Abstract: Over the last half decade, a variety of federal legislative proposals for limiting greenhouse gas (GHG) emissions have been put forward, most of which would set a price on carbon. As of early 2013, the one politically plausible policy appears to be a carbon tax, passed as part of a larger fiscal reform package. Meanwhile, the US Environmental Protection Agency has begun regulating GHG emissions from a variety of sources using its authority under the Clean Air Act. It may be necessary to choose between these two policies, however. The Waxman–Markey cap-and-trade bill that failed in 2009 would have preempted much of this authority, and it appears likely that a carbon tax law would do the same. But how can one make this choice? What are the key questions and issues to consider? The purpose of this paper is to compare these policies. Our aim here is therefore not to determine whether an exchange is wise or unwise. Instead, our intention is to give policymakers and other interested readers an impartial assessment of both policies and, in particular, the features that are important to a comparative evaluation. We don’t give answers, but hope at least to give the right questions to ask.

Abstract: While the U.S. Environmental Protection Agency (EPA) is in the process of regulating greenhouse gas (GHG) emissions under its Clean Air Act (CAA) authority, Congress has considered several different bills that would preempt CAA regulation of GHGs and replace it with a comprehensive national climate policy. Policymakers should be aware that there are other existing federal statutes granting GHG regulatory authority, and new legislation would likely preempt them as well. This paper surveys these other statutes in order to highlight existing federal authority that might be given up with the passage of a new comprehensive bill. It explores the possibility of direct regulation of GHGs under the Clean Water Act (CWA), along with federal authority to block projects that contribute to climate change under the National Environmental Policy Act (NEPA) and conservation statutes such as the Endangered Species Act (ESA). Newer statutes like the Energy Independence and Security Act (EISA) mandate narrower regulation, but they are also considered here.

Abstract: This paper explores the policy options available to the United States for regulating greenhouse gas emissions from aircraft under existing law: the Clean Air Act (CAA). Europe has unilaterally and controversially moved to include aviation emissions in its Emissions Trading System. The United States can, however, allow its airlines to escape this requirement by imposing “equivalent” regulation. U.S. aviation emissions rules could also have significant environmental benefits and would limit domestic emissions beyond the reach of the European Union. With new legislation unlikely, the CAA is the only plausible vehicle for such regulation. Title II Part B of the CAA does grant EPA broad regulatory authority over aviation emissions, though this authority has not been used aggressively. EPA could impose meaningful aviation GHG limits and, by using performance standards, give airlines incentives to creatively comply. It might further be possible to allow some forms of emissions trading, though the law is unclear. Emissions by foreign airlines in the United States could be covered under the act, though international law might impose barriers.

Abstract: The U.S. Environmental Protection Agency’s (EPA) proposed greenhouse gas (GHG) performance standards for power plants are an important step forward in regulating GHGs in terms of both their substantive impact and legal precedent. Nevertheless, we have some concerns with the proposal, which we discuss in the following comments submitted to the agency. The majority of our comments are directed to ways that EPA can increase certainty for the industry—reducing costs and, possibly, improving environmental outcomes. We highlight two specific areas of concern. First, the current proposal contributes to the significant uncertainty facing existing sources. Second, EPA’s proposed averaging option for new facilities that will install carbon capture-and-storage (CCS) technology in the future, although intended to create a flexible pathway, unfortunately creates some new regulatory uncertainty. We also comment on EPA’s decision to combine most coal and gas generators into a single source category. We believe this decision is legally valid and practically important, and that EPA should resist pressure to reconsider.

Abstract: 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.

Abstract: The U.S. Environmental Protection Agency (EPA) continues to move ahead with regulation of greenhouse gas emissions under the Clean Air Act (CAA). Previous work has indicated that basic forms of compliance flexibility—trading—appear to be legally permissible under the relevant part (Section 111) of the CAA. This paper takes a close look at more expansive and ambitious types of flexibility: trading between different kinds of sources, biomass co-firing, and, above all, offsets. It concludes that most types of such extended flexibility are either legally incompatible with the CAA, or so legally problematic that EPA is unlikely to adopt them. This has important implications for both the costs of CAA climate policy and the level of environmental benefits that are achievable. It also creates tension between CAA climate policy and state-level policies, such as California’s, that aim to include various forms of extended flexibility.

Abstract: EPA will soon propose performance standards under Section 111 of the Clean Air Act for greenhouse gas pollution from the two largest emitting stationary source sectors—fossil-fueled power plants and petroleum refineries. The form these standards will take remains unclear. A key issue that will shape the effectiveness of the regulations is the degree to which they enable regulated entities to use flexible approaches to achieve the standards. This discussion paper provides the content of a letter to EPA Administrator Jackson that describes areas of general academic agreement on the EPA's authority to use compliance flexibility options under Section 111 of the Clean Air Act in the development of performance standards for greenhouse gas emissions.

