Office announced that the agency would issue a final permit decision by May 27, 2011. “Unfortunately,” writes Judge Leon, “that was not to be!” He continues: “As plaintiff appropriately points out, EPA’s promise of a ‘final permit decision’ under 40 C.F.R. § 124.15 was inherently disingenuous.” In reality, all EPA was promising to do was render an “interim decision” that can be appealed to EPA’s Environmental Appeal’s Board (EAB) — and then overturned. As EPA concedes, EAB review ”could take anywhere from six to eight months, or longer, to complete.”

Here’s where the fun starts.

EPA contends that its appealable interim decision ”is sufficient to satisfy the CAA’s one year deadline” (even though already two years overdue), and that, in any event, the District Court “lacks jurisdiction” to require a final determination. Why? Because EPA has authority to delegate decisions to the EAB, and EAB reviews take, well, as long as they take.

“For the following reasons,” writes Judge Leon, “I disagree with defendants’ oh so clever, but unsupportable, position.”

The EAB exists to serve EPA’s administrative convenience. However, Congress did not create the EAB via the CAA. Rather, EPA created the EAB via a 1992 rulemaking. “Unfortunately,” the Judge observes, ”when the Administrator created that process she failed to build into it the temporal requirement that the EAB’s decision must be completed within the CAA’s statutorily mandated one-year period. . . .As a result, the EPA put in place a review process that can be and has, in this case rendered meaningless this Congressional one-year mandate.”

Judge Leon continues:

Unfazed, the EPA argues, in effect, that this regulatory process trumps Congress’s mandate and relieves the Administrator of complying with it until the EAB renders the Agency’s final decision. . . .In essence, the EPA contends that Congress’s statutory mandate is subservient to EPA’s regulatory process, and as such this Court has no authority to require the Administrator to comply with this statutory requirement. How absurd!

The Judge gets constitutional:

It is axiomatic that an act of Congress that is patently clear and unambiguous — such as this requirement in the CAA — cannot be overriden by a regulatory process created for the convenience of an Administrator, no matter how much notice and comment preceded the creation. . . .Administrators of regulatory agencies derive their power from Congress’s statutory enactments — not from their own discretionary regulatory pronouncements that are drafted for their assistance and convenience. . . .To the extent that a regulatory process frustrates or renders meaningless a Congressional statutory mandate, it must yield to Congress’s will.

Even tarter and tastier are comments Judge Leon imparts in a footnote:

The EPA has labored mightily to convince this Court that the temporal requirement enacted by Congress is somehow ambiguous and, therefore, this Court should defer to its interpretation under Chevron. . . .Horsefeathers! The EPA’s self-serving misinterpretation of Congress’s mandate is too clever by half and an obvious effort to protect its regulatory process at the expense of Congress’s clear intention. Put simply, that dog won’t hunt.

The decision may have implications for ongoing litigation on EPA’s greenhouse gas (GHG) regulations, particularly its Tailoring Rule.

When EPA’s GHG motor vehicle emission standards took effect on Jan. 2, 2011, ”major” stationary sources of carbon dioxide (CO2) became “subject to regulation” under the PSD preconstruction permitting program and the Title V operating permits program. The problem, as is well known, is that literally millions of non-industrial facilities — office buildings, apartment complexes, big box stores, hospitals, schools, large houses of worship, Dunkin’ Donut shops – emit enough CO2 (25o tons per year, 100 tons per year) to qualify as major sources under PSD and Title V.

As EPA admits, regulating GHGs via the CAA leads to “absurd results” – policies that conflict with congressional intent. EPA and its state counterparts would have to process an estimated 81,000 PSD preconstruction permit applications per year (instead of 280) and 6.1 million Title V operating permits per year (instead of 15,000). The permitting programs would crash under their own weight, crippling both environmental enforcement and economic development. 

EPA’s solution is to “tailor” the PSD and Title V programs to exempt all but the largest industrial CO2 emitters (power plants, refineries, cement kilns, steel plants, pulp and paper mills). “Tailoring,” however, is just bureaucrat-speak for “amending.” The Tailoring Rule substitutes one absurd result for another, because administrative agencies have no power to amend statutes.

To borrow Judge Leon’s words, the PSD and Title V numerical definitions of major source are ”patently clear and unambiguous.” If EPA’s claim that it may regulate around the statute’s one-year review deadline is “absurd,” why not its claim that it may regulate around the PSD and Title V major source thresholds?

Tomorrow, the Senate is scheduled to vote on the Inhofe-Upton Energy Tax Prevention Act (S. 482) to overturn EPA’s Endangerment Rule and most of the agency’s other greenhouse gas (GHG) regulations. The bill is based on the constitutional premise that Congress, not an administrative agency with no political accountability to the people, should make the big decisions regarding national policy.

The fact that Congress remains deadlocked on climate and energy policy is a reason for EPA not to act — not an excuse for the agency to substitute its will for that of the people’s representatives.

