Wednesday, December 24, 2008

What's In It For Me? Why Cap-and-Trade Should Stay Out of An Obama EPA

To no one’s great surprise, the D.C. Circuit closed its book on the “Clean Air Interstate Rule” (CAIR) litigation with the coup de grace. It remanded the CAIR rule it had just this summer invalidated as “fatally flawed” back to the agency that wrote it to fix on its own time—while the rule remains in effect. This whole affair has, in my view, shown why all the hype surrounding so-called “cap-and-trade” proposals for greenhouse gases is just that: hype. (Dangerous hype.)

A little background: In July 2008, the D.C. Circuit invalidated CAIR root and branch, saying the whole program had ‘fatal flaws’ and was contrary to the CAA. CAIR was the Bush EPA’s answer to a national shame. The CAA’s “national ambient air quality standards” for pollutants like sulfur dioxide, nitrogen oxides (nasty byproducts from combustion of almost all forms) have been in effect for three decades, yet huge chunks of the country still haven’t met them. Many millions of people have lived their whole lives in air too dirty for their own health. They are raising children in it now, indeed, and watching them develop asthma and other respiratory disorders at disproportionate rates. CAIR’s solution: tradable permits to emit these pollutants on the theory that market forces will incentivize the polluters to perform better (if there’s a profit in being clean, leaders will reap their rewards from laggards who must buy the excess permits to stay in business).

In North Carolina et al. v. EPA, the D.C. Circuit held that the whole set-up was so flawed as to be totally invalid, though. The CAA never provided EPA authority to experiment in this fashion, at least according to the court. The real problem was this, though: because of the CAA’s rigid timeframes supposedly binding the agency and the states that must have plans to attain the standards, time had run out on the parties while EPA had cobbled together CAIR and tried to make it all work across all the affected states, state implementation plans, and interrelated CAA programs. By the time the D.C. Circuit invalidated the rule in July, everyone’s chips were already down on CAIR (in good part because a lot of clock had been eaten up by previous rulemakings and previous litigation). Permits had already been traded and states had already begun figuring the expected emissions reductions into their plans when the CAIR rule went to court.

While this mess was being made, some in Congress took action—sort of. Citing EPA estimates that, by 2015, CAIR would save between $85 and $100 billion in avoided health care costs and prevent 17,000 premature deaths, some Senators (none of whom were running for President) started the push for a legislative cure. Of course, Congressman Dingell (D-MI) ultimately killed the effort—like most bills mentioning cleaner air that have come up in the last thirty years. (He argued it didn’t have the support of Congressman Barton (R-TX), then the ranking Republican on the House Energy and Commerce Committee and that Congressman Barton would support a review of the CAA as a whole after the election.) (By that point, even he had given up arguing against something because it was ‘bad for Detroit.’) EPA petitioned for rehearing in September and the end came yesterday.

For those keeping score at home, here’s the rundown: (1) in defense of the rule of law (which, in this age of delegation is a sham argument most of the time anyway), the D.C. Circuit stomped all over CAIR, going beyond the parties’ arguments to invalidate the whole thing; (2) which had the effect of flat-lining the market for emissions permits (thereby severely dampening any incentives CAIR was going to create) but not the program itself because all the regulators kept saying “trade, baby, trade”; (3) which galvanized Congress only to the point of actually having to chicken out publicly as the partisan political stakes ballooned out of proportion to any potential payoff in an election year (when is it not an election year anymore?); which then (4) confirmed to the court, upon rehearing the matter, that the rule of law was sufficiently defended if only a pall of suspicion were cast over CAIR, i.e., that it didn’t require actual judicial relief (even though the statute empowering the court says it “shall” set aside any rule it finds “arbitrary, capricious, an abuse of discretion . . . not in accordance with law . . . in excess of statutory jurisdiction, authority, or limitations, or . . . without observance of procedure required by law”).

So here’s the take-away. Cap-and-trade at this scale with these stakes is simply too complex and too important to too many parties with too many conflicting interests and too many opportunities and motives to fight and make a fight last at least long enough to screw everything—everything—up beyond all recognition. Time, if not our thirst for conflict, is finite where environmental depletion and toxification are concerned. Unlike some who make this observation, though, my conclusion isn’t that we should do nothing about greenhouse gases. Climate disruption fees would probably be easier to start, be smoother in their market impacts, and be much easier to adjust when the inevitable mistakes come to light. In the mean time, a whole lot less preemption of state and local initiatives would be a hell of a good start.

Posted by Jamie Colburn