Abstract: 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 apotentially 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 domesticeconomy. 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.

Abstract: The Deepwater Horizon oil spill in the Gulf of Mexico in April 2010 led to the deaths of 11 workers, a six-month moratorium on deepwater drilling in the Gulf, and nearly three months of massive engineering and logistics efforts to stop the spill. The series of failures before the well was finally capped and the spill contained revealed an inability to deal effectively with a well in deepwater and ultradeepwater. Ensuring that containment capabilities are adequate for drilling operations at these depths is therefore a salient challenge for government and industry. In this paper we assess the Marine Well Containment Company (MWCC), a consortium aimed at designing and building a system capable ofcontaining future deepwater spills in the Gulf. We also consider alternatives for long-term readiness for deepwater spill containment. We focus on the roles of liability and regulation as determinants of readiness and the adequacy of incentives for technological innovation in oil spill containment technology to keep pace with advances in deepwater drilling capability. Liability and regulation can significantly influence the strength of these incentives. In addition, we discuss appropriate governance structure as a major determinant of the effectiveness of MWCC.

Abstract: Although the causes of the Deepwater Horizon spill are not yet conclusively identified, significant attention has focused on the safety-related policies and practices—often referred to as the safety culture—of BP and other firms involved in drilling the well. This paper defines and characterizes the economic and policy forces that affect safety culture and identifies reasons why those forces may ormay not be adequate or effective from the public’s perspective. Two potential justifications for policy intervention are that: a) not all of the social costs of a spill may be internalized by a firm; and b) there may be principal-agency problems within the firm, which could be reduced by external monitoring. The paper discusses five policies that could increase safety culture and monitoring: liability, financialresponsibility (a requirement that a firm’s assets exceed a threshold), government oversight, mandatory private insurance, and risk-based drilling fees. We find that although each policy has a positive effect on safety culture, there are important differences and interactions that must be considered. In particular, the latter three provide external monitoring. Furthermore, raising liability caps without mandating insurance or raising financial responsibility requirements could have a small effect on the safety culture of smallfirms that would declare bankruptcy in the event of a large spill. The paper concludes with policy recommendations for promoting stronger safety culture in offshore drilling; our preferred approach wouldbe to set a liability cap for each well equal to the worst-case social costs of a spill, and to requireinsurance up to the cap.

Abstract: The history of emissions-trading markets in the United States is marked by change. Since cap-and-trade programs were first implemented on a large scale after the 1990 Amendments to the Clean Air Act, the U.S. Environmental Protection Agency (EPA) has repeatedly revised and replaced emissionstrading markets for nitrous oxides and sulfur dioxide. In each transition, the agency has had to decide what to do with emissions allowances banked in the earlier program. These banked allowances represent early reductions in emissions, with corresponding environmental benefits, but also the expectation on the part of regulated entities that they will continue to hold value in the future. Unsettling these expectationscan lead to price volatility, instability in markets, and erosion of buy-in from regulated entities and the credibility of regulators. The paper discusses EPA’s mixed record regarding these transitions and implications for the future of cap and trade as a policy tool.

Abstract: 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, andpractical, 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 stationarysource GHGs.

Abstract: Offsets, and in particular international offsets, have been advanced as an important tool in climate policy, capable of significantly reducing the costs of emissions reductions. As attention turns to theexisting Clean Air Act as a potential vehicle for general reduction of greenhouse gas emissions, an important question is whether regulation under the statute is compatible with international offsets. This paper analyzes the regulatory programs under the Clean Air Act that are the most likely candidates for greenhouse gas regulation and concludes that many of them are legally incompatible with international offsets. Those programs that might permit use of international offsets have other problems that make them unpopular choices for greenhouse gas regulation. To the extent that Clean Air Act regulation depends on state action, state law and constitutional limitations appear to offer more barriers than opportunities foruse of international offsets. These conclusions have implications for the costs and flexibility of climate policy under the Clean Air Act.

Abstract: The EPA is likely to face a big legal problem on the path to regulating greenhouse gases under the Clean Air Act (CAA). Actions the agency is taking now will likely set it on a mandatory path toregulation of GHGs under the comprehensive “National Ambient Air Quality Standards” (NAAQS) program—a scheme that almost everyone who has studied the CAA thinks is a very poor fit for GHG regulation and which blocks use of arguably more effective schemes within the CAA. Unless the EPA can win a lawsuit challenging an interpretation of the CAA that has stood for more than 30 years, or Congress explicitly takes away the agency’s authority to set a GHG NAAQS with new legislation, the agency will have to navigate the complex NAAQS process—with potentially large effects on the efficiency andeffectiveness of GHG regulation.