Federal Climate Change Regulation Likely to Receive More Attention in 2009, But Economic Concerns May Push Timelines

January 8, 2009
Client Alert Newsletter Forecast 2009

Federal Climate Change Regulation Likely to Receive More Attention in 2009, But Economic Concerns May Push Timelines. Despite the momentum for federal climate change legislation gained in 2008, the seemingly deepening economic crisis may cause some in Washington to be less enthusiastic about (or at least less focused upon) legislation that has the potential to increase energy prices and otherwise affect large portions of the economy. For these reasons, we believe the prospects for passage of comprehensive climate change legislation in 2009 are uncertain.

Nevertheless, climate change and the regulation of carbon dioxide (CO2) will likely remain one of the top priorities of the Obama administration in 2009. Already, President Obama has appointed two people who have pushed climate change regulation at the state level to key environmental positions: Lisa Jackson to head the U.S. Environmental Protection Agency ("EPA") and Nancy Sutley to chair the Council on Environmental Quality. President Obama also appointed the former head of EPA under the Clinton administration, Carol Browner, as "assistant to the president for energy and climate change," a new post whose mandate is to coordinate governmental policy on energy and climate change. And one of the first acts of President Obama was to order EPA to revisit its decision under the Bush administration to deny California a waiver under the Clean Air Act ("CAA") to establish CO2 emission standards for motor vehicles. A number of states, including Pennsylvania and New Jersey, had already adopted the California standards when EPA initially denied the waiver, and Obama’s action indicates those standards may be in play during 2009.

On the agency front, EPA has a number of rules or proposed rules in the pipeline concerning the regulation of carbon dioxide. Probably the most significant of these actions is the Advance Notice of Proposed Rulemaking ("ANPR") that EPA issued last year as its response to the Supreme Court’s ruling in Massachusetts v. EPA. The ANPR laid out how CO2 emissions would be regulated under the CAA if EPA made an "endangerment finding" for CO2, but included then Administrator Johnson’s conclusion that regulating CO2 under the CAA was unworkable. The ANPR generated thousands of pages of comments and EPA has yet to respond. At the end of 2008, Johnson also issued a memo, in response to the Environmental Appeals Board's In re Deseret Electric Power Cooperative decision, stating that it was EPA's position that substances that are only subject to monitoring and reporting under the CAA, most notably CO2, are not "regulated pollutants" for purposes of Prevention of Significant Deterioration ("PSD") permitting. Lisa Jackson's EPA is likely to review these positions in 2009. In addition, the 2008 appropriations bill requires EPA to issue a final greenhouse gas reporting rule by June 2009. A draft rule, which was due September 2008, has yet to be issued. Because the bill requires reporting above certain thresholds for "all sectors of the economy" the final rule could affect upstream sources, such as fossil fuel and chemical producers, as well as downstream emitters.

In Congress, while comprehensive climate change legislation may not pass in 2009, proposed legislation will likely receive attention and debate in both houses. On the House side, Congressman Henry Waxman of California, a vocal proponent of climate change legislation, unseated Congressman John Dingell of Michigan as Chair of the Energy and Commerce Committee at the end of 2008. Waxman recently announced that he plans to move climate change legislation through his committee by the Memorial Day recess. In the Senate, Senator Barbara Boxer recently announced a broad set of principles for climate change legislation that she plans to move through the U.S. Senate Committee on Environment and Public Works later this year. The principles included a commitment to long and short term emission targets, ensuring the ability of state and local governments to continue to pursue climate change programs, and the use of "carbon markets." The principles, however, did not include specific targets or a specific timeline.