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

Warming Law
February 1, 2009

President Obama should clear the way for state innovation on climate policy

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

In a 1932 dissenting opinion, Supreme Court Justice Louis Brandeis famously
wrote: “It is one of the happy incidents of the federal system that a single
courageous State may, if its citizens chose, serve as a laboratory, and try
novel social and economic experiments without risk to the rest of the country.”

In the absence of federal action on climate change under the Bush
administration, state and local governments have been taking advantage of this
“happy incident” by passing measures that will reduce their contribution to
global warming. Last September, ten northeastern states began auctioning
allowances in the country’s first mandatory regional cap-and-trade program, the
Regional Greenhouse Gas Initiative (RGGI), while several western states began
working with Canadian provinces to set up a similar program under the Western
Climate Initiative.

Signaling that the nexus of leadership in U.S. climate policy lies currently at
the state level, California Gov. Arnold Schwarzenegger hosted the Governors’
Global Climate Summit in November, ostensibly to facilitate a high-level meeting
between international and American leaders that bypassed the federal government.
Unsurprisingly, California has led state efforts in advancing climate policy,
and is currently in the process of adopting the largest and most comprehensive
greenhouse gas reduction program in the country. These initiatives signal that
Justice Brandeis’s vision of states as “laboratories” of regulation is very much
alive in the realm of climate policy.

Of course, state innovation has been most visible (and most contentious) when it
comes to auto emissions standards, as seen with this week’s blockbuster news
that President Barack Obama is ordering the EPA to revisit the California waiver
denial. As Grist readers may recall, in 2004 California formally adopted the
“Pavley standards,” an aggressive enhancement of auto emissions standards that
would require a 30 percent reduction in greenhouse gas emissions for new
vehicles by 2016. Normally, states aren’t allowed to depart from federal auto
emissions standards in this way, but under Section 209 of the Clean Air Act,
California has special permission to set better-than-federal fuel economy
standards, provided it obtains a waiver of preemption from the EPA. Once
California gets a waiver, other states are allowed to adjust their own standards
to match California’s, creating a mechanism in which states gradually bring
about a nation-wide reduction in auto emissions.

It’s important to note that in 1970 when Congress was writing the Clean Air Act,
it intentionally gave California this special right in recognition of its
historic role as a leader in advancing alternative regulatory schemes for air
pollutants. Never once in the next 30 years did the EPA fully deny a request by
California for a waiver, yet in December 2007, the Bush EPA denied the state a
waiver to implement the Pavley standards, against the recommendations of its own
career scientists. In spite of the EPA’s denial, at least 17 other states —
accounting for well over half of the U.S. auto market — have formally adopted,
or are considering adopting, the Pavley standards, and will be ready to enforce
them if California is granted its waiver.

California, along with 17 other states and numerous environmental groups, has
sued the EPA to overturn the waiver denial, in California et. al v. EPA et. al.
(08-1178), a case that will now likely be stayed and eventually dismissed if the
EPA’s formal review process results in granting the waiver as is widely expected.

But granting the waiver will not be enough to ensure that the Pavley standards
can go smoothly into effect. In anticipation of the waiver eventually being
granted, the auto industry has been aggressively challenging the standards on
the grounds that they are preempted by the Energy Policy and Conservation Act,
which authorizes the Department of Transportation to set federal fuel economy
standards for the national fleet. (By its own terms, Section 209(b) of the CAA
only provides for a waiver of preemption under the CAA itself; therefore it
would not necessarily preclude preemption of California’s greenhouse gas
emission controls under other federal statutes.)

Fortunately, this claim has been rejected by two federal courts, in California
and Vermont. However, the auto industry is appealing both rulings in the U.S.
Courts of Appeals for the Ninth and Second Circuits, respectively, and has filed
additional complaints in federal courts in Rhode Island and New Mexico. In
April, the Bush administration filed an amicus brief with the U.S. Court of
Appeals for the Second Circuit in support of the auto industry’s claims of
preemption. It also tried to bolster these claims by adding pro-preemption
language to the preamble of fuel economy regulations it issued last May, arguing
that state clean car laws are preempted expressly and because they are an
obstacle to federal law. As recently as December, the Bush White House kept
signaling its solidarity with the auto industry by intervening in negotiations
over the ultimately-doomed auto bailout bill, insisting on the removal of any
language that would have required recipients of bailout money to stop supporting
these legal challenges.

All this makes it critical that President Obama break with the Bush
administration’s position that EPCA separately preempts the California
standards. Fortunately, the President already set this process in motion earlier
this week with his Executive Order instructing the Department of Transportation
to tighten CAFE standards, in which he specifically instructed the agency to
revisit preemption language. Now, he should go further still, by ordering the
Department of Justice to withdraw the government’s support of the federal
preemption claim in the Second Circuit and to oppose preemption claims both in
that court and the Ninth Circuit. This is because even if the California waiver
is granted, states can expect automakers to persist with their lawsuits arguing
that the Pavley standards are preempted by EPCA, which will be made weaker if
opposed by the federal government.

President Obama should also do all that he can to support the impressive array
of other state and local initiatives that aim to mitigate global warming. These
programs not only serve as important laboratories for broader policy innovation,
but they also mitigate emissions while Congress gets to work on new climate
legislation. More important, they signal to industry that it will soon have to
comply with a costly smorgasbord of fuel economy standards and emissions
regulations, which should make the prospect of a uniform national regulatory
approach more attractive. The stronger and more widespread these policies, the
higher the bar will be set for a strong, long-term, comprehensive federal
climate bill.


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