701 Pennsylvania Avenue, N.W. Washington, D.C. 20004

- 2696 Telephone 202

- 508

- 5 000 www.eei.org

November 26 , 2008 U.S. Environmental Protection Agency Air and Radiation Docket and Information Center Mailcode: 2822T 1200 Pennsylvania Ave., NW W ashington, DC 20460 Submitted to: a - and
- r - Docket@epa.gov
- Docket ID No. EPA
- HQ
- OAR
- 2008
- 0318
R e : Regulating Greenhouse Gas Emissions Under the Clean Air Act, Advance Notice of Proposed Rulemaking, 73 Fed . Reg . 44354 (July 30, 2008) The Edison Electric Institute (EEI) appreciates the opportunity to comment on the Environmental Pr otection Agency’s (EPA) Advance Notice of Proposed Rulemaking (ANPR) on greenhouse gas (GHG) regulation under the Clean Air Ac t (CAA). EEI is the association of U.S. shareholder

- owned electric companies throughout the United States. EEI represents approximately 70 percent of the U.S. electric power industry. Much of the electricity required for homes and businesses is gener ated through means that produce carbon dioxide (CO 2 ) and other GHG s . EEI and our member companies look forward to continuing our work with federal officials to craft good policy to reduce GHG s . It is also crucial that we e nsur e the supply of cost

- effect ive and reliable electric power is not crippled or unduly disrupted by regulation

. EEI strongly believes that comprehensive federal legislation is preferable to the use of the CAA for accomplishing our nation’s climate goals. Thank you for considering ou r views. Attached are detailed comments on the ANPR . For further information, please contact John Kinsman (

jkinsman@eei.org , 202

- 508

- 5 711 ), Bill Fang ( bfang@eei.org , 202

- 508

- 5617 , or Emily Fisher ( efisher@eei.org , 202

- 508

- 56 16 ). Sincerely,

Q uinlan J. Shea, III Executive Director, Environment QJS:kffCOMMENTS OF EDISON ELECTRIC INSTITUTE ON THE ENVIRONMENTAL PROTECTION AGENCY’S ADVANCE NOTICE OF PROPOSED RULEMAKING ON REGULATING GREENHOUSE GAS EMISSIONS

UNDER THE CLEAN AIR ACT

DOCKET ID NO. EPA
- HQ
- OAR
- 2008
- 0318

November 26, 2008i EXEC UTIVE SUMMARY
The Edison Electric Institute (EEI) strongly believes that comprehensive federal legislation is preferable to the use of the Clean Air Act (CAA or Act) for accomplishing our nation‘s climate goals. Well

- designed legislation can do what the CAA cannot

– create an economy

- wide emissions reduction s program that can:

Encourage and incentivize the use of the full portfolio of technologies and measures needed to reduce greenhouse gas (GHG) emissions. Foster technology development and deployment. A lign targets and timetables with the development and deployment of advanced climate technologies

. Provide explicit cost

- containment measures, including a price cap or collar; allowances; and offsets. Address international participation and cooperation issu es. Ensure the continued reliability and stability of the electric grid and reasonably priced electricity. Provide a consistent national policy for regulating GHGs. Comprehensive climate legislation can consider GHG emissions reductions economy

- wide withi n the context of the current and projected economic situation, the availability of technology, the reliability of the nation‘s power sector and energy supply, and other relevant factors that do not readily fit in a CAA context. The power sector requires the development and deployment of the full portfolio of climate technologies and measures in order to meet long

- term emissions reductions targets. These include: energy efficiency for both supply and demand; renewables; advanced coal technologies integ rated with carbon capture and storage ; new nuclear power plants; and plug

- in hybrid electric vehicles. As the so

- called ―PRISM‖ study by the Electric Power Research Institute demonstrates, the full technology pathway for the power sector is a far wiser pa th to follow than an approach without widespread use of nuclear energy and carbon storage technologies (the limited technology approach). Although both the full portfolio and limited portfolio approaches could meet the same economy

- wide carbon cap, the di fference in increase in real electricity prices

– 45 percent versus 260 percent

– is vast. This is why we need to foster technology research, development, demonstration and deployment and align carbon reduction targets and timetables with technology deve lopment and deployment. There is widespread agreement that the CAA is the wrong tool for achieving effective and efficient GHG regulation. This is not surprising. The Act, originally enacted as a command

and

- control statute aimed at improving local air quality, is not designed for the challenges of global climate change. GHGs are not like the traditional air pollutants regulated by the CAA inii

order to improve air quality in specific localities, states or regions. There are no GHG ―hot spots,‖ and henc e we talk about ―global‖ warming and ―global‖ climate change. EEI comments on the Environmental Protection Agency‘s (EPA) advance notice of proposed rulemaking (ANPR) address in detail why the specific regulatory options available under the Act are ill

- s uited to address the climate issue. The problem with using the Act to address global climate change begins with trying to fit the ―square‖ peg of GHGs into the ―round hole‖ of CAA regulation. The ANPR acknowledges that the complexity and ―interconnection s‖ inherent in CAA regulation of GHGs had led EPA staff to conclude that not all aspects of the Act are well designed for establishing the kind of comprehensive GHG regulatory program that could most effectively achieve GHG emissions reductions. The elect ric industry‘s considerable experience with CAA regulation, as well as EPA‘s own assessment of its authority under the Act, indicates that this would lead to a complex and excessive permitting system with considerable uncertainty, litigation and delay. Mo reover, if a federal GHG regulatory approach is developed within the CAA context, it would virtually impossible to implement a single national program. One of the worst outcomes

– in terms of effectiveness, efficiency, clarity and expense

– would be piece meal, unwieldy regulation of GHGs under the CAA, Clean Water Act, Endangered Species Act, National Environmental Policy Act and other federal statutes and state programs. The prospect of overlapping federal, regional and state permitting and cap

- and

- trade programs, with multiple costs imposed on consumers through various allowance allocation and auction schemes is extremely inefficient, and intolerable from a policy standpoint.iii TABLE OF CONTENTS EXECUTIVE SUMMARY ................................ ................................ ................................ ........... i TABLE OF CONTENTS ................................ ................................ ................................ ............ iii I. Comprehensive Federal Legislation Can Create An Effective And Efficient Program For Reducing GHG Emissions. ................................ ................................ ......................... 2 A. An Economy

- Wide Approach Is the Most Efficient Way to Reduce GHG Em issions.

...... 5 B. The Power Sector Cannot Meet Long

- Term Reductions Targets Without the Full Portfolio of Climate Technologies and Measures.

................................ ................................ .............. 6 C. Any Regulation of GHGs Must Ensure Continued Electric Reliability.

........................... 11 D. To Ensure Efficiency and Compliance at the Least Cost, a Single National Policy for Regulating GHGs Is Ne eded.

................................ ................................ ............................. 14 E. Federal Regulation of GHGs Must Work Toward Global Emissions Reductions.

........... 15 II. The CAA Is Too Complex, Uncertain An d Command
- And
- Control Oriented For Effective And Efficient GHG Regulations. ................................ ................................ .... 17 A. The CAA Is Not Designed for Effective Economy

- Wide Regulation.

.............................. 18 B. The CAA Is Too Complex and Cannot Provide Needed Regulatory Certainty.

............... 20 C. The CAA Is Not Designed to Fund or Incentivize Necessary Technology Development and Deployme nt.

................................ ................................ ................................ ................ 22 III. Issues Related To A Possible Endangerment Finding ................................ .................. 25 IV. Economic Analysis And Considerations ................................ ................................ ........ 26 A. Appropriate Intergenerational Discount Rate for Climate Policy Analysis

....................... 27 B. EPA Must Carefully Select Source Data and Assumptions and Use Sens itivity Analyses in its Cost/Benefit Calculations.

................................ ................................ ............................. 28 C. Climate Change Impacts Should Be Evaluated from U.S. and Global Perspectives.

........ 29 D. Any Climate Change Analysis Must Account for Any Number of Uncertainties.

............ 30 E. EPA Should Use the FUND Model Carefully.

................................ ................................ .. 34 V. If EPA Regulates Under the CAA, Emissions Reductions Should Be Addressed Through Market
- Based Approaches. ................................ ................................ ............. 38iv

A. CAA Section 111

................................ ................................ ................................ ............... 39 1. EPA‘s authority to establish a GHG cap

- and

- trade program under section 111 is uncertain.

................................ ................................ ................................ ........................... 39 2. The D.C. Circuit‘s decision vacating CAMR

................................ ................................ ... 42 3. If EPA pursues a a cap

- and

- trade program for GHGs under section 111, it should be tailored appropriately.

................................ ................................ ................................ ....... 43 B. CAA Section 110

................................ ................................ ................................ ............... 44 1. EPA may have some authority to establish a state

- based GHG cap

- and

- trade program under section 110.

................................ ................................ ................................ ............. 44 2. The D.C. Circuit‘s decision vacating CAIR

................................ ................................ ..... 45 3. EPA should tailor any cap

- and

- trade program for GHGs under section 110 appropriately.

....................................................................................................... 46 C

. Design Considerations for a Cap and Trade Program

................................ ....................... 47 1. General program design

................................ ................................ ................................ ..... 47 2. An economy

- wide trading program would be more effective than a sector

- or multi

sector

- based program.

................................ ................................ ................................ ....... 49 3. Considerations for the design of an offsets program

................................ ......................... 50 D. EPA ‘s CAA Authority Related to Auctions, Fees and Revenue Collection

...................... 52 VI. Review Of Proposed Regulatory Pathways For Stationary Sources And Associated Technical Support Document ................................ ................................ ................................ .... 56 A. Comments on CAA Programs

– NAAQS, NSPS, HAPs, PSD/NSR and Title V

– and Regulation of GHGs.

................................ ................................ ................................ ................. 56 1. NAAQS

................................ ................................ ................................ .......................... 58

a. Background

................................ ................................ ................................ ................. 58 b. Deficiencies with regulating GHG as a criteria pollutant and establishing NAAQS

. 59

c. Other considerations

................................ ................................ ................................ ... 62 2. NSPS

................................ ................................ ................................ .............................. 63

a. Background

................................ ................................ ................................ ................. 63v

b. Deficiencies with the NSPS approach

................................ ................................ ........ 64 3. HAPs

................................ ................................ ................................ .............................. 67

a. Background

................................ ................................ ................................ ................. 67 b. Deficiencies with HAP approach

................................ ................................ ............... 68 4. PSD/NSR

................................ ................................ ................................ ........................ 69

a. Background

................................ ................................ ................................ ................. 69 b. Consequences of GHG regulation under PSD and NSR non

- attainment permitting

. 70 5. Title V permits

................................ ................................ ................................ ............... 74

a. Background

................................ ................................ ................................ ................. 74 b. Deficiencies with title V regulation

................................ ................................ ............ 75 B. Comments on Stationary Source TSD

................................ ................................ ............... 76 1. EPA‘s discussion of efficiency improvements fails to consider costs or NSR requirements.

................................ ................................ ................................ ..................... 77 2. EPA should explore and address options for reducing GHG emissions from al l fossil fuel

fired generating plants.

................................ ................................ ................................ ...... 78 3. Fleet

- wide efficiency improvement targets cannot and should not be promulgated.

....... 79 4. Biomass co

- firing is possible at many facilities, but should not be required.

.................. 81 5. EPA must resolve issues related to its authority under section 111 before imposing standards on utility boilers.

................................ ................................ ............................... 81 6. EEI will comment on any proposed metric for measuring boiler efficiency.

