Cap and Trade Rules
President Obama’s Roadmap to Cap-and-Trade - Part I

Warming Law
January 30, 2009

The New Administration holds the incentives to a strong federal climate bill.

What follows is the first in a four-post series written by the authors of
Warming Law for the online environmental magazine, Grist.

There can be little doubt that the U.S. needs a strong carbon-pricing system,
such as a cap-and-trade program, to help combat the causes of global warming.
Politicians have proposed a range of alternative policy measures that avoid
carbon-pricing (e.g. traditional “command-and-control” regulations on emissions,
renewable portfolio standards, massive investments in renewable energy
infrastructure and technologies, etc.) but economists widely agree that none of
these approaches will, on their own, be swift or strong enough to reduce the
risk of irreversible climate change. Rather, the better approach to mitigating
this risk is to attach a price to carbon emissions – one great enough to ensure
that greenhouse gas-emitting fossil fuels are more expensive to consume, per
unit, than are their clean and renewable alternatives.

To this end, members of the 110th Congress, including then-Senator Barack Obama,
focused on trying to pass a cap-and-trade bill. Last June, they pushed the
Lieberman-Warner Climate Security Act, an ultimately-doomed effort that
attracted harsh criticism from both sides of the political spectrum. As Grist
readers will surely recall, progressives condemned the bill for being
dangerously weak because it failed to meet the IPCC-established target of an 80%
reduction below 1990 levels of greenhouse gas (GHG) emissions by 2050, while
conservatives claimed the bill would ensure the U.S.’s economic ruin.

After the bill’s death, leaders in Congress – and indeed Barack Obama himself –
promised a stronger follow-up to Lieberman-Warner. However, with the economic
climate dramatically altered in the last six months, political support for such
an ambitious program may be in doubt. As the severity of the recession came into
greater focus in the weeks leading up to the November elections, candidates made
a notable shift in their rhetoric on climate policy, subtly replacing the focus
on cap-and-trade with one on clean energy investments and “green” recovery
measures. Outside of Washington, state and local governments continued to
demonstrate their lack of faith that federal climate action will be forthcoming,
as evidenced by further development of regional cap-and-trade schemes, namely
New England’s Regional Greenhouse Gas Initiative (RGGI), the Western Climate
Initiative, and the Midwestern Governors Greenhouse Gas Reduction Accord. These
initiatives are motivated by the widely-shared sentiment that even with hope of
meaningful federal action on climate change in 2009, dramatic reductions in
carbon emissions simply cannot wait a moment longer.

Yet despite political “cooling” toward any measure that may raise the price of
carbon emissions, the path to realizing strong cap-and-trade legislation is
surprisingly straightforward. President Obama has entered office already in
possession of the tools he needs to prompt the passage of such a bill – tools
that include the powerful Clean Air Act, a collection of key legal rulings, and
an array of state and local law that can set the tone and pace of future federal
policy. These tools give President Obama and his new environmental “dream team”
(e.g. Browner, Jackson, Sutley, Chu, Solis, Lubchenco, Heinzerling et al.) the
authority and leverage they need to trigger powerful climate legislation that
is, as promised, much stronger than the failed Lieberman-Warner bill.
Using these tools, President Obama and his Administration can lay out a
regulatory agenda that will encourage industry to support, rather than resist, a
comprehensive federal climate bill. This entails promoting local, state, and
regional innovation in climate policy — a strategy the President has already
initiated by ordering the EPA to revisit the California waiver that will allow
over a dozen states to start enforcing better-than-federal auto emissions
standards — as well as reversing the Bush Administration’s position that federal
law “preempts” state greenhouse gas limits from automobiles. It also entails
using the EPA’s existing authority under the Clean Air Act (CAA) to tighten
restrictions on CO2 emissions from new power plants; authority plainly
recognized by important rulings from the U.S. Supreme Court and the EPA’s
Environmental Appeals Board.

These steps would bring greater sections of the country under powerful state and
regional emissions programs, and make large sectors of the economy (e.g. the
auto industry, utilities) subject to aggressive CO2 emissions regulation under
the EPA. This should, in turn, prompt industry actors to join state and local
governments and environmental activists in demanding a uniform, comprehensive,
long-term federal climate strategy from Congress, or else face a “patchwork” of
short-term, unpredictable, and costly regulatory solutions. That is the history
of federal environmental legislation in this country – it typically passes only
once major segments of corporate America realize that some regulation is inevitable.

In three subsequent posts, we’ll go into greater depth explaining important
details underpinning these steps. Part II will address how and why President
Obama should continue supporting and exploiting state and local innovation in
climate policy, while Part III will explore how he can use the EPA’s existing
authority to regulate CO2 emissions from new power plants, thereby signaling to
industry that with or without additional congressional action, tighter
restrictions on greenhouse gas emissions are on the way. A fourth and final post
will explore the controversial subject of whether cap-and-trade can and should
be implemented under the Clean Air Act, and why it may be preferable in the long
run to use the CAA as a trigger, rather than as a substitute, for a much more
tailored climate strategy from Congress. Taken together, these posts will
outline President Obama’s “roadmap” to cap-and-trade — one that should soon lead
to a bigger and better sequel to Lieberman-Warner.


Promoting Green Building Design, Construction and Operation, Sustainable Living,
Clean Technology, Renewable Energy Resources and Energy Independence