Prevailing Academic View on Compliance Flexibility under § 111 of the CAA

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.

In 2007 the Supreme Court confirmed the U.S. Environmental Protection Agency’s (EPA) authority to regulate greenhouse gases. Now, draft rules limiting emissions from coal power plants, the first such rules for existing stationary sources, are soon to be released, with final rules to be issued in 2012. Does this mean costly command-and-control regulation? Not necessarily, argue RFF’s Nathan Richardson and Dallas Burtrawalong with legal scholars from Columbia University and NYU in a new discussion paper, framed as an open letter to EPA Administrator Lisa Jackson.

The authors take stock of the prevailing view among legal academics of the scope of EPA’s powers under the Clean Air Act. They argue that when it proposes its first rules for existing power plants—a set of performance standards—in September, the agency can recommend that the states that implement the rules allow compliance flexibility. In practice, this could mean a tradable performance standard or even (in principle) a cap-and-trade program, though agency officials have said they have no plans to go that far. In short, the authors argue, the law gives EPA broad powers to implement the “best system of emissions reduction” and to define the scope of emitters subject to regulation.

This legal research complements recent RFF economic research suggesting that flexible standards could reduce the cost of regulation by over two-thirds and significantly lessen impact on electricity prices, which could also bring more ambitious environmental goals into range.

EPA’s authority under the statute is not unlimited, however, and the authors note that legal academics disagree about where those limits are. Scholars disagree in particular about whether emissions offsets can be included in the performance standards, and over how the standards will interact with state-level programs. On July 18 RFF convened a small workshop to discuss legal and economic aspects of implementing a flexible approach in the expected GHG rules for stationary sources. A summary of that workshop is available here.

RFF scholars will continue to work on this issue, analyzing EPA’s September proposal and providing further economic analysis to contribute to the public comment process.