................... 82 VII. Assessment of PHEV Issues Rai sed In Connection With The ANPR’s Discussion Of Mobile Sources And Title II. ................................ ................................ ........................... 82 A. Electric Drive Significantly Reduces Net GHG Emissions.

................................ .............. 83 B. Using Electricity for Transportation Will Result in Greater Net GHG Reductions Over Time.

................................ ................................ ................................ ................................ .. 84 C. EPA‘s Analysis of Upstream Emissions Associated with Transportation Fuel Produc tion Must Be Consistent across Fuel Types.

................................ ................................ ............. 85vi

D. Inter

- Industry Trading Would Maximize the Emissions Benefits of Electric Drive under a Cap

- and

- Trade Program.

................................ ................................ ................................ .... 86 E. Under a Cap

- and

- Trade Program, Utilities Should Get Credit for Activities that Support Electric Drive.

................................ ................................ ................................ .................... 86 VIII. Other Issues

– CAA Regulation Of GHG Emissi ons Should Be Tailored To Avoid Effects On Other Media. ................................ ................................ ................................ . 8 7 Appendix A ................................ ................................ ................................ ................................ ..... . Appendix B ................................ ................................ ................................ ................................ ..... .1

The Edison Electric Institute (EEI) 1 submits these comments on the Env ironmental Protection Agency‘s (EPA or Agency) advance notice of proposed rulemaking (ANPR) regarding regulating greenhouse gas (GHG) emissions under the Clean Air Act (CAA or the Act) (Docket
ID No. EPA

- HQ

- OAR

- 2008

- 0318), 73 Fed. Reg . 44354 (July 30, 2008 ).

Based on our review of the ANPR , recent litigation and our considerable experience with the complicated implementation of the Act, as well as that of the more flexible sulfur dioxide (SO 2 ) allowance trading program passed by Congress, EEI strongly believes that the best way to achieve our n ation’s climate goals is through comprehensive federal legislation, not the use of the Clean Air Act.

The ANPR represents EPA‘s extensive efforts to explore how the Act could be used to regulate GHG emissions. Despite these ambitious efforts

– and after hundreds of pages of documentation

– the ANPR fails to demonstrate that a clear and effective regulatory path for efficient emissions reductions could be implemented under the auspices of the Act. This is not a surprise : The Act, originally enacted as a command

- and

- control statute aimed at improving local air quality, is not designed for the challenges of global climate change. In practice, the CAA has proven very

com plex and difficult to implement, with excess ive permitting and equipment regulation, litigation and delay. Moreover, compliance with the Act relies on technology to achieve emissions reductions, but the Act cannot provide financial incentives or funding for needed

1 EEI is the national association of shareholder

- owned electric ut ilities in the U.S. Our members represent about 70 percent of the U.S. electric power industry and serve 95 percent of the ultimate customers in the industry‘s investor

- owned segment.2

research, development and deployme nt of critical innovations needed to make significant reductions in GHG emissions.

In the ANPR, EPA acknowledges that comprehensive federal legislation is a ―better way‖ when it ―requests comment on whether well

- designed legislation for establishing a b road GHG regulatory framework has the potential for achieving greater environmental results at lower cost, with less concern about leakage, and more effective, clearer incentives for the development of technology, than a control program based on the CAA al one.‖ Id . at 44397, col. 3.

Many knowledgeable observers agree that the CAA is the wrong tool for achieving effective and efficient GHG regulation and that comprehensive legislation is the better path. 2 Indeed, even environmental groups have deemed CA A regulation to be the ―second best‖ option. 3

I. Comprehensive Federal Legislation Can Create An Effective And Efficient Program For Reducing GHG Emissions. The utility industry is committed to working with Congress to achieve legislation that will result in significant emissions reductions across the economy between now and 2050. Well

- designed legislation can do what the CAA cannot

– create an economy

- wide emissions reduction program

2 EPA Administrator Johnson and many other federal government agency and department heads, whose comments were included in the ANPR, have come to this conclusion. See, e.g., 73 Fed. Reg

. 44355, 44359. Rep. Dingell (D

- MI), chairman of the U.S. House of Representatives Committee on Energy and Commerce, was more direct when he said that regulating GHG emissions using the CAA would be ―a glorious mess,‖ involving ―inherently political decisions that should be made by an elected and accountable Congress.‖ J. Dingell, ―Strengths and Weakness of Regulating Greenhouse Gas Emissi ons Using Existing Clean Air Act Authorities,‖ Statement before Subcommittee on Energy and Air Quality, U.S. House of Representatives (Apr. 10, 2008). 3 D. Bookbinder, Sierra Club, Testimony before the Senate Environment and Public Works Committee (Sept. 23, 2008).3

imbued with the certainty that industry needs to make compliance a real ity. Comprehensive legislation also can:

● Encourage and incentivize the use of the full portfolio of options needed to reduce GHG emissions, including energy efficiency for both supply and demand, renewable energy, advanced coal technologies (ACT) with carbon capture and storage (CCS) , new nucle ar power plants and plug

- in hybrid electric v ehicles (PHEVs). 4 All options will be necessary to achieve significant GHG emissions reductions.

● Foster technology development and deployment with needed investment and incentives. Long

- term reductions targe ts cannot be met without the development and deployment of an array of advanced climate technologies. These new technologies, in turn, depend on increased public and private funding, including tax credits and other financial incentives.

● Align targets an d timetables with the development and c ommercial deployment of advanced climate technologies

.
● Within the context of an economy wide cap
- and
- trade program, allocate emissions allowances to energy
- intensive industries, such as the power sector, and their customers in order to mitigate the enormous costs of a GHG cap. 5

● Provide other explicit cost - containment measures , such as a safety valve or price collar, within the context of an economy wide cap

- and

- trade program.

● Allow for the full and robust use of domestic and international offsets to contain costs further and promote clean development goals, within the context of an economy

- wide cap

- and

- trade program.

● Address international participation and cooperation issues , including measures needed to miti gate the potential for leakage and harm to U.S. industrial competitiveness.

● Ensure the continued reliability and stability of the electric grid and reasonably priced electricity , which are critical to the growth and continued international competitivenes s of the U.S. economy. Provide a consistent national policy for regulating GHGs

.

4 See discussion of PHEVs, section V I I, infra

. 5 In section V, we discuss in more detail the critical elements of a well

- designed cap

- and

- trade program. Our comments do not address other market

- based approaches, like a carbon tax, because tax measures are outside of EPA‘s authority as an Executive Branch regulatory agency.4

EEI offers the following comments on the critical elements of a comprehensive approach to regulating GHG emissions. Our comments reflect the Global Climate Change Principle s (Climate Change Principles) agreed upon by EEI’s CEOs in February 2007, which provide our industry a benchmark for evaluating any federal legislation or action. These Climate Principles are attached in Appendix A.

First, comprehensive legislation is cr ucial because it can consider GHG emissions reductions holistically within the context of the current and projected economic situation s . GHG emissions reductions in the power sector must be made against the backdrop of population and economic growth in th e U. S.: The Energy Information Agency (EIA) projects net electric demand to increase 30 percent by 2030, even a fter taking into account energy efficiency improvements due to market

- driven efficiency and stricter building codes and appliance and other eff iciency standards mandated by the Energy Independence and Security Act of 2007. The technological transformation needed to achieve emissions reductions in the power sector will occur in the face of tremendous capital and investment needs to meet the elect ricity demands of a growing population and economy. Even with substantial energy efficiency measures, new and replacement power plant c a pacity is projected to total 133 ,000 megaWatts (MW) and cost $ 505 billion by 2030. 6 Transmission and distribution inve stment needs are projected to total almost another $900 billion by 2030. 7

6 The Brattle Group, ―Transform ing America‘s Power Industry: T he Investment Challenge 2010

- 2030,‖ at 19

- 20 (Nov. 2008), available at http://www.edisonfoundation.net/repo rts.htm#transforming

. 7 Id. at 37

- 40, 43

- 46

.5

A. An Economy
- Wide Approach Is the Most Efficient Way to Reduce GHG Emissions. The most efficient way to reduce GHG emissions is through an economy
- wide approach, with no exceptions. If there were exceptions and the power sectors were the only covered sector or one of the few covered sectors, the odds of achieving environmental success would decline and the costs of regulation would be even higher.

Electric generation is responsible for 34 percent of GHG emissions 8 in the U.S.; transportation is responsible for 28 percent, industry for 19 percent and agriculture for almost 8 percent, commercial for 6 percent and residential for 5 percent. 9 The least economically intrusive and
most e nvironmentally effective and equitable regulatory system must involve the participation of all sources and sinks, all regulated GHGs and all sectors of the economy. 10 ―[A] domestic regulatory system, like an international system, should move as rapidly as feasible towards including all sources and sinks under a cap.‖ M. Wara & D. Victor, ―A Realistic Policy on International Carbon Offsets‖ 15, Stanford University Program on Sustainab le Development, Working Paper # 74 (Apr. 2008).

8 Electric generation is resp onsible for 40 percent of the carbon dioxide (CO 2 ) emissions in the U.S. 9 EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990

- 2006 at 2

- 17 (Apr. 15, 2008). U.S. territ ories account for the remaining 1 percent of emissions. 10 In the House, such proposals include : H.R. 1590 by Rep. Waxman (D

- CA), H.R 6186 by Rep. Markey (D

- MA) , and the Dingell

- Boucher d iscussion draft of Oct. 7, 2008. I n the Senate, such proposals incl ude : S. 2191 (the Lieberman

- Warner bill), r eported by the Senate Committee on Environment and Public Works on May 20, 2008 , and placed on Senate Calendar No. 740; S. 3036, as modified version of Lieberman

- Warner, placed on Senate Calendar No. 742 and the vehicle for Senate f

loor debate starting June 2, 2008 ; and the Boxer

- Lieberman

- Warner substitute for S. 3036 introduced as S

. A

. 4825 (154 Cong. Rec . S 5049 (daily ed. June 2, 2008) )

.6

Furthermore, several stud ies show that GHG emissions reductions are available from other sectors of the economy

– buildings, transportation, forestry and agriculture/waste

– at lower costs than from the power sector.

Moreover, the most efficient economy

- wide approach to regulatin g GHG emissions will employ a market

- based mechanism, such as a cap

- and

- trade program or a carbon tax, to contain costs. Market

- based approaches to regulating GHGs are discu ssed in more detail in section V, infra

. B. The Power Sector Cannot Meet Long
- Term Re ductions Targets Without the Full Portfolio of Climate Technologies and Measures. For the electric utility industry, the optimal path to achieve long

- term emissi ons reductions targets will require the development and deployment of the full portfolio of cl imate technologies and measures. These include: energy efficiency for both supply and demand; renewable energy; ACT integrated with CCS; new nuclear power plants; and PHEVs.

In the near term, the power sector will engage in stepped

- up energy efficiency practices and enhanced renewable energy activities to help meet emissions reductions targets. 11 In the longer term, even with very aggressive assumptions about the potential for renewable energy and energy efficiency deployment, the electric utility indust ry will need to depend on fossil fuel and nuclear generation to serve baseload demand. Short

- term carbon reduction targets beyond what can be accomplished with efficiency and renewables that kick in before advanced technologies, such as ACT with CCS and n ew nuclear plants, are commercially available and deployed on a widespread basis would result in fuel switching from coal to natural gas, with negative impacts

11 The extent to which individual utilities will be able to reduce GHGs as a result of these practices and activities will be affected by load growth, regional variability and regulatory structure.7

on gas suppl y and prices. In addition, the investment of resources necessary to comply with suc h short

- term targets would divert resources away from developing and deploying the technologies needed to meet long

- term targets.

