EPA Economic Train Wreck
by Marlo Lewis
Issue 131 - May 5, 2009

The Obama Administration Environmental Protection Agency has just issued an official ruling – called an “endangerment finding” – to establish carbon dioxide (CO²) as a greenhouse gas requiring emission standards for new motor vehicles.

Establishing greenhouse gas emission standards for new motor vehicles will make an estimated 1.2 million previously unregulated entities vulnerable to new controls, paperwork, penalties, and litigation. A more potent Anti-Stimulus Package would be difficult to imagine. The EPA ruling responds to Mass. v. EPA, which held that greenhouse gases fall within regulatory purview of the Clean Air Act. But the Supreme Court also said that EPA does not have to issue an endangerment finding if it provides statutory reasons why it cannot or will not make such a determination.

Once EPA pushes the start button, however, the logic of the law takes over, obligating EPA to regulate in very intrusive and heavy-handed ways. To contain the economic fallout from an endangerment finding, EPA would have to play lawmaker and amend the Clean Air Act, violating the separation of powers. Yet allowing the statutory logic to unfold would impose regulatory burdens never approved by Congress. Either option flouts basic precepts of our constitutional system.

Such an endangerment finding “will set the stage for an economic train wreck and a constitutional crisis,” warned eight free-market groups in an April 15 letter to EPA Administrator Lisa Jackson.

That the endangerment finding will trigger a regulatory cascade threatening the economy is abundantly documented in EPA’s July 2008 Advanced Notice of Proposed Rulemaking (ANPR) and numerous comments on it. The endangerment finding will compel EPA to establish GHG emission standards for new motor vehicles under CAA §202, which in turn will make carbon dioxide (CO²) a pollutant “subject to regulation” under the Act’s Prevention of Significant Deterioration (PSD) pre-construction permitting program. In addition, the finding will be precedential for the endangerment test that initiates a National Ambient Air Quality Standards (NAAQS) rulemaking.

No small business could operate under the PSD administrative burden, even apart from any technology investments the firm might have to make to qualify for a permit. An estimated 1.2 million previously unregulated entities (office buildings, big box stores, enclosed malls, hotels, apartment buildings, even commercial kitchens) would become “major stationary sources” for PSD purposes. All would be vulnerable to new regulation, monitoring, paperwork, penalties, and litigation, the moment they undertake to build new facilities or modify existing ones. The flood of PSD permit applications would overwhelm EPA and State agency administrative resources, subjecting “major” sources to additional costs, delays, and uncertainties. A more potent Anti-Stimulus package would be difficult to imagine.

Since EPA plans to find endangerment on both health and welfare grounds, the Agency could be compelled to establish “primary” (health-based) NAAQS for GHGs. Logically, the standard would be set below current atmospheric levels. Even very stringent emission limitations applied worldwide over a century would likely be insufficient to lower GHG concentrations. Yet the CAA requires EPA to ensure attainment of primary NAAQS within five or at most 10 years—and it forbids EPA to take costs into account. Regulate CO² under the NAAQS program and there is, in principle, no economic hardship that could not be imposed on the American people.

To contain the economic fallout from an endangerment finding, EPA, in the ANPR, essentially proposes to rewrite portions of the CAA. EPA, for example, would revise the statutory threshold for PSD regulation from a potential to emit 250 tons per year (TPY) of a regulated pollutant to 10,000, 25,000, or even 100,000 TPY. Under Chevron v. NRDC, EPA has discretion to interpret the CAA where the statute is “silent or ambiguous with respect to the specific issue.” But there is nothing ambiguous about 250 TPY. What this and other (though less blatant) examples in the ANPR reveal is that EPA cannot regulate CO² under the CAA and avoid a regulatory nightmare unless the Agency plays lawmaker and amends the Act—violating the separation of powers.

If, on the other hand, EPA allows the statutory logic of the CAA to unfold, America could easily end up with emission controls far more costly and intrusive than any cap-and-trade proposal Congress has rejected or declined to pass. We could get a Mega-Kyoto system without the people’s elected representatives ever voting on it.

Rather than decry this peril to the economy and the polity, some Obama Administration officials and Members of Congress—and many activists—brandish the endangerment finding as a tool of legislative extortion. Their increasingly audible threat: “Enact the Waxman-Markey bill, or we’ll unleash the CAA on the economy.”

As we said in the letter, “The Administration will bear responsibility for any increase in consumer energy costs, unemployment, and GDP losses resulting from the regulation of CO² .”

Marlo Lewis is Senior Fellow at the Competitive Enterprise Institute. The letter was also signed by Larry Hart, Director of Government Affairs, the American Conservative Union, Phil Kerpen, Director of Policy, Americans for Prosperity, Matt Kibbe, President, Freedom Works, Grover Norquist, President, Americans for Tax Reform, Duane Parde, President, National Taxpayers Union, Amy Ridenour, President, National Center for Public Policy Research, and Tom Schatz, President, Citizens Against Government Waste.