The Obama administration is keeping quiet about climate policy leading up to the election, refusing to answer whether it will pursue a cap and trade policy if re-elected and remaining startlingly silent about global climate change.  The Romney campaign believes that actions by President Obama have slowed economic growth, is not certain “what the nature of the threat of climate change is” and claims that energy efficiency is a clever ploy by the Democrats to enact expensive policy.  I’ll leave it to the reader to decide, but I think it’s worth talking about what climate policy we do have and how the standards for both stationary and mobile sources came about in Washington.

To take a step back and put the recent rulings and debate in the context of the United States climate policy, I am going to provide a bit of history, a brief lesson in congressional legislation, and some personal commentary about what it all means.  I welcome your opinions, feedback, and questions about this discussion in the comments section of this post.

First, a piece of good news:  The United States has emitted fewer greenhouse gases in 2011 than it has in any year for the past  20 years, achieving levels below the projections for Business As Usual scenarios.  The reasons for this are twofold:  first, the overall slowdown in the economy due the recession has reduced consumption of energy and resulted in lower emissions; and second, the low price of natural gas with respect to coal, has encouraged a fuel switch that could, but is not guaranteed to, stick.

The low price of natural gas is the result of a combination of factors that is most simply explained by both oversupply and weak demand.  Accordingly, gas producers would not continue to invest in production unless they believe that the prevailing price will generate revenue for their business.  The EIA suggests that the price of natural gas is going to rise, which means it may or may not continue to remain cost competitive with coal on a per kilowatt basis.  Similarly, gas is inherently more price volatile than coal because of its connection to oil price, various supply chains and end uses, and variable production.  For these reasons, the coal industry has not shut its doors for good.  Even while power plants are switching to greater use of natural gas as a fuel, coal mines remain open and infrastructure remains active.  The industry can, and does, expect some amount of demand to return to coal in the medium-term.

Meanwhile, the EPA (Environmental Protection Agency) has also disincentivized coal fired power plants by requiring additional emissions control technology, but not as a direct result of climate policy.  The Mercury Air Toxic Standard (MATS) limits the amount of mercury and particulate matter emissions for an entity by requiring specific control technologies, rather than a performance standard, citing health benefits from reduced air pollution under the Clean Air Act.  Because burning coal produces substantially more mercury and particulate matter than combustion of petroleum products or natural gas, this standard effectively targets coal and will make it more difficult to convert plants back to coal even if the price of natural gas make it economically feasible (MATS has a three-year window for installation of the control technology).   As a result of both the low price of natural gas and tighter emissions restrictions, twice as many coal-fired power plants will be retired over the next five years than was previously expected.

Despite this action, the Obama administration was criticized for not having accomplished any substantial legislation with regard to climate policy. But more recently, the Energy Generation Unit (EGU) New Source Performance Standard (NSPS) was proposed, which places CO­₂ emissions cap per unit energy for all power-producing technology types across the board.  For example, the NSPS caps CO₂ at 1000 pounds of CO₂ per MWh.  These limits effectively bar the commissioning of any new coal-fired power plants, unless they employ carbon capture and sequestration (CCS), which does not currently exist commercially.

Procedurally, the NSPS is interesting because it generated more of a response for any rule from any federal government agency.  When a rule is proposed by any agency (the NSPS was proposed in March of 2012), there must be a period of time during which it remains public and open for comment.  During this comment period, the NSPS received about 2 million comments, and the EPA is required to respond to each and every unique comment.  While a substantial number of the comments can be attributed to petitions of hundreds of names from large climate action organizations in support of the rule, dissenting opinions from industry such as this one must also be considered.  Soon (within a year), the EPA will have addressed the comments and will release the final standard, which will also include the date on which this standard will go into effect.  Though the comment period for this rule is now closed, remember this process the next time you support or do not support a proposed rule!

