Greenhouse Gas Regulation under the Clean Air Act: A Guide for Economists

Until recently, most attention to U.S. climate policy has focused on legislative efforts to introduce a price on carbon through cap and trade. In the absence of such legislation, the Clean Air Act is a potentially potent alternative. Decisions regarding existing stationary sources will have the greatest effect on emissions reductions. The magnitude is uncertain, but plausibly 10 percent reductions in greenhouse gas emissions from 2005 levels could be achieved at moderate costs by 2020. This is comparable to the reductions that would have been achieved under the Waxman-Markey legislation in the domestic economy. These measures do not include the switching of fuels, which could yield further reductions. The ultimate cost of regulation under the act hinges on the stringency of standards and the flexibility allowed. A broad-based tradable performance standard is legally plausible and would provide incentives comparable to the proposed legislation, at least in the near term.climate policy, efficiency, EPA, Clean Air Act, NAAQS, coal

Tradable Standards for Clean Air Act Carbon Policy

EPA is in the process of regulating U.S. greenhouse gas (GHG) emissions using its powers under the Clean Air Act. The likely next phase of this regulatory program is performance standards under Section 111 of the act for coal plants and petroleum refineries, which the agency has committed to finalize by the end of 2012. Section 111 appears to allow use of flexible, market-based regulatory tools. In this paper, we discuss one such tool, tradable standards. Tradable standards appear to be a legally and politically viable choice for the agency, and evidence suggests they are substantially more cost-effective than traditional performance standards. The paper discusses implementation issues with tradable standards, including categorization, banking, and phased implementation, as well as broader issues with the Section 111 rulemaking process as it relates to state-level GHG regulatory efforts.averaging, flexibility, regulatory design, market-based regulation

Greenhouse Gas Regulation under the Clean Air Act: Structure, Effects, and Implications of a Knowable Pathway

It appears inevitable, absent legislative intervention, that regulation under the Clean Air Act (CAA) will move beyond mobile sources to the industrial and power facilities that emit most U.S. greenhouse gas (GHG) emissions. We analyze the mechanisms available to the EPA for regulating such sources, and identify one, New Source Performance Standards (NSPS) as the most predictable, likely, and practical, i.e. knowable, pathway. Based on the legal structure of the NSPS and the EPA’s traditional approach, we analyze a hypothetical GHG NSPS for one sector, coal electricity generation. This analysis indicates that efficiency improvements and perhaps biomass cofiring could be implemented through the NSPS, yielding modest but meaningful emissions reductions. Trading could also rein in costs. Though analysis is limited to one sector and does not include modeling of costs, it suggests that CAA regulation, though inferior to comprehensive climate legislation, could be a useful tool for regulating stationary-source GHGs

Tradable Standards for Clean Air Act Carbon Policy

EPA is in the process of regulating U.S. greenhouse gas (GHG) emissions using its powers under the Clean Air Act. The likely next phase of this regulatory program is performance standards under Section 111 of the act for coal plants and petroleum refineries, which the agency has committed to finalize by the end of 2012. Section 111 appears to allow use of flexible, market-based regulatory tools. In this paper, we discuss one such tool, tradable standards. Tradable standards appear to be a legally and politically viable choice for the agency, and evidence suggests they are substantially more cost-effective than traditional performance standards. The paper discusses implementation issues with tradable standards, including categorization, banking, and phased implementation, as well as broader issues with the Section 111 rule-making process as it relates to state-level GHG regulatory efforts

The Treatment of Uncertainty in EPA's Analysis of Air Pollution Rules: A Status Report

An understanding of the uncertainty in benefit and cost estimates is a critical part of a benefitcost analysis. Without a quantitative treatment of uncertainty, it is difficult to know how much confidence to place in the benefitcost estimates associated with regulatory analysis. In 2002, an NRC report recommended that EPA move toward conducting probabilistic, multiple-source uncertainty analyses in its RIAs with the specification of probability distributions for major sources of uncertainty in the benefit estimates. In 2006, reports by GAO and RFF found that EPA had begun to address the NRC recommendations, but that much remained to be done to meet the NRC concerns. This paper provides a further review of EPAs progress in developing a quantitative assessment of the uncertainties in its health benefits analyses for the RIAs for four recent rulemakings setting National Ambient Air Quality Standards (NAAQS). In conclusion, EPAs basic approach to presenting the uncertainty in its health benefits estimates remains largely unchanged. Recent RIAs present the results of uncertainty analysis in piecemeal fashion rather than providing an overall, comprehensive statement of the uncertainty in the estimates. In addition, the uncertainty analysis in recent RIAs continues to focus on the concentration-response relationship and largely fails to address the uncertainty associated with the other key elements of the benefits analysis.