Reprinted with permission of Andrews Publications 2008.

The Environmental Protection Agency on March 6 published its long-anticipated formal determination on California's request to waive federal preemption of its standards for greenhouse gas emissions from automobiles. 1 Although the ultimate fate of the EPA's determination will almost certainly be decided by the courts, the dispute between California and the EPA highlights the tension between state and federal efforts to regulate GHGs.

Background

Although the Clean Air Act generally allows states to impose pollution standards that are stricter than federal standards, federal law preempts state law with regard to automobile emissions. Section 209(b), however, allows California to seek a preemption waiver from the EPA and enforce stricter tailpipe emissions standards. Because only California may seek a waiver, any other state wishing to adopt stricter emissions standards may only do so through the "piggyback" provision in Section 177, which allows other states to adopt California's standards as their own. Currently, 14 states use this "piggyback" provision.

Since 1966, California has requested and been granted a waiver at least 53 times. The state first included greenhouse gases in a waiver request in December 2005, saying mobile sources generate about 30 percent of the GHGs in California.

After a long delay, due in part to the wait for the U.S. Supreme Court's landmark decision in Massachusetts v. EPA2 that GHGs are "pollutants" for purposes of the Clean Air Act, the EPA indicated Dec. 19, 2007, that it would reject California's request. The agency said the primary basis for its decision was that GHGs "are fundamentally global in nature" and thus require a national solution. 3

The EPA concluded that Section 209(b) was a compromise between the need for a consistent manufacturing standard and the need to allow California to address its unique pollution problems.

According to EPA, this compromise should be read narrowly to mean that California may require tighter restrictions on emissions where the air pollution problems being addressed have "their basic cause, and therefore their solution, locally in California."4 In short, EPA's fundamental position is that GHGs are a global problem, California is in no worse position than any other area, and there is only an attenuated causal link between reducing GHG emissions in California and reducing GHG concentrations in California.

After reviewing the projected effects of global warming on the country and on California in particular, the EPA said the effects on California "are not sufficiently different from conditions in the nation as a whole to justify separate state standards."5

Predictably, the EPA decision has generated a firestorm of criticism. California, along with 17 other states, had sued the agency even before the formal decision, arguing that California's emissions standards are part of a larger effort at reducing the GHG emissions that cause global warming and urging that, in the wake of Massachusetts v. EPA, the national scale of the problem does not foreclose state action. The Congressional Research Service also issued a report highly critical of the EPA's decision.6

The Larger Context

California's tailpipe emissions standards are a small part of a much broader effort to combat climate change. The last time the states asked the EPA to regulate greenhouse gases, the dispute resulted in the landmark ruling Massachusetts v. EPA, which concluded that GHGs were an air pollutant for purposes of the Clean Air Actand the EPA had the authority to regulate thos pollutants.

States are moving far more rapidly than the federal government in directly regulating GHG emissions. Market-based programs to regulate carbon emissions, which have encountered significant political barriers in Congress, are being developed by regional coalitions of states. On the East Coast, the Regional Greenhouse Gas Initiative could begin auctioning carbon credits as early as June, and the emissions cap for the seven signatory states is scheduled to take effect Jan. 1, 2009.

On the other side of the country, the Western Climate Initiative brings together seven states and two Canadian provinces to curb GHG emissions, and a cap-and-trade system is among the organization's central objectives. Most recently, on Nov. 15 nine Midwestern states and the Manitoba province signed the Midwestern Greenhouse Gas Reduction Accord.

Nearly 50 percent of the U.S. population now lives in a state participating in or contemplating a cap-and-trade program to reduce GHGs. States are also using the environmental impact assessment process, which is required for projects meeting state-determined impact thresholds, to require developers to quantify and mitigate GHG emissions. Massachusetts and California have already adopted such rules, and New York is currently considering a similar obligation.

Beyond direct regulation of GHGs, states have also begun adopting programs that aim to reduce emissions indirectly. At least 24 states have renewable portfolio standards, which mandate that electricity providers obtain a minimum percentage of energy from renewable energy sources. And an increasing number of states are changing the economics of electricity production and consumption by using tax incentives for on-site renewable electricity generation, net metering, and rate decoupling.

National efforts to adopt cap-and-trade regulation, renewable portfolio standards, and similar measures have stalled in Congress. The recently tightened fuel economy standards (requiring manufacturers to reach a fleet-wide average of 35 miles per gallon by 2020) will have a positive effect on GHG emissions, but many have argued that the reductions are too little and too late, and that fuel economy standards are no substitute for direct GHG regulation.

Although resolution of the dispute over the California waiver is important in its own right, the result is likely to have impacts well beyond automobiles. Existing and impending regulation of carbon emissions may affect – directly or indirectly – utility costs, fleet purchasing decisions, eligibility for tax credits, capital investment choices, and financing terms. These issues cut across industry sector boundaries, challenge businesses to adapt to changing cost structures and potentially create new avenues for competitive advantage.

What Lies Ahead

The California waiver dispute is not likely to be resolved anytime in the near future.

The 2008 presidential election will bring new perspectives to the table. But the change in presidential administration is unlikely to eliminate the state-federal tension over GHG emission regulation. The House Energy and Commerce Committee released a white paper Feb. 25 addressing in part how federal GHG legislation should interact with stricter standards imposed by local, state or regional initiatives.7 As the report makes clear, Congress continues to wrestle with this question, and continuing stakeholder input will be an important factor in shaping policy.

Footnotes

1. California Sate Motor Vehicle Polution Control Standards, 73 Fed. Reg. 12, 156 (Mar. 6. 2008).

2. Massachusetts v. EPA, 127 S. Ct. 1438 (2007).

3. Letter from Stephen L. Johnson, Administrator, U.S. Environmental Protection Agency, to Arnold Schwarzenegger, Governor of the State of California (Dec. 19, 2007).

4. Cal. Pollution Control Standards, supra note 1.

5. Id.

6. Cong. Research Serv., California's Waiver Request to Control Greenhouse Gases Under the Clean Air Act (Dec. 27, 2007).

7. U.S. House of Reps., Energy & Commerce Comm., Climate Change Legislation Design: Appropriate Goals for Different Levels of Government (Feb. 25, 2008), available at http://energycommerce.house.gov/Climate_Change/white%20paper%20st-lcl%20roles%20final%202-22.pdf.



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