Now for a little bit of history about greenhouse gas regulation:  In 1999 a number of states, including Massachusetts, filed a petition to the EPA asking it to regulate greenhouse gases under the Clean Air Act, which implements and enables enforcement for regulations about air pollutants and began what became a case called Massachusetts vs. EPA.  First proposed in 1970, the Clean Air Act was expanded and updated most recently in 1990, and it is estimated that its existence has saved trillions of dollars in health care costs.  The Clean Air Act regulates pollutants for both stationary sources (Title I, e.g. power plants) and for mobile sources (Title II, e.g. vehicles).  Specifically, the Prevention of Significant Deterioration (PSD) program requires sources of any pollutant regulated anywhere else in the act which emit more than 10-25 tons per year (depending on the pollutant) to obtain a permit, which will require that the entity install the Best Available Control Technology (BACT) as defined by the EPA.

The petition was filed to consider greenhouse gas as a pollutant in 1999, during the Clinton administration, but it was not until 2007, when the Supreme Court sided with the petitioners and required that the EPA conduct an endangerment hearing for greenhouse gases as a pollutant under the Clean Air Act, was any action considered.  In an endangerment finding, the agency evaluates whether the substance (1) harms human health or welfare and (2) the pollutant causes or contributes to the pollutant that harms human health or welfare.  If either of these conditions is satisfied, the EPA is required to enact legislation for the pollutant.  In accordance with the Supreme Court ruling, the EPA then began the administrative process to conduct an endangerment finding – which meant that a packet of information was passed on to the Office of Management and Budget (OMB).

The OMB did not get around to opening that email until the end of the Bush administration, but finally moved on it in 2009.  The science for the endangerment hearing was already accepted as well-documented in both the International Panel for Climate Change 4^th Assessment Report and the United States Global Change Research Program U.S. Climates Impact Report and CO₂ was deemed a pollutant.  The first version of the finding, called “proposed finding of endangerment”, was released for comment in April of 2009, followed by the final version in November of the same year.  In May 2010, the updated CAFE standards were released in accordance with Title 2 of the Clean Air Act and increased average fleet fuel efficiency requirements to 35.5 miles per gallon by 2016 (from the previously passed rule that increased average fleet fuel efficiency to 25 miles per gallon by 2020).  And last month, the EPA issued a second mobile source rule which covers the period from 2017 to 2025, increasing CAFÉ standards to 54.5 mpg by 2025.

Today, we are hovering around 25 miles per gallon as an average fleet fuel efficiency and the update overhauled the way in which fuel efficiency is defined for different types of vehicles.  The new rule scrapped the previous categorization and replacing it with a “footprint” approach, whereby vehicles are limited to certain fuel efficiencies by their size.  (Interestingly, the categorization of cars vs. light trucks in the last revision actually caused the average fleet efficiency in the US to decrease since 1985.)  These requirements are the responsibility of manufacturers, who get penalized with fines if their vehicles do not comply.

CAFE standards and compliance (Source: EIA)

Now that the EPA has set regulations on Title 2 (mobile) sources, it must enact legislation for Title 1 (stationary) sources.   But the problem here is that according to the numerical limits set by the Clean Air Act under the PSD program, there are an EPA-estimated 6 million permittable entities in the United States, which is completely unfeasible for any cost-effective regulation, not only in terms of enforcement but also in terms of economic burden for the entities.  Instead, the EPA issued a Tailoring Rule – a mechanism in place for situations in which it does not make sense to apply the law as written – in order to increase the cutoff levels for CO₂, noting that it does not make economic or procedural sense to levy fees on 6 million entities.  Thus, polluting entities are required to register with the EPA but there are no additional enforcement mechanisms, though recall that the EGU New Source Performance Standard does regulate future energy generating installations with more stringent cutoffs.