Thus, a two

- pronged approach is needed for the electric utility industry. Our initial focus should be to rely on enhanced en ergy efficiency and increased use of renewable s to the maximum extent feasible in the near term, while developing and commercially deploying base load climate

frie ndly technologies and practices . In the near term, the goal would be to slow and eventually

s tabilize the growth of GHG emissions. With new nuclear power plants being completed and ACT with CCS starting to become commercially available after 2020, more ambitious reduction s targets could be achievable starting in the 2025 time frame. Even more ag gressive reductions could be undertaken beginning in 2030 and beyond, on to 2050, assuming that the U.S. is engaging in aggressive and widespread commercial development of the full suite of climate technologies and measures. This would result in a nearly de

- carbonized electricity supply.

This scenario assumes greatly increased funding for technologies, like CCS, by both government and the private sector, including financial and tax incentives to expedite deployment when they become commercially available and cost
- effective . Without appropriate funding and incentives, compliance with long

- term emissions reductions goals

– if at all possible

– would come at astronomical costs, and consumer s would be compelled to curtail electricity use dramatically, with re sulting consequences for the economy and standards of living.8

T he so

- called ―PRISM‖ work by the Electric Power Research Institute (EPRI) demonstrates that a full technology pathway for the power sector is a far wiser and less costly path to follow than a limited technology approach. 12 See Figure 1 below.

Figure 1: 2008 Prism...Technical Potential for CO 2 Reductions

Relating to Figure 1, note that the U.S.’s current capacity of renewable energy is 39 gigawatts (GW) and of nuclear energy is 118 GW.

Eac h of the slices in the PRISM represents aggressive implementation of technical potential for a particular technology or measure

– end

- use efficiency, renewables, nuclear, ACT, CCS, PHEVs and distributed energy resources

– and assumes efficient resolution o f economic, financial,

12 EPRI, The Power to Reduce CO 2 Emissions

– The Full Portfolio , Report 1015461 (Aug. 2007), available at: http://mydocs.epri.com/docs/public/DiscussionPaper2007.pdf

. The PRISM in Figure 1 has been updated to reflect EIA‘s Annual Energy Outlook 2008 , Report DOE/EIA

- 0383 (revised early release) (March 2008).9

regulatory and siting constraints. In this sense, the PRISM should be viewed as a roadmap or goal for the development of the optimal mix of supply

- and demand

- side resources to reduce carbon emissions in the electric sector . The fu ll portfolio approach depicted in Figure 2 below, which meets the comparable level of emissions reductions as in the PRISM using an economic model, shows that the least costly way of reducing carbon emissions is to rely heavily on the renaissance of nuclea r energy after 2020 and wide deployment of ACT with CCS after 2020

- 2025. 13

Figure 2 : U.S. Electric Generation

– Full Portfolio

13 However, changes in public attitudes and policies could modify this economic allocation.10

On the other hand, the limited portfolio approach depicted in Figure 3 shows how the electric industry is likely to achieve emissions reductions goals if new nuclear plants and coal with CCS

are not available by 2050. Without these technologies , electricity demand must decline

s ignificantly , and natural gas

– which has a little more than half the CO 2 content of coal

– carries a significant portion of our generation needs in order to reduce CO 2 emissions

.

Figure 3: U.S. Electric Generation

– Limited Portfolio

In addition, as illustrated in Figure 4 below, although both the full portfolio and limited portfolio approaches mee t the same economy

- wide carbon cap, the difference in increase in real electricity prices

– 45 percent to 260 percent

– is vast, with the limited portfolio approach making electricity far more costly to our customers and our economy.11

Figure 4: Increase in Real Electricity Prices...2000 to 2050

*Economy

- wide CO 2 emissions capped at 2010 levels until 2020 and then reduced at 3%/yr

The lessons of the EPRI analysis are three

- fold: 1) Under any scenario, the costs of compliance with GHG mandates will be high. 2) T he wiser path to compliance for the power sector relies on development and deployment of the full portfolio of climate technologies and measures over the longer term. 3) Short

- term targets should not lead the power sector off the long

- term technology path. C. A ny Regulation of GHGs Must Ensure Continued Electric Reliability. In ANPR section III, EPA identifies ―several other important considerations‖ that it believes ―should inform‖ the ―examination and potential use of CAA authorities‖ to control GHG
emissions in the U.S. 73 Fed. Reg . 44409. Surprisingly, these ―considerations‖ do not include12

the impact of GHG regulation on reliability of the electricity grid. The continued reliability and stability of reasonably priced electricity are critical for the growt h and continued competitiveness of the U.S. economy.

Federal Energy Regulatory Commission (FERC) Chairman Kelliher recently indicated that climate change has significant implications for the energy supply mix, the transmission grid and prices, and ―argues that an over

- reliance on energy efficiency and renewables could undermine reliability.‖ 14 He warned ―that poorly designed‖ GHG rules that ―exclude the role of coal and nuclear power. . .would undermine‖ FERC‘s ability to ―ensure adequate electricity suppl ies and a reasonable price, even while current uncertainty about a national climate change policy is already making it difficult to ensure the reliability of the electricity grid.‖ 15

Similarly, a recent North American Electric Reliability Corporation (NERC ) report titled ―2008 Long

- Term Reliability Assessment, 2008

- 2017,‖ said: 16 A number of ongoing environmentally

- driven regulatory issues could, in sum, have a significant effect on resource adequacy in the U.S., namely Greenhouse Gas Reductions and climate change initiatives, the U.S. Clean Water Act: Cooling Water Intake Structures and the U.S. Clean Air Act: Interstate and Mercury Rules. Understanding the reliability implications of potential legislation and regulations is vital to ensure that the bulk power system remains reliable during and after implementation. * * * *

14 Carbon Control News (Oct. 27, 2008). 15 FERC apparently was not given the opportunity to comment on the ANPR before it was made public in July. FERC is an indep endent regulatory agency with national energy responsibilities. EPA is also a regulatory agency

— although not an independent regulatory agency like FERC

— with national air, water and land environmental responsibilities. There is a need for both to coordina te. 16 NERC‘s mission is to ensure the reliability of the North American electrical system. Pursuant to the Energy Policy Act of 2005, it was appointed by FERC as the national Electric Reliability Organization with authority to enforce compliance with rel iability standards industry

- wide.13

In 2006, coal provided almost 50% of the electric energy production in the US and approximately 20% in Canada in 2003. Natural gas is the cleanest fossil fuel in terms of air qua lity and carbon emissions, emitting up to 60 percent less carbon dioxide than coal. However, the magnitude of these benefits depends on the source of the natural gas and other factors, such as plant efficiency. Burning natural gas instead of coal at elec tricity

- generating units to reduce greenhouse gas emissions involves important tradeoffs related to economic, environmental, infrastructure, and fuel supply considerations. Converting existing capacity to natural gas poses substantial challenges due to fu el supply constraints, changes to infrastructure, and economic considerations. (p. 28) (footnotes omitted).
Even more recently, NERC issued a November 2008 ―Special Report‖ titled ―Electric Industry Concerns on the Reliability Impacts of Climate Change In itiatives,‖ including concerns of the states, the Canadian provinces, regional initiatives, and the Executive Branch and Congress.

In this report, NERC stated that ―successful climate change initiatives capable of maintaining reliability must‖:

● Recogn ize and address the potential reliability impacts associated with broad

- scale fuel

- switching from coal to natural gas and the resulting increase in dependence on natural gas as a fuel for electric generation.

● Support innovative resource planning and impl ementation mechanisms to ensure the adequate development, siting and construction of transmission infrastructure.

● Support the development and reliable integration of demand

- side resources.

● Provide regulatory certainty to the electric industry, clearly articulating requirements and interaction with state, provincial and regional initiatives. Id. at 5.

The NERC Report was very concerned about heavy reliance on na t ural gas for electric generation (which EPRI projected would occur if new nuclear and CCS a re not14

available). It observed that this ―raises a number of reliability issues, from reductions in available generation capacity to natural gas supply security,‖ and ―[a]s more gas plants and existing plants are operated for longer periods, stress on the gas supply and transportation infrastructure is increasingly a source of concern for reliability.‖ Id. at 6, 9.

As noted in a 2007 study by the University of Maryland for the Maryland Department of the Environment on the impacts of the Regional Greenhou se Gas Initiative (RGGI) of 10 Northeast and Mid

- Atlantic states: Reliability can be measured in terms of the number and duration of outages customers experience in a year. However, the planning, investment, and operations that ensure electricity is avail able are complicated processes and substandard performance in any of these areas can threaten reliability. Even under optimal conditions, the balance of electricity supply, delivery and demand is delicate. When a new regulation, such as RGGI, is added to the mix it may make reliability even more complex (p. 50).
The same can be said in the case of any GHG regulation. We therefore urge that the impact on the reliability of the nation‘s electric infrastructure, particularly the impact of de

- carbonization upon generation, be addressed as part of the development of any proposed GHG regulatory
program . D. To Ensure Efficiency and Compliance at the Least Cost, a Single National Policy for Regulating GHGs I s Needed. Numerous authorities from Congress

– we note t he House Committee on Energy and Commerce white paper on ―Appropriate Roles for Different Levels of Government‖

– to labor and industry have called for the harmonization of federal and state climate laws and policies. States may well have appropriate role s in land

- use programs and urban transit, renewable electricity standards15

and energy efficiency standards and building codes. However, if a cap

- and

- trade approach is embarked upon, there should be only one national program. Separate federal, regional and state
cap - and

- trade programs, with multiple costs imposed on consumers through various allowance allocation and auction schemes, would be inefficient, and thus intolerable from a policy standpoint. This ―glorious mess‖ could be avoided by comprehensive fe deral legislation.

Numerous authorities also have called for a single comprehensive federal law, rather than a regulatory regime consisting of multiple, overlapping or conflicting statutes. 17 One of the worst
outcomes

– in terms of efficiency, clarity and expense

– would be piecemeal regulation under the CAA, Clean Water Act, Endangered Species Act, National Environmental Policy Act and other federal statutes and state programs.
E. Federal Regulation of GHGs Must Work Toward Global Emissions Reductions.
Th e U.S. is one of the largest sources of GHG emissions worldwide, but its share is declining. 18 Unless all major GHGs emitters, including key developing countries, commit to reductions, efforts by the U.S. to reduce its GHG emissions will be offset by risin g overall global emissions. The International Energy Agency (IEA) forecasts that global energy

- related CO 2 emissions will increase 45 p ercent between 2006 and 2030, with non - Organization for Economic Cooperation and Development countries accounting for mo re than 97 percent of this projected increase. 19
President

- elect Obama has acknowledged that U.S. action is needed to reduce global GHG

17 See, e.g ., R. Nordhaus, ―New Wine Into Old Bottles: The Feasibility of Greenhouse Gas Regulation Under the Clean Air Act,‖ 15 N.Y.U. Environmental Law Journal 53 (2007). 18 ―China Increases Lead as Biggest Carbon Dioxi de Emitter,‖ New York Times (June 13, 2008). 19 International Energy Agency, World Energy Outlook 2008 (Nov. 12, 2008).16

emissions, but that we ―cannot meet this challenge alone. Solving this problem will require‖ all nations ―working toget her.‖ 20

In other fora, EPA has been clear that unilateral U.S. action would have minimal impact on global CO 2 concentrations. Specifically, in its analysis of three comprehensive climate bills, EPA determined that global CO 2 concentrations would rise to 7 18 parts per million (ppm) in 2095, but the three bills studied would reduce global concentration levels only by 23

- 25 ppm by 2095

– or less than 3.5 percent. 21

While it may be argued that U.S. action under comprehensive legislation also cannot ensure inte rnational participation in the global effort to reduce GHG emissions, this does not argue in favor of proceeding with CAA regulation. The CAA is too complex yet limited in scope to allow
EPA to make an effective link between GHG regulations and potential international activities. Moreover, only comprehensive legislation, free from the strictures of the Act, can be designed to link to a possible future international treaty or protocol on global emissions cuts.

