Senate Fails to Pass Climate Bill while Challenges Mount to EPA GHG Rules

August 8, 2010
Client Alert Newsletter August 2010

While some anticipated earlier this year that the U.S. Senate would pass climate change legislation this summer, efforts to garner sufficient support to bring any climate change bill to a vote on the Senate floor before the August recess failed. In May, Senators Kerry and Lieberman unveiled an economy-wide cap and trade program for greenhouse gases ("GHGs") as part of a broader bill entitled the American Power Act ("APA"). Over the next month, however, it became clear that the Senators would not be able to secure a filibuster-proof majority for an economy-wide cap and trade program. Accordingly, negotiations began among utilities and environmental groups to establish a more limited cap and trade program for the utility sector through a scaled-down version of the APA. Once utility groups began pushing for additional relief related to the allocation of free GHG allowances and New Source Review provisions under the Clean Air Act, however, it became clear that a compromise bill would not be reached before the timelines imposed by Senator Reid for climate-change legislation to be introduced before the August recess. While Senator Reid left open the possibility of introducing climate-change legislation in September or after the November elections, the prospects of such legislation remains murky, especially in light of the Senate's failure to pass an oil spill/energy bill that was stripped of cap and trade and renewal energy standard programs before the August recess.

In the face of the Senate's inability to move forward on climate change legislation, the U.S. Environmental Protection Agency ("EPA") has continued to move forward to implement its "Tailoring Rule," which would regulate GHG emissions from large sources using existing authority under the Clean Air Act starting in 2011. The Tailoring Rule, which was published in the Federal Register on June 3, 2010, "tailors" the applicability threshold for GHGs under the Prevention of Significant Deterioration ("PSD") and Title V permitting programs so that only the largest GHG sources would be subject to these programs (for more detail on the specifics of the final Tailoring Rule, click here). As part of the Tailoring Rule, EPA asked states to inform EPA whether they believed that their current regulations could accommodate implementation of the Tailoring Rule without revisions. Ultimately, thirteen states either indicated that they could not implement the Tailoring Rule (or in the case of Texas, stated in a scathing letter that they refused to implement the rule) or failed to meet the August 2nd deadline. EPA recently announced that it would proceed with an expedited "SIP-Call" that would require those thirteen states to submit proposed regulatory revisions to EPA for review. EPA on the same day proposed a Federal Implementation Plan that would be imposed upon any state that could not (or would not) implement the Tailoring Rule starting January 2011.

Despite the activity surrounding the Tailoring Rule, it remains unclear as to whether and how it will ultimately be implemented. Dozens of lawsuits are currently pending against EPA related to the Tailoring Rule and other agency actions related to GHG emissions that serve as the foundations of the Rule. In addition, bills are pending in both houses of Congress that would either delay or strip EPA's authority to regulate GHGs under the current provisions of the Clean Air Act, and Senator Reid has reportedly indicated that one of the bills that delays EPA's authority, sponsored by Senator Jay Rockefeller, will be brought to the floor for a vote by the end of 2010. Furthermore, both the climate change bill that was passed in the House, the American Clean Energy and Security Act, and the proposals that have been circulated in the Senate contain provisions that would limit EPA's authority to proceed with the Tailoring Rule and other types of GHG regulations proposed under the Clean Air Act. Finally, the Climate Change Work Group, convened by EPA to provide recommendation as to what should be considered Best Available Control technology ("BACT") and imposed upon sources subject to the PSD portions of the Tailoring Rule, is due to issue its final report by the end of the year. Preliminary reports indicate that the recommendations will focus on energy efficiency measures as opposed to fuel switching or other control technologies such as carbon capture and storage.