In summary, the absence of a coherent climate policy is evident.  Stationary polluting sources are now regulated by Mercury Air Toxic Standard, required to register through the Prevention of Significant Deterioration program, and restricted in new construction by the EGU New Source Performance Standard.  Mobile sources are controlled through the Corporate Average Fuel Economy Standards, the most recent of which was released last month and has generated significant political debate about the benefits of energy efficiency regulation.  Still, by addressing the negative externalities of coal pollution, increased power production, and vehicle emissions, the government has attempted to protect societal well-being that is not currently reflected in the price of fossil-fuel energy.

Commentary

The combination of these regulations may result in nearly the same emissions reductions in the near term as would a price for carbon (e.g. Cap and Trade would introduce a small price at first, which would grow over time, leading to much more emissions reductions in the long term) but it is arguably not as economically efficient.  While I am going to leave microeconomics and deadweight loss for another to explain, I want to draw your attention to the existential question of a climate policy in the United States.  The United States is projected to contribute roughly the same amount of greenhouse gas emissions over the next 50 years, while developing countries are expected to increase their share of emissions dramatically.

The whole point of a climate policy in the United States is to bring something to the table with which to negotiate at an international level.

Our climate policy, buried in the Clean Air Act, bandaged with the EGU New Source Performance Standard, is convoluted and opaque (look at how long it took to explain it here).  While it is good (in my opinion) for the country to have any climate policy, we must recognize the context in which it exists and ask ourselves how we can sell such a jumble of regulation in a compelling and cohesive way.

The second problem with regulation through the EPA is that it is especially uncertain because we do not need Congress to overhaul the standards.  Governor Romney has promised that, if elected, the increase in stringency in fuel efficiency (35.5 mpg by 2016, 54.5 mpg by 2025) will be revoked; setting average fleet fuel efficiency standards back to the 2007 rule of 35 mpg by 2020.  Whether or not you support this decision is irrelevant; uncertain legislation disincentivizes innovation to achieve compliance, costing more both for the industries involved and for the people whom the externalities affect.

Finally, I end on a positive note.  The EPA has also implemented the Greenhouse Gas Reporting Program in accordance with the Energy Independence and Security Act of 2007.  As a result, any entity that emits more than 25,000 tons of greenhouse gas per year is required to report it to the EPA and the EPA is free to do whatever it likes with that information.  The EPA has chosen to publish it online here, and you can see who is emitting what in your town, state, or anywhere else in the country.  For example, I learned today that the MIT Cogeneration Plant emitted 154,224 metric tons CO₂ equivalent in 2010 in order to supply electricity, heating and cooling to 80% of the campus.  That’s about 12 tons of CO₂ for every student, faculty, and teaching staff member each year.

Greenhouse Gas Reporting for MA (Source: EPA)

Who cares?  Well, this is powerful because now the information is public before there are any stakes, costs, or limitations involved.  If and when there is movement on a policy associated with stationary greenhouse gas emission, there is less room for wrangling because the definitions, data, and public knowledge already exists.  The Greenhouse Gas Reporting Program, in effect, increases the potential efficiency of any future carbon policy.  Whereas in many places where Cap and Trade programs have taken years to set up (Europe, California, Quebec), the information infrastructure already exists to move into enforcement at a federal level relatively quickly.  Furthermore, there is a benefit simply from requiring companies to count what they are emitting.  Without counting, this aspect of a company could be easily ignored, but many large companies have positive incentives to “go green.”  Forcing them to pay attention to their emissions enables both identification and action of many kinds of easy and inexpensive reductions.  And finally, this interface includes a public awareness component that shows the centralized and localized nature of the majority of greenhouse gas emissions, enabling conceptualization of where and how there is room for improvement.

During an election year, it is easy to forget the framework in which policy is created.  This framework is equally important to the ideals, goals, and vision of a presidential candidate and has an impact on a global level.  An American climate policy means more than cheap gas, “green” jobs, or a war for or against fossil fuels.  It requires recognition of the science and appropriate consideration in both the political and international context.  Moving forward, we could do well to remember this and evaluate our policies in this light both for our economy today and for the well-being of our future generations.