In addition, u nilateral GHG regulation under the Act could not address the serious competitive harm that such reductions would entail for U.S. industry. EPA regulations could not address the potential for the flight of industry and concomitant GHG emissions from the U.S. to those countries without c arbon controls. These issues can be addressed better through legislation that

20 President

- elect Obama, speech to Bi

- Partisan Governors Climate Summit (Nov. 18, 2008). 21 EPA, ―EPA Analysis of Bingaman

- Specter Re quest on Global CO 2 Concentrations‖ (Oct. 1, 2007). The three bills analyzed were S. 1766, Bingaman

- Specter‘s Low Carbon Economy Act; S. 280, Lieberman

- McCain‘s Climate Stewardship and Innovate Act; S. 485, Kerry

- Snowe‘s Global Warming Reduction Act. The Lieberman

- Warner bill, S. 3036, and Boxer substitute amendment could have only slightly more impact.17

1) is ultimately tied to U.S. participation in international agreements, such as treaties or protocols, or 2) contains incentives, sanctions or other measures that ensure compar able action by international trading partners.

II. The CAA Is Too Complex, Uncertain And Command
- And
- Control Oriented For Effective And Efficient GHG Regulations. GHG s are not like the traditional air pollutants that the CAA regulates in order to improve air quality in specific localities, states or regions. Indeed, many GHGs, like CO 2 , are essential to life on Earth as we know it and are not considered pollutants in normal use. Unlike traditional pollutants, GHGs are carried long distance , can be extremely long

- lived and are well

- mixed in the atmosphere . There are no GHG ―hot spots,‖ such as occurs with air pollutants over many urban areas. Hence, we talk about ―global‖ warming and ―global‖ climate change. In comparison, the CAA was designed to lead to c ommand

- and

- control regulations for specific stationary and mobile sources that quickly and measurably improve local and regional air quality. Applying CAA regulations to GHGs could only lead to a decrease in CO 2 atmospheric concentrations

– the closest an alog to an improvement in air quality in this context

– over the course of decades, if not longer. Thus , we agree with that ―the ANPR... is ill

- suited for the task of regulating global greenhouse gases.‖ 73 Fed. Reg. 44355.

Moreover, a new GHG regulatory p rogram under the Act is likely to affect almost all sectors of the U.S. economy and impose enormous costs. The various regulatory regimes that may be built around the CAA described in the ANPR would, in EPA‘s own words, ―impose enormous costs
on U.S. cons umers, workers and businesses.‖ Id . at 44360. The ANPR fails to address these increased costs and the potential harm to the international competitiveness of U.S. business and18

industry. These considerations are serious impediments to moving forward with CAA regulation , especially given the current economic situation.

This is another reason why EEI believes that comprehensive federal legislation can achieve GHG emissions reductions in an efficient way that does not unduly harm the economy

– by creating a clear regulatory scheme that encompasses the whole economy (with a view toward the ultimate participation of the whole world); incentivizes the development and deployment of the full portfolio of climate technologies and measures; provides a level of cert ainty to encourage the investment necessary for compliance; and uses flexible, market

- based approaches to contain costs. By its very nature, the CAA is unlikely to enable EPA to address all of these critical elements of an effective GHG regulatory scheme. A. The CAA Is Not Designed for Effective Economy
- Wide Regulation. Despite acknowledging in the ANPR that economy

- wide regulation would promote optimal economic efficiency and would provide the necessary incentives for the development and deployment of new t echnologies to reduce emissions (73 Fed. Reg. 44411), EPA nevertheless makes it clear that it would prefer to implement a s ector or multi

- sector approach because it would be easier under the CAA. Id. at 44412. Among the impediments, EPA cites its inabili ty under the Act to address key issues in the design of an economy

- wide program, including concerns about allocating or auctioning allowances and the creation of an offsets system. See id

. While the CAA does not provide EPA with the too ls for readily ad dressing these concerns, comprehensive legislation could design an economy

- wide approach that could respond to these

concerns . Moreover, these design concerns are not limited to an economy

- wide approach under the CAA, but would persist if EPA were to deve lop a sector or multi

- sector program.19

The ANPR details how operation of the CAA would turn EPA into the de facto head of a vast
economy - wide GHG permitting program. EPA devotes a great amount of verbiage in the ANPR discussing how it could avoid the ec onomy - wide consequences of regulation under the Act. For example, EPA notes that regulation of GHG emissions from either mobile or stationary sources could trigger automatically permitting requirements for all stationary sources under the Prevention of Si gnificant Deterioration program. The result would be command

- and

- control regulations so onerous

– the need for thousands, if not hundreds of thousands, of previously unregulated stationary sources to obtain a construction permit that would contain stringe nt emissions limitations based on Best Available Control Technology

– that EPA proposes several end runs around this regulation to ensure that many of the entities that would be swept into the Agency‘s regulatory ambit could be spared. See 73 Fed. Reg . 44 505.

Setting aside the feasibility of any of these proposed end runs, these efforts demonstrate just how unworkable CAA regulation would be from an economy

- wide perspective. The problem is not only including all sectors of the economy, but also the way that they would be included by operation of the relevant provisions of the CAA. In proposing these end runs, EPA indicates that it is willing to sacrifice economy

- wide regulation, possible environmental benefits and increased economic efficiency for no p urpose other than to avoid implementing the Act as written. This makes no sense. EPA should concede that the CAA is not fit for the purpose of creating sensible and effective economy

- wide regulation.20

B. The CAA Is Too Complex and Cannot Provide Needed Reg ulatory Certainty. The problem with using the existing Act to address global climate change is not just one of trying to fit the ―square peg‖ of GHGs into the ―round hole‖ 22 of CAA regulation. The interconnected nature of the various provisions of the Act also is problematic. The ANPR acknowledges that ―the complexity and interconnections inherent in [CAA] regulation of GHGs‖ has led EPA staff to conclude that ―not...all aspects of the Act are well designed for establishing
the kind of comprehensive GHG reg ulatory program that could most effectively achieve the GHG emissions reductions that may be needed.‖ 73 Fed. Reg . 44397, cols. 2

- 3. 23

Given the interconnected nature of the Act and its various provisions, regulations under any portion of the Act likely would result in an expansion of EPA‘s authority to regulate economic activity in virtually every sector of the U.S. in an unprecedented way, constituting the largest permitting program in EPA‘s history

– if not the history of all federal agencies. Our

co nsiderable experience with CAA regulation, as well as EPA‘s own assessment of it s authority under the Act, indicates that this would lead to a complex and excessive permitting system with considerable uncertainty, litigation and delay.

The massive cost and impact of responding to climate change not only requires the creation of a regulatory scheme that is clear and free from unnecessary complexity, but one that also provides the certainty needed to make the enormous investment in efficiency and new techn ology needed

22 EPA Administrator Johnson, Speech as Prepared, Press Conference Call Regarding Advance Notice of Proposed Rulemaking (July 11, 2008). 23 In a joint le tter, the Secretaries of Agriculture, Commerce, Energy and Transportation find that the CAA ―is fundamentally ill

- suited to the effective regulation of GHG emissions.‖ 73 Fed. Reg. 44359.21

to bring about emissions reductions. EPA asserts that it can institute market

- based mechanisms to regulate GHG emissions and relies on novel interpretations of the Act to bring about this outcome. However, it is not at all certain that the C AA is as flexible as EPA hopes

.

Recent experience has made EEI‘s members necessarily concerned about committing resources to implement EPA trading programs. In July of this year, shortly before the EPA issued the ANPR, the D.C. Circuit vacated the Clean Air Interstate Rule (CAIR), 24 a trading program designed to reduce the interstate transport of ozone and particulate matter, because it did not comport with CAA section 110, despite the fact that it would dramatically reduce overall emissions . In one fell swoop, this decision stranded billions of dollars in utility investments needed to comply with the CAIR trading program and put utilities that had made good

- faith efforts to reduce emissions through the CAIR program at risk of additional massive outlays to comply with whatever is devised to take CAIR‘s place. The parties are seeking rehearing, and the fate of CAIR and attendant investments hang in the balance.

The investment in new technology and energy efficiency programs that would be needed to comply w ith any GHG regulatory program will be at least an order of magnitude greater than that associated with CAIR, in large measure because the necessary suite of technologies, including CCS, do not yet exist or are not yet commercially available. Therefore, i n order for any regulatory scheme to be workable, it is imperative that the scheme provide regulated entities with certainty that their good

- faith efforts to reduce emissions will be rewarded.

24 North Carolina v. EPA , No. 05

- 1244 (D.C. Cir. July 11, 2008).22

C. The CAA Is Not Designed to Fund or Incentivize Necessary Te chnology Development and Deployment. As discussed above, s ubstantial advancements in technology will be needed to reduce GHG emissions in the long term, regardless of the regulatory scheme ultimately chosen. CAA regulation is not capable of appropriately incentivizing and financially supporting the extensive research and development (R&D) efforts to bring promising technologies, like ACT and CCS , to commercial fr uition as soon as practicable. Despite the importance of technology to limiting , avoiding or sequestering GHG emissions, the ANPR spends comparatively little time addressing this issue, relevant particularly with respect to the power sector.

Section III.C of the ANPR, titled ―Advancing Technology,‖ makes an attempt to address technology issues. The preamble to this section asserts that ―[i]nternational, U.S., and private studies have identified a broad range of potential strategies that can reduce emissions from diverse economic sectors.

. ., such as increasing energy efficiency and conservation and employing hybrid and diesel vehicle technologies‖ that are ―available today.‖ 73 Fed. Reg. 44404. EPA also states that there ―is a broad consensus that for many sectors of the economy new technologies will be needed to achieve deep reductions in GHG e missions,‖ but seems to suggest that this need relates only to the issue of achieving such reductions ―at less cost than today‘s technologies alone can achieve.‖ Id. at 44405. The section is very limited in its application to technologies regarding stati onary sources, particularly in the case of electric generation. Moreover, the focus on technologies that are ―available today‖ and the implication that technology is only necessary to reduce costs are troubling, not just because they underplay the importa nce of substantial technological development, but also because they highlight the Act‘s inability to fund or incentivize necessary new technology.23

The ANPR does raise the question of how to spur technology development and deployment, and suggests there ar e ―several different pathways for technological change.‖ These include: ―investment‖ in R&D by both the public and private sectors; market

- based incentives; and ―learning by doing ( i.e ., efficiency gains through repetition).‖ Id

. at 44405. The only opt ion that the CAA gives to EPA is the latter.

