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Stage Set for Greenhouse Gas Regulation

Greenhouse gases (GHG) contribute to air pollution and may endanger public health, the U.S. Environmental Protection Agency (EPA) said last Friday, setting the stage for expanded regulation of power plant and other emissions under the Clean Air Act and potentially a market for trading emissions credits. While hardly unexpected, the news sent a chill through the power industry.

"This a monumental first step towards regulation of greenhouse gases under the Clean Air Act. Unless Congress enacts legislation and crosses the finish line first -- which is our strong hope -- we fully expect that EPA eventually will issue rules to reduce carbon dioxide emissions from power plants," said Edison Electric Institute spokesman Dan Riedinger.

"But the process won't be pretty because the Clean Air Act is extremely complex, fraught with uncertainty and ill-suited to the task of reducing global emissions. We may not know for years the precise impact this would have on new and existing power plants. This is a road we'd rather not go down, but only Congress can steer things in a better direction."

The finding is subject to public comment and follows a 2007 U.S. Supreme Court ruling that directed EPA to revisit the regulation of GHG after the agency rejected a request to initiate a rulemaking on the gases blamed for global warming (see NGI, April 9, 2007).

The proposed endangerment finding is based on the study of six gases -- carbon dioxide (CO2), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride -- that have been the subject of analysis by scientists around the world. "The science clearly shows that concentrations of these gases are at unprecedented levels as a result of human emissions, and these high levels are very likely the cause of the increase in average temperatures and other changes in our climate," EPA said.

"This pollution problem has a solution -- one that will create millions of green jobs and end our country's dependence on foreign oil," said EPA Administrator Lisa P. Jackson.

As the proposed endangerment finding states, "In both magnitude and probability, climate change is an enormous problem. The greenhouse gases that are responsible for it endanger public health and welfare within the meaning of the Clean Air Act."

The American Chemistry Council (ACC) said last Friday that it, too, believes the Clean Air Act is not the proper vehicle with which to regulate GHG.

"We believe that the Clean Air Act is not well suited to address greenhouse gas emissions from stationary sources," it said. "Given the national implications of carbon dioxide regulation by EPA and the interdependent nature of climate and energy issues, climate policy should be discussed and developed in Congress, in tandem with energy policy.

"The products of chemistry will be important to that effort, given the widespread use of chemistry for energy efficiency and renewable energy applications. These include building insulation, solar panels, wind turbines, lightweight vehicle parts, compact fluorescent light bulbs, energy-efficient appliances, lithium-ion batteries, low-rolling resistance tires, automotive and industrial lubricants, thermal roof coatings and many others."

The prospect of GHG regulation has been looming over the power industry since before the Supreme Court's ruling two years ago. Uncertainty over potential GHG regulation has been a factor in the cancellation of numerous coal-fired power plant projects around the country. In Kansas, for instance, air permits two proposed coal-fired units were turned down multiple times by the state's governor over health concerns, and the expectation of GHG regulation was often part of the debate.

Findings from a recent EPA study titled "Assessment of the Impacts of Global Change on Regional U.S. Air Quality: A Synthesis of Climate Change Impacts on Ground-Level Ozone," suggest that climate change may lead to higher concentrations of ground-level ozone, a harmful pollutant. Additional impacts of climate change include:

The proposed endangerment finding now enters the public comment period, which is the next step in the deliberative process EPA must undertake before issuing final findings. Before taking any steps to reduce greenhouse gases under the Clean Air Act, EPA would consider stakeholder input. Obama and Jackson have repeatedly indicated their preference for comprehensive legislation to address the issue.

Congress is soon expected to consider climate change and energy legislation centered around a cap-and-trade system that intends to reduce GHG emissions 20% by 2020, and 83% by 2050. Hearings on the legislation are expected to begin when Congress returns to Washington.

The U.S. Chamber of Commerce was dubious about the potential impact on the economy the regulation of GHG emissions might have.

"The EPA...can proceed at a pace consistent with current and future technology, or it can allow non-governmental entities and activist groups to take the regulations out of EPA's hands and apply the Clean Air Act through the courts. The second option would kill economic growth and jobs," said Bill Kovacs, chamber vice president for environment, technology and regulatory affairs.

"Regulation of these important environmental markets is something we need to get right," said Commodity Futures Trading Commission (CFTC) Commissioner Bart Chilton who chairs an advisory committee addressing the subject.

The CFTC is expected to oversee the trading of derivative products associated with CO2 allowances. The Energy and Environmental Markets Advisory Committee (EEMAC) is expected to enhance the CFTC's ability to anticipate and address regulatory issues pertaining to both energy and environmental trading markets.

"The mission, mandate and membership of the EEMAC is being expanded to ensure that we are ready for what could be a $2 trillion market in several years," Chilton said. "We will have impressive experts who will help us as we try and figure out what needs to been done on day one after legislation becomes law."

EEMAC, which previously was focused on energy markets, will include a handful of new members with expertise in climate change and environmental markets, the CFTC said. The first meeting will be held on May 13.

The European Union began a cap-and-trade system in 2005 but has struggled with the proper allocation of emissions allowances. "I'm hopeful we in the U.S. can learn from the European experience to ensure that these markets take off in an orderly, efficient and effective fashion," Chilton said.

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