Senate energy bill: first skirmish over US greenhouse-gas regulation

This week's Senate battle over the energy bill heralds a longer fight on climate change, some analysts say.

As Congress struggled to shape new energy legislation this week, an equally important fight was shaping up: whether the United States will begin to regulate greenhouse-gas emissions.

The prospects for such regulation began to emerge this past April when, in a setback for the Bush administration, the US Supreme Court affirmed that the Environmental Protection Agency had the legal authority to regulate emissions. The wrangling this week over the Senate energy bill represents the first skirmish over what could quickly become a full-blown battle over measures to slow climate change.

By the end of the month, the EPA could announce findings that would require it to crack down on emitters of greenhouse gases, says a source familiar with discussions between the White House and EPA.

That may explain why the White House threatened last Friday to veto the energy bill unless it contained a seemingly minor provision to give the Department of Transportation (DOT) authority over auto fuel-economy standards rather than the Environmental Protection Agency. But the language would have effectively stripped the EPA of all authority to regulate greenhouse-gas emissions, thus nullifying the high court's decision in April.

Besides eliminating the EPA as a regulator, such a measure would have also gutted efforts by California and 16 other states to enforce carbon-dioxide emissions requirements for vehicles, environmental legal experts say. Yet a federal court ruling Wednesday upheld California's measures.

"The recent statement of administration policy [threatening a veto] certainly took sharp aim at reversing the Supreme Court's decision confirming EPA's power to regulate global-warming pollution under the Clean Air Act," said Vickie Patton, deputy general counsel for Environmental Defense, a Washington group.

The Senate at press time seemed poised to pass a stripped-down version of the energy bill, which would boost the auto-fuel standards for the first time since the 1970s under the EPA's auspices, as well as boost biofuels. But it would not include controversial measures that would have increased the tax burden on the oil, gas, and coal industries – or required electric utilities to use renewable sources of energy.

Soon, the focus is expected to shift quickly to greenhouse-gas emissions. In line with the high-court ruling, President Bush in May issued an executive order for the EPA to begin working on a new rulemaking process to create standards that reduce carbon from auto emissions – and to work closely with DOT and other agencies. At this point, the legal documents to do so are nearly complete and an EPA announcement is expected before year's end to comply with the Supreme Court's decision.

But in an internal debate last week, EPA chief Stephen Johnson told White House officials unequivocally that the EPA intends to issue an "endangerment finding" for carbon-dioxide emissions, according to one source familiar with the discussion, who asked not to be named because he was not permitted to speak to the press. Such a move could vastly accelerate federal regulation of greenhouse-gas emissions across a range of industries, the source says.

"The EPA has decided to go ahead with broader construction of an endangerment finding. That's what Johnson told the West Wing people – that EPA was going ahead with a strong finding," the source says.

When asked for comment, a White House spokesman said: "I can't speak to any communication the EPA administrator has had with the White House," said Scott Stanzel. "I can say that if Congress is going to take action on modern CAFE standards, they should want that process to be enacted, and not usurped, by a regulatory process."

An EPA spokeswoman, Jennifer Wood, wrote in an e-mail: "EPA and its federal partners remain on track to take the first regulatory step in addressing greenhouse gas emissions from vehicles."

If the EPA does announce a finding – saying that public health and welfare is endangered by CO2 emissions – the EPA would be required under the Clean Air Act to crack down on "major" emitters, legal experts say. That could be a very broad group indeed, including any stationary emitter in the country that emits 250 tons or more, according to congressional testimony last month by Peter Glaser, a clean-air expert at Troutman Sanders, a Washington law firm.

Apparently concerned about such a prospect, the US Chamber of Commerce and industry groups that represent refineries and manufacturers sent a Dec. 7 letter to the Senate, warning that the bill's "overlapping authorities" could produce the "unintended triggering of an expansive and costly stationary [greenhouse-gas] source control program."

At least some Wall Street analysts appear to be picking up on such issues. "EPA's proposal will probably include an 'endangerment finding' with an August 2008 target date that would classify CO2 as a pollutant," wrote Kevin Book, an energy analyst with FBR Capital Markets, in his newsletter for investors Wednesday. "This could force EPA to review CO2 as a pollutant from stationary sources, too."

Such a finding, he wrote, would probably require that the agency, under the Clean Air Act, require federal clean-air permits from a host of sites, including those emitting as little as 100 tons per year.

"This could paralyze construction sites, not just refineries and coal-fired power plants," he wrote.

While the energy bill failed in a vote early Thursday, environmentalists worry about White House allies within Congress also pushing in the same direction, who might insert a provision in the new stripped-down energy bill. Some question whether many in Congress realize that by eliminating "ambiguity" in regulation authority, it might also eliminate the EPA from CO2 regulation.

Indeed, a slender provision floated this week as a remedy for possible inclusion in the Senate energy bill would not only give DOT authority over fuel economy – but would also strip EPA of authority to regulate greenhouse-gas emissions, environmentalists say.

"It is a poison pill that, in the dark of night, would reverse the landmark decision by the US Supreme Court affirming EPA's power to regulate global-warming pollution," says Ms. Patton of Environmental Defense.

The controversial provision did not appear to be part of the energy bill that failed to pass a procedural vote Thursday morning in the US Senate, but it could be inserted into a new slimmed-down energy bill. That would be unfortunate, she says, given a recent legal ruling in California.

On Wednesday, the entire claim of an agency conflict in regulating auto fuel economy was dealt a blow by US District Judge Anthony Ishii. In a case involving automakers challenging California greenhouse-gas emission standards, he ruled that there was no conflict between the EPA's regulatory duties and DOT's setting of mileage requirements.

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