As to this pathway, EPA asserts that ―the history of the CAA provides many examples in which technological innovation and  ̳learning by doing‘ have made it possible to achieve greater
emissions reductions than h ad been feasible earlier‖ or ―have reduced the costs of emissions control in relation to original estimates.‖ Id. at 44407. In support of this pathway, the ANPR refers to EPA‘s ―Final Ozone NAAQS Regulatory Impact Analysis‖ of March 2008 by EPA‘s
Health and Environmental Impacts Division. Id. at n. 47. Section 5.4 of that analysis explains:

Studies have suggested that costs of some EPA programs have been less than originally estimated due in part to inadequate inability to predict and account for futu re technological innovation in regulatory impact analyses. * * * * Constantly increasing marginal costs are likely to induce the type of innovation that would result in lower costs than estimated early in this chapter. Breakthrough technologies in c ontrol equipment could by 2020 result in a rightward shift in the marginal cost curve for such [ozone] equipment .

. . as well as perhaps a decrease in its slope, reducing marginal costs per unit of abatement, and thus deviate from the assumption of one co nstantly increasing marginal cost curve. In addition, elevated abatement costs may result in significant increases in the cost of production and would likely induce production efficiencies, in particular those related to energy inputs, which would lower e missions from the production side. (pp. 5

- 26

– 5

- 28) (footnotes omitted).24

T he ANPR states that an issue raised by ―potential CAA regulation is whether the CAA can help spur needed technological development for reducing GHG emissions and the costs of these reductions.‖ 73 Fed. Reg . 44407. It then points out that some CAA provisions ―offer little flexibility in standard

- setting criteria, emission control methods, compliance deadlines, and potential for market

- oriented regulation,‖ while others ―offer more potential to encourage new technology through market incentives or to establish standards based on anticipated advances in technology‖ and requests ―comment on the extent to which various CAA provisions could be used to help spur technological development, and on the need for federally conducted or funded‖ R&D to ―promote‖ such ―development.‖ Id

.

The history of the CAA in what some call ―forcing technology‖ through command

- and

- control regulation has been mixed. Some of the earliest efforts occurred regar ding motor vehicle controls. For example, in 1977 when the Congress revisited the 1970 version of the Clean Air Act, the Senate Committee on Environment and Public Works pointed out 25 that the 1965 automobile control program ―required‖ the then administeri ng agency to set standards based on ―technical and economic feasibility,‖ but that progress under that ―yardstick‖ proved ―inadequate.‖ So in 1970 Congress abandoned it and ―adopted statutory standards and rigid timetables‖ for their achievement. The new standards ―reflected that level of control needed to
insure attainment of health

- related air quality levels,‖ and the deadline for meeting them was the ―1975 model year.‖ But between 1970 and 1977 the deadlines had to be modified twice (in 1973 and 1975) by EPA for reasons of cost and lack of technology and once by Congress in 1974, resulting in calling for ―achievement of the statutory reductions on 1978 model cars.‖ In 1977

25 Clean Air Amendments of 1977, S. Rep. No. 95

- 127 at 67

- 75 (1977) (regarding S. 252).25

the standards and deadlines were adjusted again by Congress for various reasons , including the status of technology, costs and other factors.

In short, it is hard to imagine how EPA, through CAA regulation, could incorporate and base its regulations to achieve the full portfolio approach. EPA‘s authority under the Act is limited: It can provide no funding nor offer any incentives to ensure development and commercial deployment of critical technologies. Instead, EPA is forced to rely on technology

- forcing regulations and hope for the best. Ambitious reductions in emissions will no t be achieved in this

manner.

III. Issues Related To A Possible Endangerment Finding EPA‘s authority to regulate GHG emissions using the Act is contingent upon making an endangerment finding. 26 EEI does not take a position on whether the various endangerment standards throughout the Act have been satisfied with respect to GHGs, but notes that EPA‘s process for assessing this issue has been incomplete. Before making a final endangerment determination, which would be subject to notice and comment requirements , EPA must address several issues.

Specifically, EPA must assess the potential effects of climate change on the U.S. directly and must fully document and support its conclusions. EPA‘s assessment, as embodied in the ANPR‘s Endangerment and Benefits TSDs, is problematic because it focuses on regional and global effects. In addition to analyzing effects on the U.S., any endangerment analysis must also

26 Massachusetts v. EPA , 127 S. Ct. 1438, 1462 (2007).26

address both the potential adverse and beneficial effects of climate change, noting that CO 2 is
necessary to sustain life on Earth as we know it, especially through the carbo n cycle and plant growth. More over , any assessment of the overall effects of clima te change also must acknowledge and address the natural variation of GHG concentrations in the atmosphere . A full discussion of these issues in included in Appendix B.
Assuming arguendo that EPA corrects the above

- discussed deficiencies and moves toward an

en dangerment finding, we agree with the Agency in the ANPR that ―current and future projected levels of ambient concentrations of the six GHGs are not expected to cause any direct adverse health effects, such as respiratory or toxic effects , which would occur as a result of elevated GHG concentrations themselves rather than through the effects of climate change .‖ 73 Fed. Reg

. 44 427, col. 3 ; see also id. at 44425, col. 2

. At a minimum, because the effects of GHGs are conceded by EPA to be indirect with respect to public health, the most that an endangerment finding can reach is welfar e.

IV. Economic Analysi s And Considerations EPA seeks comment on a variety of issues related to its required economic analysis of the costs and benefits associated with GHG regulation, including: the selection of an appropriate discount rate for evaluating the costs and ben efit s of climate policy and GHG impacts over a long

- term, inter

- generational context; uncertainty in costs and benefits calculations and application, given the quantified and unquantified uncertainties associated with measuring the impacts of climate change an d the results of mitigation policies; and the appropriateness of using U.S. and global values in quantifying the benefits of GHG reductions and the appropriate application of benefits estimates given the state of the art and overall uncertainties. 73 Fed. Reg. 44414

- 16.27

A. Appropriate Intergenerational Discount Rate for Climate Policy Analysis The selection of an appropriate intergenerational discount rate is one of the most contentious issues associated with the modeling of climate policy, and became parti cularly prominent when noted economist William Nordhaus of Yale University criticized the economic analysis that was part of the Stern Review on the e conomics of c limate c hange on the grounds that the assumed discount rate, which was close to zero in Stern ‘s analysis, was unreasonably low. Nordhaus advocates adopting a higher discount rate ( 3 percent or more ) commensurate with a risk

- free market return, and in fact uses a 4

- percent discount rate in his own most recent analysis of climate change, on the gro unds that this is the estimated return on market capital

. 27 The impact of discount rate choices on the results of climate change analyses was exemplified by Richard Tol, who compared 211 such analyses that have been performed over the past 25 years. 28 His summary indicates that studies using a discount rate of 1 percent produced estimates of the social cost of carbon ( i.e. , the marginal cost of climate change damage) that were more than three times as high, on average, as studies that used an assumed discou nt rate of 3 percent , while studies which use a discount rate at or close to zero produced estimates that were, on average, four times as high as those which used a 1

- percent discount rate, and more than 13 times as high as those which used a 3

- percent dis count rate. Th e extreme variability in results that arises from a change of less th a n 3 percentage points in the selected discount rate demonstrates the risk inherent in selecting a rate that is too low.

27 W. Nordhaus, A Question of Balance: Weighing the Options on Global Warming Policies (Yale University Press, 2 008). 28 R. Tol , ―The Social Cost of Carbon: Trends, Outliers and Catastrophes , ‖ Economics e

journal , Vol. II ( Aug

. 2008 )

.28

In a study published in the OECD Journal of Budg eting in 2001, 29 Michael Spackman argued that the time preference rate should, at a minimum, be set based upon the following formula: ( 1.0g+1.0+0.1)% where g is the expected rate of growth of per capita income. For an assumed per capita growth rate of 2 percent, this minimum time preference rate would then be 3.1 percent. But Spackman also includes a survey of social discount rates actually specified by countries for the appraisal and evaluation of policies in the public sector, and demonstrates that th ese rates range from 4

- 10 percent (with 7 percent reported for the U.S.).

Accordingly, the discount rate should be set above 3 percent, and, in fact, should be established in the middle or upper range of prescribed rates as reported by Spackman, to reflec t the particularly high magnitude of uncertainties associated with climate change (see discussion in subsection D below). Any policy analysis undertaken by the EPA should explicitly report, with the use of alternative cases or sensitivity analyses, the im pact of alternative discount rates on the results.
B. EPA Must Carefully Select Source Data and Assumptions and Use Sensitivity Analyses in its Cost/Benefit Calculations . EEI supports a policy of cost/ benefit estimates using a base case derived from statisti cs and projections from sources generally acknowledged and respected by the energy industry, such as EIA. EIA‘s Annual Energy Outlook provides reference forecasts on energy prices, supply and demand, including projections on expansion of domestic energy s upply and production. However, while statistics and forecasts from sources such as these provide an acceptable

29 M. Spackman , ―Public Investment and Discou n ting in European Union Member States,‖ OECD Journal on Budgeting (2001).29

baseline, EPA must recognize that there are significant disagreements regarding projections of important energy statistics

. These include but a re not limited to 1) the extent to which the U.S. will need to rely upon imports of liquefied natural gas (LNG) to meet domestic demand, and the consequent effect of a rising reliance upon LNG on prices, 2) the impact of rising construction materials costs on the future cost of investment in new electric infrastructure, 3) the timing of commercially available ACT integrated with CCS and of other abatement technologies, and 4) the extent to which energy efficiency programs, nuclear power, and renewable s will be able to mitigate the requirement for future baseload fossil

- fuel generation.

The lack of consensus on variables such as these, and the critical impact of each of them on the results of any climate policy analysis, highlight the necessity for sensiti vity cases representing a realistic appraisal of uncertainties in estimates of critical variables. C. Climate Change Impacts Should Be Evaluated from U.S. and Global Perspectives. Costs and benefits should be evaluated from both d omestic (national) and globa l perspective s . As noted in a study by the Congressional Budget Office : 30 Countries that would bear a relatively large share of the costs of climate policies are not necessarily those that would receive a large share of the benefits. For example, under a policy determined by global cost

- benefit analysis, the U

. S

. would incur a substantial share of the costs but would receive a disproportionately small share of the benefits. Developing countries, in contrast, would incur a relatively small share of the cos ts but would receive a disproportionately large share of the benefits. While GHG emissions arguably represent a global externality, the case for a national policy of GHG reductions will be contingent upon evaluating the U.S. share of costs and benefits in light of the degree of participation or lack thereof by other nations in a global climate policy.

30 Congressi onal Budget Office, ―Uncertainty in Analyzing Climate Change: Policy Implications‖ x (Jan. 2005).30

D. Any Climate Cha nge Analysis Must Account for Any Number of Uncertainties . The evaluation of both the economic damages of unabated GHG emissions accumulati ons and the costs of reducing these emissions is made tentative by the high level of uncertainty that is inherent in the process. This uncertainty occurs in a number of distinct but significant areas, including the following:
1. The actual extent to which ob served global temperature changes have been affe cted by rising concentrations of GHG s, as opposed to the extent to which temperatures have been affec ted by other causes, including but not limited to:
N ormal long

- and sho rt

- term climate change patterns.

 The Milankovitch Cycle (a 41,000

- year cycle in which changes in the E arth‘s tilt affect the severity of the seasons)

.

 El Nino

– Southern Oscillation (surface temperature anomalies that occur in the tropical Pacific ocean at intervals of from 2 to 7 years)

.

 North Atlantic/Arctic Oscillation and Atlantic Multidecadal Oscillation (surface temperature anomalies in the North Atlantic of varying periodicities)

.

