Economics & Policy

Emissions Rules are On the Way


The Copenhagen summit aimed at limiting greenhouse gases ended with a whimper. Climate legislation in Congress is stumbling. But curbs on U.S. emissions from power plants and factories are coming anyway.

The Environmental Protection Agency is poised to take an historic step at the end of March, issuing the first-ever national rules to fight climate change. That puts companies on edge. "With the economy still limping, it's not the right time for this massive increase in the cost of everything we do," says Michael G. Morris, CEO of American Electric Power (AEP) (AEP).

EPA officials insist that fears about the new rules are overblown. "The EPA will act decisively and with common sense," Gina McCarthy, head of air regulation, said at an event in Copenhagen. Yet such assurances aren't stopping opponents such as Senator Lisa Murkowski (R-Alaska), Governor Bobby Jindal (R-La.), and the U.S. Chamber of Commerce from questioning the agency's authority. Many environmentalists think there's a better approach than rigid bureaucratic rules requiring states to act. David Bookbinder, chief climate counsel at the Sierra Club, sees regulation as "truly the second-best option to legislation" and hopes the threat will make companies urge Congress to pass a climate bill.

LEGAL WRANGLING

Here's how the regulations came about—and what they'll do. In 1999 environmentalists and renewable energy advocates petitioned the EPA under the Clean Air Act to limit the carbon dioxide coming from car exhaust. Eight years of legal wrangling later, the Supreme Court sternly admonished the agency. Yes, the justices said, CO2 is a pollutant, and you'd better regulate auto emissions or explain why not.

The Bush White House stalled, but the Obama Administration swiftly worked out a deal with the auto companies to boost fuel economy and cut emissions. On Dec. 7 the EPA provided the formal justification, ruling that greenhouse gases are a threat to health and welfare. It plans to finalize the tailpipe rules by the end of March.

What does this have to do with power plants? "Under the Clean Air Act, there is a domino effect," explains Kyle W. Danish, a climate law expert at Van Ness Feldman, a Washington (D.C.) law firm. Once a pollutant is regulated, "it triggers a whole bunch of requirements." Any new or significantly upgraded source of emissions must get a "prevention of significant deterioration" (PSD) permit saying that the "best available control technology" has been used to limit pollution.

The approach isn't ideal. "The Clean Air Act is a blunt instrument," says former Energy Dept. official Joseph J. Romm. For one thing, the law requires a PSD permit for new or revamped facilities that emit more than 250 tons of a pollutant per year. This threshold may be practical for trace pollutants such as sulfur dioxide, but not for CO2, which is spewed in large amounts by power plants, factories—even the local bakery. Hundreds of thousands of businesses exceed the limit; the rule would snare an estimated 41,000 new or improved facilities each year. "It would be an economic wrecking ball aimed straight at small business," says Marlo Lewis Jr., senior fellow at the conservative Competitive Enterprise Institute. Even the EPA agrees the law would have absurd results. It plans to change the threshold to 25,000 or even 50,000 tons annually, at which point fewer than 400 PSD permits would be needed per year.

THREADING THE NEEDLE

The second big issue involves defining "best available control technology." One idea, capturing carbon from smokestacks, is "possible and economically viable," says Philippe Joubert, president of France's Alstom Power, which makes such equipment. But the Clean Air Act requires control technology to be commercially available; gear such as Alstom's is still being tested. So the EPA's coming guidance will start out specifying energy efficiency measures. Later it could steer companies to switch from coal power to natural gas.

U.S. companies worry, however, that the legal tools available to the EPA are too crude to put them on the best green path. "They are trying to thread this needle between being too onerous and too ineffective," says Steven B. Corneli, senior vice-president for market and climate policy at the utility NRG Energy (NRG). "I'm afraid it's likely to be both."

Environmentalists counter that the EPA's action, while not optimal, is still progress. "The good news is that a lot can be done with regulation," says Bookbinder—including, eventually, cracking down on existing power plants. Even the utilities see positive potential outcomes. "There are ways the EPA could go about it that are rational and could work," says AEP's Morris. But the politics are also crucial. If the rules survive legal challenges and kick in by summer, as the EPA expects, the first big impact may be to urge lawmakers to devise a more comprehensive approach. Says Corneli: "We respect what the EPA is doing, but it makes it more urgent that Congress act."

John_carey
Carey is a senior correspondent for BusinessWeek in Washington.

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