Some background, and how this latest move “fits” within the quickly evolving U.S. policy:
On April 2, 2007, in Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court found that greenhouse gases are air pollutants covered by the Clean Air Act. The Court ruled that the U.S. EPA Administrator must determine “whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision.”

With this decision, “the U.S. EPA Administrator is required to follow the language of section 202(a) of the Clean Air Act. The Supreme Court decision resulted from a petition for rule making under section 202(a) filed by more than a dozen environmental, renewable energy, and other organizations.”

As a follow-up to this earlier decision, the U.S. EPA Administrator signed a proposal with the two findings:
“The Administrator is proposing to find that the current and projected concentrations of the mix of six key greenhouse gases—carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6)—in the atmosphere threaten the public health and welfare of current and future generations. This is referred to as the endangerment finding.”

“The Administrator is further proposing to find that the combined emissions of CO2, CH4, N2O, and HFCs from new motor vehicles and motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change. This is referred to as the cause or contribute finding.”

While this is a significant development (and was expected) it does not necessarily mean that greenhouse gases will be regulated under the Clean Air Act.

Before the EPA can officially adopt the ruling or take any regulatory actions, the proposed ruling – based on a peer-reviewed scientific analysis of: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride – must undergo a 60-day public comment period.

This move by the U.S. EPA is playing out while Congress also moves forward to develop a plan to regulate carbon. Congressional hearings are scheduled to begin this week.

The draft House bill, “American Clean Energy and Security Act of 2009” authored by Rep. Henry Waxman (Chairman of the Energy and Commerce Committee) and Rep. Edward Markey (Chairman of the Energy and Environment subcommittee) is significantly shaping the debate as to what a federal climate program looks like. This is essentially the current competition with the U.S. EPA.

Key elements of the draft bill are:
- “A national renewable electricity mandate where utilities need to get 6 percent of power from solar, wind, biomass, or geothermal sources in 2012 and 25 percent in 2025. One-fifth of the requirement can be met with energy-efficiency measures.

- A demonstration facility for carbon capture and sequestration where carbon dioxide from coal-burning power plants is stored underground.

- Giving authority to the Federal Electricity Regulatory Commission for planning power grid modernization with smart-grid technology and upgrades to the transmission lines.

- A single federal fuel-efficiency standard and low-carbon fuel standard for biofuels.

- An “energy efficiency resource standard” to create incentives for electricity and natural gas companies to invest in customer efficiency programs.

- A global warming reduction program modeled on recommendations from U.S. Climate Action Partnership (www.us-cap.org) which is a coalition of large corporations and NGOs advocating regulation. The target is a 20 percent reduction of greenhouse gas emissions below 2005 levels in 2020, 42 percent reduction in 2030, and 83 percent cut in 2050.

- Programs to promote “green jobs,” such as training, and rebates for heavily polluting industries that could be put at a competitive disadvantage from costs related to carbon regulations.”

It appears that the preference is for congressional action to regulate carbon and not U.S. EPA under the Clean Air Act. Congress is now in a race with the. EPA.

Bear in mind that we are also looking at the U.S. becoming engaged in upcoming negotiations in Copenhagen during early December 2009. It is unlikely that the US will go into these negotiations with a final congressional bill or U.S. EPA regulations in place. There needs to be “room to negotiate” during Copenhagen. As we move forward on a federal program to regulate greenhouse gases a clearer message as to what the program will look like will wait just a bit longer until later this year.

In the midst of all of this, U.S. companies need to determine their carbon footprint (including their supply chain and products) and explore the various regulatory scenarios and how they will impact their business (including potentially new products and services).

This is now a classic risk management exercise.

For further reading on the endangerment assessment, visit http://epa.gov/climatechange/endangerment.html.

Recent articles in the New York Times (February 19, 2009) and the Wall Street Journal (February 23, 2009) summarize the recent announcement that the EPA will be moving ahead in responding to a Supreme Court order to determine whether carbon dioxide is a pollutant that endangers public health and welfare. It was almost two years ago that the Supreme Court decision (Massachusetts vs. U.S. EPA) ruled that the EPA was required to undertake this evaluation.

This move by the EPA is very likely to accelerate action by the U.S. Congress and provide some insight as to the U.S.’s position during the next round of global climate negotiations.

Basically, the EPA will review current scientific evidence and prepare documentation as to whether carbon dioxide endangers public health and welfare, an “endangerment assessment.” If the endangerment assessment determines that carbon dioxide is a pollutant it will trigger an extensive rule making effort under the Clean Air Act.

Some argue that the Clean Air Act is poorly suited as the path forward to regulate carbon dioxide and that a more efficient approach would be to have Congress tailor a bill to meet the somewhat unique aspects of carbon dioxide.

According to the media, the White House has been also pushing Congress to craft legislation to reduce greenhouse gas emissions by 80 percent below 1990 concentrations by 2050. The “hammer” appears to be the threat to have the EPA use its authority under the Clean Air Act. Moreover, Ms. Browner has confirmed this by stating that although the EPA will move forward with its rule making, the White House does favor Congressional legislation to “deftly regulate” carbon dioxide through a cap-and-trade system.

I recommend watching this closely as the outcome will impact businesses from a purely regulatory perspective, and of course will create new business (product and services) opportunities for those that can innovate quickly.