 Pacific Decadal Oscillation (a pattern of varying temperatures and pressures in the Pacific Ocean with a periodicity of from 10 to 30 years)

. S olar activity and cycles

. V olcanic eruptions

. C hanges to the E arth‘s reflectivity (albedo) due to industrialization and other human

- induced modifications of the terrestrial environment

. D irect heating of the atmosp here by fossil

- fuel combustion

. O zone depletion in the upper atmosphere

. C hanges in the location and design of temperature

- measuring equipment.31

2. The rate of world population and economic growth

– particularly the rate of transition in developing countries f

rom economies predominately based in agriculture to ones with a greater mix of manufacturing and service industries. While higher transition rates may increase the level of energy intensity in these economies, on the other hand they will also contribute t o a greater potential for adaptation in the face of climate change, and less vulnerability to adverse climate impacts associated with droughts, flooding and reduced yields in particular crops.
3. The specific environmental impacts of rising GHG concentrations on future temperature changes, including the rate of temperature change, and an assessment of the relative damage caused by temperature change by region. The Stern Review 31 provide d a telling example of the magnitude of uncertainty involved in long

- term t emperature projections. In a table summarizing the projected impacts on temperature of different equilibrium GHG concentrations based upon 11 recent studies , estimates of the probability of a 2

- degree C entigrade increase in global temperature at a stabili zation level of 400 ppm CO 2 equivalent (CO 2 e) rang ed from 8 to 57 percent , and at 450 ppm CO 2 e ranged from 26 to
78 percent . A recent analysis 32 of the effectiveness of global climate models in making long

- term temperature and precipitation predictions at eight selected weather stations in six countries produced average correlation coefficients between predicted and actual observations of 0.237 for temperature and

- 0.046 for precipitation, leading the authors to conclude that ―model predictions are much poo rer than an elementary prediction based on

31 N. Stern, The Stern Review: The Economics of Climate Change 195 , Box 8.1 (Oct. 30, 2006). 32 D. Koutsoyiannis et al. , ―On the credibility of climate predi ctions,‖ Hydrological Sciences Journal 671

- 84 (2008).32

the time average,‖ hence making ―future climate projections at the examined locations
not credible

. ‖

A recent example of a regional assessment of potential climate change damage that had to be significantly revis ed involved estimates of the impact of increasing GHG concentrations and rising temperatures upon North Atlantic Ocean currents. The relatively moderate climate in Northern Europe has been attributed to a phenomenon known as thermohaline circulation, in w hich ocean currents deliver warm air northward from more tropical climates near the equator. Measurements of ocean currents in 2005 indicated that these were weakening in the North Atlantic, leading to suggestions that rising ocean temperatures would caus e the imminent shutdown or slowdown of thermohaline circulation in that region, in turn producing cooler temperatures in neighboring European nations. However, subsequent measurements have indicated that variations in ocean current are well within the ran ges of seasonal variability. 33

I n addition to uncertainty with regard to the timing and extent of temperature change and its consequent impacts, there will also be uncertainty associated with the degree of adverse environmental impacts by region. Such dif ferential regional impacts (and prior expectations associated with their probabilities of occurrence) will have an effect upon the timing and extent of participation in climate change policy by both developed and developing countries. For example, as note d in the aforementioned study by the Congressional Budget Office , ― [s]o me researchers predict that India would experience a

33 Q. Schiermeier, ―Ocean Circulation Noisy, not Stalling,‖ 448 Nature 844

- 45 (Aug. 23, 2007).33

loss equal to about 5 percent of its total output if the global temperature rose by 2.5° Celsius, whereas Russia would benefit by an amount equal to about 0.65 percent of its total output.‖ 34 It can read ily be inferred that such significant differences in national impacts could easily affect the willingness of some countries to enter into international climate change agreements. Hence , uncertainties about the future regional distribution of impacts will contribute to uncertainties about the timing and degree of participation by particular nations.
4. The extent to which adaptation could mitigate or eliminate damages arising from climate

c hange

. For example, one study estimated that a doubling of global CO 2 concentrations would result in total agricultural losses ranging from $0.2 billion to $ 84 billion, but that adaptation could reduce this projection to a maximum impact of $52 billion, r anging to a potential net benefit of $10 billion. 35
5. The timing and level of participation in GHG limitation or reduction activities by major emitting nations in both the developed and developing world

. Any economic evaluation must address uncertainties re garding the level of this international participation in order to produce realistic estimates of domestic benefits. In his 2007 analysis of the economic impacts of climate policy, Nordhaus estimated the cost of attaining a global emissions reduction targe t as a function of the participation rate, and based on this estimate concluded that a policy that included the U

. S

. and developed (Annex I) co untries only would incur abatement costs more than twice as high as one that included all nations. 36

34 Congressional Budget Office, supra n. 3 0

. 35 J. Reilly et al. , ―Climate Change and Agricultural Trade: Who Benefits, Who Loses,‖ 4 Global Environmental Change , No. 1 at 24

- 36 (March 1994). 36 W. Nordhaus, ―The Challenge of Global Warming: Economic Models and Environmental Policy,‖ Yale University (June 7, 2007).34

6. The rate of t echnological development that will result in the introduction of commercially available ACT integrated with CCS and other innovations contributing to no - or low

emission s energy production, as well as the capability to adapt to future climactic changes and mitigate any negative economic impacts through technology. Other key elements of uncertainty related to technological development are the following: The rate at which existing alternative energy resources become more economical due to design innovations and reductions in operating costs arising from ―learning by doing

. ‖ The rate of technology diffusion between countries. The rate of endogenous technological change, which will be affect ed by the costs of conventional fossil fuels and generation. The availa bility of financial capital to invest in the development and introduction of new generation and emissions reduction s technologies and the transmission infrastructure necessary to support an increase in renewable s . The extent and availability of future ―kno wledge capital‖ capable of contributing to ongoing innovation, as well as a skilled labor force available to participate in the development and operation of new technologies.
E. EPA Should Use the FUND Model Carefully. The EPA is using the Climate FUND (Fra mework for Uncertainty, Negotiation, and Distribution ) integrated assessment model to measure the benefits of reducing GHG emissions, as described in its TSD on ― Benefits of Reducing GHG Emissions. ‖

Th is TSD provides an assessment of the issues associate d with modeling and measuring the benefits of reducing GHG emissions. The TSD correctly points out that the theoretical optimum level of emissions reductions would occur at the point where the marginal benefit of avoided climate damage equals the marginal cost of reducing CO 2 emissions. The TSD appreciates the high level of uncertainty inherent in trying to estimate the marginal benefit of avoided climate damage. And the TSD addresses the issue of the discount rate as related to future costs and benefits , and the significant impact that the rate selected will have on the final estimates.35

The EPA is using the FUND model to develop its own estimates. 37 While conceding that its current FUND estimates are ―very preliminary,‖ EPA has also stated its intent to submit more refined results (after further model development and information collection) for peer review.

The TSD also cites two academic studies performed by Tol 38 as a check on its own measurements of the benefits of avoided climate change damage. In these studies, Tol performed ―meta

- analyses‖ of more than 200 estimates of the social cost of carbon ( i.e ., the metric associated with the benefit of avoided climate change) that had been performed by a number of analysts over the past 25 years. These st udies illustrate the incredible range of estimates, from less than $0 to more than $400/ton CO 2 . Tol computed the average estimated social cost of carbon of all studies as $35/ton CO 2 , and also exhibited the effect of the selected intergenerational discou nt rate on study results by computing averages by discount rate. These ranged from $86/ton CO 2 when no discount rate was used, to $6.50/ton CO 2 when a discount rate of 3 percent was selected.

Tol also found that peer

- reviewed studies tend to produce lowe r estimates of this cost than studies that have not been peer reviewed. (On average, peer

- reviewed estimates are less than half of those which come from studies not submitted to peer review.) Curiously, the TSD

37 FUND models 16 global regions and estimat es the impacts on agricultural production, water resources, sea - level rise, health, etc. due to changes in climate. Other users of the model have submitted results to peer

- reviewed academic journals.

38 R. Tol, ―The marginal damage costs of carbon dioxide emissions: an assessment of the uncertainties,‖ 33 Energy Policy 2064

- 74 (2005); and R. Tol, supra n . 28.3 6

claims that it has updated Tol‘s meta

- anal ysis by looking at only peer

- reviewed studies performed after 1995, yet its computed average of the social cost of carbon based on studies using a 3 percent discount rate is $40/ton CO 2 . This number seems high, given the averages that are actually reporte d in Tol‘s study, and the lower numbers that tend to occur in peer

- reviewed and more recent studies, as indicated above. 39 In any case, EPA‘s own initial results based on its FUND model research produced an estimate for the social cost of carbon of $17/ton CO 2 at a 3 percent discount rate, but the estimate was more than five times higher ($88/ton CO 2 ) if the discount rate was lowered to 2 percent. Hence, even within the same model run by the same researchers, the range of estimates of the social cost of ca rbon can be extremely wide, based on simple changes in assumptions or operating parameters.

On a related point, the TSD suggests that as EPA continues to enhance its model, the estimated social cost of carbon will rise as other environmental impacts are i ncluded, leaving the impression that any reported number will be a floor price or minimum, always subject to upward revision in future analyses. But the Tol study referred to above specifically observes that the

reverse has been the case. As models have become more sophisticated over time, and as new data ha ve been incorporated, estimates of the social cost of carbon have actually declined

. A striking example is the series of climate analyses performed by Nordhaus, who estimated the social cost of carbon at $40/ton CO 2 back in 1982, and now, with a much more sophisticated model and greater access to climate data, estimates it at $7.40/ton CO 2 . 40 Contrary to contentions by the IPCC, the Tol study concludes that ―there is a downward trend in the

39 The high average can only be explained in part by the fact that the TSD has attempted to convert all of the estimates to 2006 dollars. 40 R. To l, ―The Social Cost of Carbon: Trends, Outliers, and Catastrophes,‖ Economics e

journal , Vol. II (Aug. 2008) ; and W. Nordhaus, supra n. 36

.37

estimates o f the social cost of carbon. . . .‖ Therefore, any suggestions that costs will rise as models and data improve run contrary to actual historical evidence.

A general criticism that has been leveled against all models that estimate the avoided costs of cli mate change impacts is that they are not taking proper account of adaptation. 41 For example, these models would estimate the probability of flooding of major coastal cities if the West Antarctic Ice Sheet collapses, and the corresponding economic damage at tributable to the flooding. But a more appropriate estimate would factor in the cost of adaptation to this event, which might prevent some of the more catastrophic damage from occurring. The cost of adaptation could be significantly less than the cost of the damages in the absence of adaptation.

The TSD suggests that EPA does not intend to do a marginal cost/marginal benefit calculation to determine an optimal carbon price. Rather, the goal will be to continue development of the FUND model and share the results, with the caveat to its recipients that other, non

- quantifiable impacts are not included. As indicated above, this might leave the impression that the results produced are a ―floor price,‖ which is wrong for two reasons. The first is that model enhancements have tended to bring down the estimates rather than raise them. The second is that the marginal benefit of avoided emissions could be higher than the optimal CO 2 price, which is also determined by the marginal cost of abatement. For these re asons, the marginal benefit of avoided climate damage could actually represent a price ceiling , rather than a floor.

