When the U.S. Environmental Protection Agency issued its final finding that emission of six greenhouse gases endangered the public’s health and the environment because of their effect on climate change, the business community wondered how it should respond to the news. At first glance, there seems to be blinding maze of legal and policy issues that will affect business decisions. Although far from clear, there is a way out of the maze – although businesses with significant greenhouse gas emissions should be prepared to tackle the important issues that the Endangerment Finding raises.
Businesses Need to Take a Deep Breath (Irony Intended)
The road to the endangerment finding began in 2007, when the U.S. Supreme Court decided in Massachusetts v. EPA that carbon dioxide and other greenhouse gases constituted “air pollutants” under the Clean Air Act. To most savvy businessmen this was a clear signal to start planning how their businesses would cope with the establishment of limits on emission of greenhouse gases. Although the Bush Administration EPA successfully sat on the issue, when the Obama Administration took office, most companies recognized that an endangerment finding would top the EPA’s list of major environmental actions. Thus, EPA’s announcement this past April of its proposed finding and its announcement of the final endangerment finding should have come as no surprise to anyone who has been monitoring this issue.
The key thing for businesses to remember is that the endangerment finding by itself does not regulate the emission of greenhouse gases from any source, large or small. That being said, it does have a direct impact on mobile sources (because of section 202(a) of the Clean Air Act), with the EPA planning on issuing its final “light-duty vehicle” greenhouse gas emissions rule some time in Spring 2010.
When the light-duty vehicle rule is finalized, the GHGs subject to regulation under that rule (i.e., the six greenhouse gases identified in the Endangerment Finding) would become immediately subject to regulation under the PSD program, meaning that from that point forward, prior to constructing any new major source or major modifications that would increase GHGs, a source owner would need to apply for, and a permitting authority would need to issue, a permit under the PSD program that addresses these increases. Similarly, for the Title V operating permit program, it would mean that any new or existing source exceeding the major source applicability level for those regulated GHGs, if it did not have a title V permit already, would have 1 year to submit a title V permit application.
Recognizing this incidental effect, the EPA proposed a “tailoring rule” on September 30, 2009. In the Tailoring Rule, EPA proposed to set a new threshold of 25,000 metric tons of GHG emissions to define when Clean Air Act permits under the New Source Review and Title V operating permits programs would be required. The proposed thresholds would “tailor” these permit programs to limit which facilities would be required to obtain permits and would cover nearly 70 percent of the nation’s largest stationary source GHG emitters—including power plants, refineries, and cement production facilities, while shielding small businesses and farms from permitting requirements. Thus, businesses that emit less than 25,000 metric tons of GHG and businesses that currently have a Title V operating permit will not, for the most part, be covered by the Tailoring Rule.
Should Businesses Make Voluntary Reductions in Greenhouse Gas Emissions?
So what should companies do in the meantime?
Many businesses have been evaluating their carbon footprint over the past few years (particularly since the Massachusetts v. EPA decision) and have been looking at ways to reduce GHG emissions. For many companies energy is a cost, and in some cases, greenhouse gases may be a lost resource. By increasing efficiency, costs are reduced and the business operates better. For example, the aviation industry loves to trumpet how it is getting “greener,” because it is reducing GHG emissions. However, that greening has come about by reducing fuel consumption, which became a necessity when fuel prices spiked because fuel costs represent a huge percentage of the aviation industry’s costs. The result? Increased fuel efficiency=fewer emissions=reduction in emissions of GHG, with a reduction in fuel costs to top it off. Moreover, there are ways that would reduce GHG emissions and accrue tax benefits, such as cogeneration or combined heating power. These types of programs that reduce GHG emissions and accrue a direct benefit to the company’s bottom line should be pursued regardless of the regulatory environment. The caveat would be that businesses should check in with their environmental law attorney to see if there are any carbon banks or carbon credit systems set up that they could participate in order to get “credit” for any reduction in GHG emissions.
Outside of those programs, however, caution should be taken with respect to taking on projects that would reduce GHG emissions, but represent a net cost to the business. Many businesses are taking a “wait and see” attitude, relying on their environmental law attorneys to monitor developments, report to them about those developments and assist them in develop strategies and manage the risk. It is only when the regulatory regime is in place that businesses can assess what changes need to be made to their processes and to their equipment in order to comply with the regulations. Particularly when the costs to comply are substantial, businesses are going to want to wait until the requirements become fixed before they undertake a far-reaching GHG emission reduction program.
Congressional Outlook: Who Knows What They Are Up To?
The progress in Congress on new Climate Change legislation is an additional reason for businesses to sit tight. Since Monday’s Endangerment Finding, most business and industry groups have stated that they would much prefer either one of the bills currently being considered in Congress to regulation by the EPA. The primary reason for this is the fact that both the Boxer-Kerry bill and the Waxman-Markey bill have “cap-and-trade” provisions, which, although excoriated by the Republicans, are much better for businesses than an EPA-centric “command-and-control” regulatory regime. A good example of this change of heart is Sen. Mark Pryor (D.Ark.), who was reported as being more willing to consider a cap-and-trade proposal now that the EPA has issued its endangerment finding.
At the same time, the failure to come up with a bill for the President’s approval prior to the Copenhagen Climate Change Conference, the release of the hacked e-mails from East Anglia University’s Climate Research Unit, and the inexorable march of time have led to the Senate going back to the beginning. Indeed, Sens. Kerry, Lieberman and Graham have put forth a new outline for Climate Change legislation. Thus, it is unlikely that Congress will have anything to offer until after the EPA has finalized the light-duty vehicle regulations, and perhaps after the Tailoring Rule is finalized.
Conclusion: Now Is The Time for Self-Assessment
The upshot of the Endangerment Finding and, for that matter, EPA’s regulation of GHG emissions, is that now would be a good time for businesses to assess just how much GHG emissions they produce. The potential impact of EPA’s regulation of GHG emissions will be felt by companies that have not been traditionally required to examine their exposure to Clean Air Act regulation. To state that there is not much clarity as which companies will be affected by the EPA’s Tailoring Rule, for example, is an understatement. Even the EPA recognizes in its rule that it will need to fine tune it over the years so that does what it is supposed to do. Thus, the more businesses know about their operations and the amount of GHG they emit, they better they will be able to assess their place in just about any scenario that may come up.