I am a huge fan of the Inhofe-Upton bill. But even a good thing can be improved. S. 482 should be amended to preempt public nuisance litigation against GHG emitters under federal common law. Indeed, in its current form, S. 482 could actually increase the risk that the Supreme Court will empower trial lawyers and activist judges to ‘legislate’ climate policy. 

To belabor the obvious, trial lawyers and activist judges are even less accountable to the people than is the EPA, which at least depends on Congress for its annual appropriations.

The Supreme Court is currently reviewing State of Connecticut v. American Electric Power, a case in which six states, New York City, and three conservation groups are suing five large coal-burning electric utilities for their alleged contribution to climate change-related “injuries.” Plaintiffs claim the utilities’ carbon dioxide (CO2) emissions are a “public nuisance” under federal common law. They seek a remedy whereby the utilities would be required to reduce their CO2 emissions by a “specified percentage each year for at least a decade.” A new Congressional Research Service (CRS) report, Litigation Seeking to Establish Climate Change Impacts as a Common Law Nuisance (March 25, 2011), provides a useful overview of the case and the associated legal issues.

A win for plaintiffs would endanger the economy and further erode our constitutional system of separated powers and democratic accountability.

Plaintiffs say they just want to compel the nation’s biggest coal-burning utilities to cut their emissions. However, once the precedent is established, there can be no principled basis for shielding any class of emitters from lawsuits. If state, municipal, or private parties can sue large utilities for emitting CO2, they can also sue smaller utilities and manufacturers. In principle, they can sue almost anyone. Utilities, after all, only emit CO2 in the process of serving customers who use electricity. People lighting their homes, running their businesses, and using their laptops are ultimately to blame for destroying the planet, according to the “science” invoked by plaintiffs. In their worldview, everybody is injuring everybody else — which implies that everybody has standing to sue everybody else. Plaintiffs may preach “green peace,” but they sow the seeds of a war of all against all.

If plaintiffs win in Connecticut v. AEP, firms large and small could face the threat of interminable litigation, from a potentially limitless pool of plaintiffs, in which multiple courts, acting without benefit of statutory guidance, improvise remedies — both injunctive relief and damage awards — as they see fit. A victory for plaintiffs could destroy for many firms the legal predictability essential to business planning. 

In August of last year, the Obama administration filed a brief on behalf of the utilities, clearly laying out the absurdities of attempting to determine climate policy via common law nuisance litigation. Not only are there no “judicially discoverable and manageable standards” for balancing the public’s  undeniable interest in reliable and affordable energy with the public’s hypothetical interest in climate change mitigation, but the potential pool of plaintiffs and defendants whose interests would be affected literally number in the billions.

Strangely, the Obama brief failed to state the conclusion implied by its argument, namely, that climate policy is a non-justiciable “political question.” Instead, the brief argued that EPA’s ever-growing ensemble of GHG regulations “displaces” the federal common law of nuisance. Implication: All that stands between the U.S. business community and climate litigation chaos is EPA’s newfound career as GHG regulator.

The Court set the stage for EPA’s climate policy initiatives, and very likely wants to protect EPA’s greenhouse agenda from S. 482 and other legislative challenges. The Court may then be tempted to reach a decision blocking CO2 nuisance litigation solely on displacement grounds, so that Congress would arguably be exposing U.S. businesses to an even greater peril by overturning EPA’s policies.

The CRS report alludes to this problem:

Also interesting in the case before the Supreme Court is how EPA’s GHG-related actions under the Clean Air Act since the Second Circuit’s decision in 2009 (and further actions being discussed at the agency) will be seen to affect whether the federal common law of nuisance has been displaced. The Second Circuit explicitly noted this future possibility. Not surprisingly, petitioners-utilities argue that EPA’s actions do require displacement. On the other hand, should any of several bills before the 112th Congress eliminating EPA authority to regulate GHG emissions be enacted, the argument that federal common law has been displaced would be weakened. (Emphasis added).

 None of the foregoing is to suggest that the Senate should not pass S. 482. The point rather is that S. 482 should be amended to ensure that the Court cannot use the prospect of litigation chaos to intimidate opponents of EPA’s power grab. What would an appropriate amendment look like?

S. 228, the Barrasso-Walberg Defending America’s Affordable Energy Act, has a provision that would keep the climate ambulance chasers on ice, allowing Congress to nix EPA’s climate rules without fear of getting something even worse:

ACTIONS AT LAW.—No cause of action, whether based on common law or civil tort (including nuisance) or any other legal or equitable theory, may be brought or maintained, and no liability, money damages, or injunctive relief arising from such an action may be imposed, for— (1) any potential or actual contribution of a greenhouse gas to climate change; or (2) any direct or indirect effect of potential or actual atmospheric concentrations of a greenhouse gas.