41 See, e.g. , I. Goklany, ―Managing Climate Change Risks in the Context of Other, More Urgent Risks to Humanity,‖ O ffice of Policy Analysis, U.S. Department of the Interior (Apr. 2007).38

While most of the actual modeling activities described in the TSD may be proceeding in a competent and reasonable fashion, the results of these activities lend themselves readily to misapplication. One such misapplication would be to take the total estimated benefits and simply compare them to the total estimated costs of mitigation. Such an approach would not determine the socially optim al level of climate change mitigation, and in fact could result in a significant over

- expenditure of society‘s resources. This is the risk presented by an injudicious
use of the FUND model.

V. If EPA Regulates Under the CAA, Emissions Reductions Should Be A ddressed Through M arket
- B ased Approaches . For the reasons discussed below and elsewhere in these comments , EEI does not believe
that the CAA is the correct vehicle to address climate change. A better approach would be comprehensive climate legislation

— consistent with EEI’s stated principles

— that gives EPA uniquely designed tools and the flexibility to address this complex and global problem. However, were EPA to decide nevertheless to move forward with its exi sting CAA t itle I authorities, we encourage it to utilize market

- based programs ( i.e ., cap - and

- trade) instead of traditional command

- and

- control approaches.

EPA‘s acid rain program is an excellent example of an efficient and highly effective market

based emissions trading program. The CAA Amend ments of 1990 created title IV, which gave EPA the authority to create the acid rain program, a stand

- alone cap

- and

- trade approach to reducing SO 2 emissions. The program has been heralded worldwide for its simplicity, practical design and outstanding succ ess in reducing the costs of compliance in cutting acid rain

- causing
SO 2 emissions. Key to the program‘s success is the fact that it exclusively relies on authorities39

granted under title IV and not other CAA provisions, making it is free from the complexi ties and constraints inherent in other part of the Act. Consequently, the program has achieved emissions reductions with few legal challenges in the course of its 20

- year history.

As discussed further below, under CAA section s 110 and 111, EPA ‘s authorit y to establish GHG
cap - and

- trade programs is not as clear or certain as that provided by title IV

. If EPA were to choose to move forward relying on novel interpretations of its statutory authority in an attempt to use the CAA to implement a cap

- and

- trade program, the outcome w ould be far from certain. This lack of legal certainty highlights the risks of using title I to esta blish a cap

- and

- trade
program . As discussed in section I I .B of these comments, challenges to EPA‘s approach could
result in extended regulatory delays and great uncertainty for the regulated community , who

wou l d not know what investments to make, or on what timeline, to achieve the desired emissions reductions for reducing GHGs. No one would be well served by such an outcome.

W e ex amine the legal arguments b oth for and against the use of t itle I to illustrate just how uncertain a strategy of relying on t itle I of the CAA would be. A. CAA Section 111 1. EPA’s authority to establish a GHG cap
- and
- trade program under section 111 is uncertai n . Section 111(b) authorizes EPA to create standards of performance for categories of new and modified stationary sources. In addition, once EPA sets performance standards for new and modified sources in a given source category, section 111(d) authorizes EPA, in certain circumstances, to promulgate standards of performance for existing sources, which states must40

adopt through plan s requiring approval by EPA. 42 EPA has defined ―standards of performance‖

to include a cap

- and

- trade program

. 43 EPA has used it s section 111 authorities to create a cap

and

- trade program for stationary sources, including in the Clean Air Mercury Rule (CAMR ) 44 and in the 1994 rule governing emissions guidelines and compliance times for large municipal waste combustors, 40 C.F.R. Par t 60, subpart Cb. 45

In the GHG context, EPA could use section 111 to design and implement a cap

- and

- trade program to cover new and existing stationary sources. 46 To do so, EPA would develo p a nationwide cap on emissions; state emissions budgets for covered sourc e categories; and guidelines for a trading program relating to applicability, GHG ―allowance‖ allocations, banking,

42 If a state fails to submit a satisfactory plan, EPA may prescribe a plan for the state. 42 U.S.C. 7411(d)(2)(A). 43 See 70 Fed. Reg. 28606, 28616. Under section 111(a), ―standard of performance‖ is defined as ―a standard for emissions of air pollutant which reflects the degree of emission limitation achievable through the application of the best system of emission reductions which (taking into account the cost of achieving such red uctions and any non

- air quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.‖ According to EPA, a requirement for a cap

- and

- trade program can meet this definition because it ―(i) c onstitutes a  ̳standard for emissions of air pollutants‘ ( i.e. , a rule for air emissions), (ii)  ̳which reflects the degree of emission limitation achievable‘ ( i.e. , which requires an amount of emissions reductions that can be achieved), (iii)  ̳through appli cation of (a) ... system of emission reduction‘ ( i.e. , in this case, a cap

- and

- trade program that caps allowances at a level lower than current emissions ) .‖ 44 CAMR, which has since been vacated ( see discussion, infra ), was designed to apply to all new and e xisting coal

- fired utility units located in all 50 states, as well as on Indian lands . 70 Fed. Reg. 28606, 28621. 45 70 Fed. Reg. 28606, 28617. 46 Because regulation under section 111(d) is prohibited for pollutants for which air quality criteria have bee n issued or which is listed under section 108 of the CAA, if a cap

- and

- trade program were to cover existing sources, EPA would have to show that it does not have a non

discretionary obligation to list GHGs as National Ambient Air Quality Standards ( NAAQS ) pollutant if it makes a positive endangerment finding under another provision of the Act. 42 U.S.C. § 7411(d)(1). Moreover, the CAA prohibits regulation under section 111(d) of pollutants which are emitted from a source category that is regulated under s ection 112 of the CAA. Id.41

monitoring, reporting, compliance and enforcement. 47 If states promulgated rules consistent with EPA‘s requirements and demonstrated t hat they will limit state

- wide emissions from affected new and existing sources to the amount of their state budget, sources in those states could then participate in a nationwide cap

- and

- trade program designed by EPA. 48

In practice , the various rules ( e.g . , CAIR and the NO x State Implementation Plan (SIP) c all) provide that the cap

- and

- trade program is to be administered by EPA and that states must adopt the model cap

- and

- trade rules designed by EPA, but have flexibility on the allowance allocation meth odology, which may include auctions and set asides for various purposes.

EPA‘s NO x rule mandated that 22 s tates and D.C. revise their SIPs to mitigate interstate transport of ozone by reducing NO x , an ozone precursor, based on the 1990 CAA A mend ments, whi ch require that SIPs contain ―adequate provisions prohibiting emissions sources in a state from emitting air pollutants that will contribute significantly to nonattainment in, interfere with mai ntenance by, any other state‖ regarding any NAAQS standard. I n Michigan v. EPA , 123 F.3d 663 (2000), t he U.S. Court of Appeals for the D.C. Circuit made multiple rulings on various components of the NO x SIP rule but left ―intact most‖ of its requirements

. 70 Fed. Reg . 25162, 25174. Regarding the NO x rule‘s require ment concerning the trading program, the court said, ―Of course we are able to assume the existence of EPA‘s allowance trading program only because no one has challenged its adoption.‖ 123 F.3d at 667.

47 EPA may also develop a model rule for a GHG trading program, as it did for the mercury trading program proposed in the CAMR, which can be adopted directly by states choosing to participate in the program. See 69 Fed. Reg. 12 398, 12403. 48 See, e.g ., 69 Fed. Reg. 12398, 12401.42

However, in the preamble to the NO x rule (section VI I, NO x Budget Trading Program), EPA said it was setting forth a ―model‖ trading program that ―employs a cap of total emissions in order to ensure that emissions reductions under the transport rulemaking are achieved and maintained, while providing the cost effectiveness of a market

- based system.‖ EPA proposed that states elect to ―participate‖ in the program by ―either‖ adopting the model rule by reference or develop ing state regulations in accordance with the model rule

. S ome commentators urged that rath er than adopt the program ―it should be sufficient for each state‖ to declare in the SIP that it ―will participate in the Federal program ,‖ which ―would leave the details in the Federal rule .‖ EPA responded that it ―does not have the statutory authority u nder title I to promulgate a Federal cap

and

- trade program to achieve a state‘s SIP call budget unless the state fails to respond adequately to the SIP call.‖ 63 Fed. Reg . 57356, 57458.

This combination

– of the still untested legal basis for implementin g a trading program under section 111 and EPA‘s admitted ability to implement cap

- and

- trade for existing sources only when a state fails to respond to a SIP call

– p laces any potential strategy to use section 111 in jeopardy of being found to be beyond EPA ‘s authority under the Act

. 2. The D.C. Circuit’s decision vacating CAMR
In New Jersey v. EPA , 517 F.3d 574 (D.C. Cir. 2008), the D.C. Circuit vacated CAMR, which created a cap

- and

- trade program to regulate mercury emissions from new and existing electric
ut ilit y steam generating units. The c ourt never reached the question of EPA‘s authority to establish a cap

- and

- trade program under section 111. Rather, it foun d unlawful EPA‘s decision
to de list sources for regulation under section 112, and thus vacated th e entire rule because, as43

EPA conceded, it hinged on EPA‘s de listing decision. 49 Therefore, contrary to some assertions , the D.C. Circuit‘s decision does not stand for the proposition that EPA lacks authority to regulate GHGs using a cap

- and

- trade program under section 111 ; it simply means that the issue remains untested in the courts, creating unce rtainty whether section 111 would withstand the inevitable legal challenge that will follow should EPA use this mechanism to regulate GHGs

. 3. If EPA pursues a a ca p - and
- trade program for GHGs under section 111 , it should be tailored appropriately . If EPA ultimately issues a proposal for the creation of a cap

- and

- trade program for stationary sources under section 111, there are several program elements that the agen cy should strongly consider.

Section 111 requires EPA to list and set emissions standards for sources that the Administrator, in his judgment, finds ―causes or contributes significantly to air pollution which may reasonably be anticipated to endanger publ ic health or welfare.‖ There is no prohibition on creating a source category for a new pollutant that overlaps somewhat or entirely with source categories that were previously listed based on their contribution to a different type of pollution. Thus, in defining a GHG source category, EPA could consider combining sources that are not already regulated with some sources that are already regulated under section 111. 50 The main benefit of creating one or more new source categories for GHG purposes is that t h e greater the number and variety of sources that may trade with one another, the more cost

- effective overall emissions reductions will be.

