The so-called "endangerment finding" announced Monday by EPA Administrator Lisa Jackson is necessary to move ahead on new emission standards for cars, while potentially opening up large emitters such as power plants, crude-oil refineries and chemical plants to limits on their output of carbon dioxide and other gases.The EPA's final rule is here. Unsurprisingly, the blogosphere - both liberal and conservative - has erupted over the controversial EPA decision. Each side views the EPA's decision as a backdoor to regulating CO2 emissions without congressional passage of the currently-comatose Cap-and-Trade legislation, or a way to force Congress to pass that very same legislation (or else!). These valid concerns are, in my humble (ha!) opinion, quite worthy of the barrels of virtual ink being spilled over them.
"These long overdue findings cement 2009's place in history as the year when the U.S. government began addressing the challenge of greenhouse-gas pollution and seizing the opportunity of clean-energy reform," Ms. Jackson said in a statement....
The EPA action gives President Barack Obama something to show leaders from other nations when he attends the Copenhagen conference on Dec. 18 and tries to persuade them that the U.S. is serious about cutting its contribution to global greenhouse-gas emissions....
An endangerment finding allows the EPA to use the federal Clean Air Act to regulate carbon-dioxide emissions, which are produced whenever fossil fuel is burned. Under that law, the EPA could require emitters of as little as 250 tons of carbon dioxide per year to install new technology to curb their emissions starting as soon as 2012.
The EPA has said it will only require permits from big emitters -- facilities that put out 25,000 tons of carbon dioxide a year. But that effort to tailor the regulations to avoid slamming small businesses with new costs is expected to be challenged in court.
However, one thing that I've yet to see in any of the e-chatter is an analysis of whether the EPA's endangerment ruling will empower the agency to impose eco-protectionist measures against imports of fossil fuels or GHG-intensive products (like cement, steel or fertilizer). Such protectionism would likely come in the form of carbon taxes, tariffs or other "border measures" imposed on imports of targeted products from countries that have not implemented similar emissions limitations in order to offset the competitive disadvantages caused by the EPA's domestic regulations. As I've discussed previously, carbon tariffs are themselves highly controversial and are opposed by most of the developing world and an increasing share of the developed world for myriad reasons (including the possibility of starting a trade war). All of this discussion, however, has come via analysis of the US Cap-and-Trade Legislation (which contemplates carbon tariffs) or a multilateral agreement on climate change concluded as part of the UN's Copenhagen Conference. Never have I contemplated whether a federal agency - the EPA - would impose similar eco-protectionism without Congressional approval.
The short answer: it's still unclear, but we all should be very, very concerned. (Cue ominous music...)
The EPA's endangerment ruling does not authorize, or even contemplate, the imposition of carbon tariffs. It doesn't even establish the EPA's actual regulation of most GHG emissions or production of GHG-intensive goods (although that's certainly a viable ultimate result). Indeed, Monday's EPA ruling really does only two things: (i) deem GHGs to be harmful pollution capable of being regulated by the CAA; and (ii) lay the groundwork for the EPA's regulation of GHG emissions from new motor vehicles. So why should we be "very, very concerned" about the EPA pursuing eco-protectionism and all the nasty fallout that would result from that move?
Several things, actually.
First, EPA documents and rulings clearly indicate that the agency both looking into, and laying the groundwork for, some form of import regulation related to its new endangerment ruling. For example, in the EPA's July 2008 Advanced Notice of Proposed Rulemaking (a necessary precursor to the final endangerment rule), the EPA frequently questioned whether its GHG regulations would cause "emissions leakage" - i.e., the outsourcing of GHG-emissions-intensive industries and jobs to countries that lack GHG regulations. A primary way to combat such leakage, of course, is carbon tariffs. Indeed, in the same document, the Department of Commerce voiced strong opposition to the unilateral imposition of carbon tariffs - another clear indication that the EPA was mulling the idea. (And, of course, that was a much different DOC (and EPA) than we have today.)
The EPA's final endangerment rule includes no discussion of leakage or border measures, but has several pages (see, in particular, pages 142-151 of the document linked above) on how global GHG emissions can affect human health and safety. One of many telling quotes: "The impacts of the air over the United States cannot be assessed separately from the impacts from the global pool, as they occur together and work together to affect the climate." As with the preliminary notice, it's clear that the EPA is well-aware of, and fully contemplating, the global effects of GHG emissions and its potential regulation of their (allegedly) harmful effects in the United States.
Another EPA ruling related to the endangerment finding also is cause for concern about future eco-protectionism stemming from the EPA's GHG regulations. On October 30 of this year, the EPA announced a final rule for GHG emissions under Section 307(d) of the CAA which "require[s] reporting of greenhouse gas emissions from all sectors of the economy." The final rule doesn't regulate GHGs emissions - just reporting, and applies to fossil fuel suppliers and industrial gas suppliers, direct GHGs emitters and manufacturers of heavy-duty and off-road vehicles and engines. Such "suppliers" include importers and exporters of fossil fuels and certain downstream petrochemicals. Again, it's clear from these regulations that the EPA is very much aware of, and concerned about, the international trade implications of its GHG regulations. Moreover, this reporting system could quite easily be expanded to include other products or, more importantly, provide much-needed evidence (a "rational basis," in legalese) to justify the EPA's imposition of border measures on products/processes controlled by any new GHG regulations.
Second, if Congress refuses to act on Cap-and-Trade (quite likely considering how devastating the issue is politically these days), the EPA's endangerment ruling could be used as a surrogate means of controlling US GHG emissions. Indeed, the White House brazenly threatened as much today (so much for Democrat wailing over abuse of executive power, huh?). Well, as I've discussed repeatedly, a primary component of both the House "Waxman-Markey" bill and the Senate "Boxer-Kerry" bill is, you guessed it, carbon tariffs. Thus, if the EPA's emissions regulations are truly meant to be a surrogate of current US climate change legislation, it's certainly plausible that those regulations will contain some form of similar border measure. (It's also plausible that they won't, but that leads us to the next point.)
Third, if the EPA's endangerment ruling indeed leads to the imposition of serious GHG regulations on US businesses, domestic industry groups will very likely spend a fortune lobbying for the imposition of some form of anti-leakage measure. For example, the above-linked WSJ article cited concerns about "huge costs" imposed on US industries from, among others, the US Chamber of Commerce and the National Association of Manufacturers, US electricity providers, and oil refiners - costs likely not borne by their (lucky!) foreign competitors. Indeed, the Iron and Steel Institute said that any regulation -- whether through the EPA or Congress -- must "reduce emissions without altering the competitiveness of American steelmakers." Of course, the steelmakers - and the many lawmakers who do their bidding - have demanded carbon tariffs in the Cap-and-Trade legislation to ensure a "level playing field" for their products versus imports, so similar efforts are very, very likely for any surrogate EPA regulation.
In sum, the EPA's controversial endangerment ruling does not explicitly contemplate or authorize eco-protectionism under the CAA, nor will it definitely lead to such nastiness. On the other hand, there is plenty of reason for concern. The EPA is clearly concerned about emissions leakage and believes that emissions regulation extends beyond America's borders. Moreover, the agency has not only contemplated border measures as part of any GHG regulation regime under the CAA, but also established a framework - and potential justification - for the imposition such measures down the road. The case isn't a slam-dunk, but it's certainly something to watch for.
So stay tuned....
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