49 New Jersey v. EPA , 517 F.3d at 583. EPA filed a petition for a writ of certiorari to the Supreme Court on October 17, 2008 , arguing that the D.C. Circuit misinterpreted the CAA and that its decision should be vacated. 50 If EPA develops a standard of performance for GHG sources that are already listed under section 111(b), it could do so without making an endangerment finding under that section.44

See subsection C, infra , for a discussion of design elements for an effective and efficient cap

and

- trade program.
B. C AA Section 110 1. EPA may have some authority to establish a state - based GHG cap
- and
- trade program under section 110. States have primary responsibility for implementing NAAQS through their SIPs . Under CAA section 110(a)(2)(D), states must include in thei r SIPs provisions ―prohibiting... any source or other type of emissions activity within the state from emitting any air pollutant in amounts which will ... contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respe ct to any [NAAQS].‖ 51

If EPA concludes that an ―implementation plan for any area is substantially inadequate to attain or maintain the relevant [NAAQS], to mitigate adequately the interstate pollutant transport described in section [176A] or [184], or to otherwise comply with any requirement of this chapter,‖ section 110(k)(5) of the CAA requires EPA to order a state to revise and correct its SIP ―as necessary.‖ 52 This process is sometimes referred to as a ―SIP call.‖

Under sections 110(a)(2)(D) and 110(k )(5), EPA could establish a nationwide cap

- and

- trade program for GHG regulation of stationary sources. 53 In fact, EPA has used these provisions in the past to establish cap

- and

- trade programs for several pollutants, most recently in the NO x SIP

51 42 U.S.C. § 4710(a)(2)(D)(i)(I). 52 42 U.S.C. § 7410(k)(5)

. 53 This approach assumes that EPA would first list GHGs as criteria pollutants under section 108 and that it would subsequently pr omulgate either primary or secondary NAAQS for the pollutants under section 109.45

call r ule ( creating a cap

- and

- trade program for NO x emissions affecting 21 states and D.C. ) and
CAIR (creating a cap

- and

- trade program f or NO x and SO 2 emissions affecting 28 states and
D.C. ). To establish a similar program for GHG regulation, EPA would have to deter mine that all states are contributing to the non

- attainment or are interfering with maintenance of GHG NAAQ S in all other states, and thus require the states to revise their SIPs to include control measures to reduce GHG emissions. EPA could cr eate an emi ssions cap for each s tate, and also create an optional interstate trading program for sources within each state. States could choose to participate in the cap

- and

- trade progr am, as they did in the NO x SIP call r ule, or a federal cap

and

- trade program woul d apply automatically in the absence of approved SIPs

. 2. The D.C. Circuit’s decision vacating CAIR
In North Carolina v. EPA , the D.C. Circuit vacated CAIR, rejecting EPA‘s use of section 110 to create a cap

- and

- trade program to regulate SO 2 and NOx

. It did so on the grounds that EPA crafted the rule as a ―complete remedy‖ to interstate air problems under section 110(a)(2)(D), without independently considering the ―significant contribution‖ from sources within each regulated, upwind state to downwind non

- atta inment areas, as required by the statute. 54 The court faulted EPA for taking a region

- wide approach that assured only that the entire region‘s

s ignificant contribution would be eliminated, instead of achieving ―something measurable toward the goal of prohi biting sources  ̳within the state‘ from contributing to nonattainment or interfering with maintenance  ̳in any other State.‘‖ 55

54 531 F.3d at 907. 55 Id

. EPA filed a petition for rehearing or rehearing en banc with the D.C. Circuit on September 24, 2008. In that petition, EPA correctly points out ho w the court misinterpreted CAA section 110(a)(2)(D), why the A gency has authority under that provision to develop a cap

- and

- trade program, and how its decision to vacate CAIR is inconsistent with the NO x SIP call decision. EEI agrees with the arguments th at EPA advances in that petition46

This decision, in and of itself , does not foreclose EPA‘s ability to develop a cap

- and

- trade program for GHGs. The D.C. Circuit‘s CAIR decision found significant flaws with that
program ‘ s structure, not with EPA ‘s underlying authority to use a cap - and

- trade under section 110. The decision leaves intact EPA‘s authority to create a cap

- and

- trade program in at least two instances. Fi rst, it may use a cap

- and

- trade program as a partial solution to the problem of interference with non

- attainment, so long as the program achieves ―something measurable‖ toward the goal of prohibiting sources ―within the State‖ from contributing to non

- atta inment or interfering with maintenance in ―any other State.‖ 56 Second, it may use a cap

- and

- trade program as a final solution to the problem of interference with non

- attainment, so long as it can show

– through actual measurement of each state‘s ―significa nt contribution‖ to downwind non

attainment

– that the program eliminates emissions from sources that contribute significantly and interfere with maintenance in downwind non

- attainment areas. 57 However, th ese arguments are all based on ones surrounding con tribution, and will be difficult to apply to a regulatory scheme where it is GHG loadings at a global scale that matter, not individual state contributions. 3. EPA should tailor a ny cap - and
- trade program for GHGs under section 110 appropriately. If EPA ulti m ately chooses to list GHGs as criteria pollutant s under section 110 , a decision that would yield serious , unwelcome implications (discussed in section VI.A.1, infra ) , it should nonetheless consider utilizing its cap

- and

- trade authority under that section t o institute cost

effective emissions controls for stationary sources.

56 Id

. 57 Id . (citation omitted).47

To satisfy the statute, as interpreted by the D.C. Circuit in North Carolina v. EPA , a section 110
cap - and

- trade program must consider and address how each state is contributing to non

attainment, or interfering with maintenance, of a GHG NAAQS, and it must ensure that the program is limiting emissions that contribute significantly within each state. Thus, EPA may have to consider implementing an emissions ceiling for each state that wo uld operate in addition to a cap

- and

- trade program. This emissions ceiling would have to be set at an EPA

- determined ―significance‖ level, in order to ensure that states do not contribute to non

- attainment or interfere with maintenanc e of a NAAQS . Depend ing on how EPA defines ―significance,‖ the level could be set equally for all states or could be more appropriately tailored to each state‘s GHG emissions and other factors, such as costs of reducing emissions. However, any factor other than the cost of r educing emissions is inconsistent with the rationale for a cap - and

- trade program.

A section 110 cap

- and

- trade program for GHGs also should consider the elements described in the next subsection . For example, banking may be extremely beneficial to any pro posed GHG
cap - and

- trade program. C. Design Considerations for a Cap and Trade Program 1. General program d esign In the ANPR, EPA requests comment on the use of cap

- and

- trade programs for GHGs under section 111 and other CAA authorities, including design element s such as opportunities for sources to opt into such programs, inter

- sector trading and offsets, allowance auctions, cost containment mechanisms, and conditions or safeguards to ensure that emissions reductions goals are met and that local air quality is p rotected. Particular issues to consider include whether it be allowable under section 111 to develop a cap

- and

trade program that covered multiple source categories or would each source category have to be covered under a source

- category specific cap

- and

- trade program. Another issue is whether it would be legally permissible to allow offsets48

( i.e. , obtaining emissions reductions from sources outside of the capped sector) to meet th e requirements of section 111.
73 Fed. Reg . 44515, col. 2.

Since EPA‘s A NPR has not identified the specifics of a market

- based program, includin g an emissions trading program , it would be premature at this time for EEI to present or discuss elements of a specific , hypothetical emissions trading program. However, in an effort to be responsive to EPA‘s request, EEI notes that it has developed a set of Climate Change Principles (Appendix A ) that will guide EEI‘s evaluation of any proposed regulatory program that EPA may develop as part of a future rulemaking . Below EEI highlight s those Climate Change
P rinciples that are relevant to the design of any market

- based program.

Based on EEI‘s Climate Change Principles , a market

- based program must:
Involve all sectors of the economy, and all sources of GHG s, with no exemptions for any industry or specific fuel. Align compliance timelines with the expected development and deployment of needed technologie s. Employ market mechanisms to secure cost

- effective GHG reductions, and provide a reasonable transition and an effective economic safe guard

. Include a system of mitigating impacts on customers b y flowing through the benefits of allowances to customers via an allocation to local distribution companies and direct allocation of the majority of allowances in the early years of a program with a transition to auctioning. Establish a long

- term price signal for carbon that is moderate, does not harm the economic competitiveness of U.S. industry and stimulates future investments in zero

- or low

- ca rbon technologies and processes. Minimize economic disruptio ns or disproportionate impacts. Recognize early actions and investments made to mi tigate GHG emissions. Provides for the robust use of a broad range of domestic and international GHG offsets

. Provides certainty and a consistent national policy.49

Any cap - and

- trad e program must include a safety valve and banking, since such cost

containment mechanisms would reduce possible price volatility and increase compliance flexibility for affected sources. A safety valve would set a maximum cost that purch asers would pay for GHG emissions allowances by allowing sources to purchase allowances at the ceiling price. Banking refers to the retention of unused allowances from one control period for use in later control period s , and it allows sources to make earl y reductions beyond those necessary to comply with state budgets and bank allowances for use at a future date. 58 Banking of mercury allowan ces was finalized as part of CAMR , 59 and banking makes particular sense in the GHG context given that GHGs are well

- mi xed and have long atmospheric life span s . As a result, it makes little difference whether reductions occur in year ―x‖ or in year ―x + 1,‖ so long as they are made.
2. An economy - wide t rading program would be more effective than a sector
- or multi
- sector - bas ed program. Further, EPA discusses the potential value and us e of economy

- wide, multi

- sector or single sector trading programs

. 73 F ed. Reg . 44411

- 12. EPA also suggests that it may be faster to move forward initially only with sectors with experience in emissions trading ( e.g ., start with an electric sector

- only program). As previously s tated, cost

- effective reductions can only be achieved through an economy

- wide, multi

- sector , market

- based program

. C onsistent with our Climate Change Principles , EEI opp ose s starting with just the utility sector alone. To achieve the needed emissions reductions requires an economy

- wide, market

- based approach that is consistent with the expected development and deployment timelines of needed tec hnologies

.

58 See 69 Fed. Reg. 12398, 12411. 59 See 70 Fed. Reg. 28606, 28630.50

3. Considerations for the design of an o ffsets program The ANPR notes that to broaden the scope to other sectors, covered sources could be allowed to purchase offsets from non

- covered sources. EPA then opines that accountability, emissions reduction s certainty and permane nce ( e.g ., maintenance of the project over time) are all potential obstacles to the use of offsets. 73 Fed. Reg . 44412, col.1.

First, the inclusion of offsets from non

- covered sources must be a critical design element of any
EPA emissions trading program . Full and robust use of national and international offsets from a variety of sources is a key cost

- reduction methodology.

Second, EPA‘s apparent apprehension about the use of offsets and offsets trading is not supported in the ANPR. Unless EPA c an prov ide evidence to substantiate its misgivings, its concerns over the certainty of emissions reductions from offsets are erroneous and may be overstated. Offsets programs in the U.S. and internationally have greatly matured and offer the potential for certai n and cost

- effec tive GHG reductions, avoidances and sequestrations. It is wrong for EPA to conclude arbitrarily and capriciously that potential deficiencies that may exist
in offsets programs in today‘s voluntary carbon markets will carry over into a regu latory framework. EPA itself has guidance on offsets as contained in 40 C

. F

. R

. 51, Appendix S and therefore oversees a mandatory offsets program for criteria pollutants under PSD/ New Source Review ( NSR ) that provides for offsets that are real, measurable and enforceable. This existing PSD/NSR offsets program provides for a potential model for GHG offsets. However , EPA guidance in 40 C

. F

. R

. 51, Appendix S contains quite explicit restrictions on the creation and use of NSR emissions offsets as originally d esigned for criteria pollutants . S ince the PSD/NSR51

program was not designed for GHG offsets, many of the unique design features needed in a NSR/PSD offsets program are unnecessary and would prove to be significant obstacles when implementing a GHG offsets program.

For example, like NSR offsets, GHG offsets must be real, but they do not need traditional permits to be enforceable and do not need to be measu red on an annual basis

.

Current offsets programs are state managed , and different rules apply in di fferent jurisdictions , making NSR emissions offsets a non - fungible commodity. Lack of fungibility reduces efficiency and increases costs. This is an undesirable outcome.

Current NSR rules require that offsets come from with in the same non

- attainment zo ne. Under current practice, states then sign individual memoranda of u nderstanding (MOUs) that address the legal recognition by one state of offsets created in another state in order to use offsets within contiguous non

- attainment zones that cross state b orders. How this would work with GHG offsets is uncertain. Even if the contiguous U.S. were to be considered a single non

- attainment

zone, we question whether current regulation would require each state to hav e an MOU with every other state and whether s tates would be able to trade GHG emissio ns offsets across state borders.

Further, the requirement that offsets come from ―within a nonattainment zone‖ would produce the undesirable outcome of precluding the use of international offsets (notwithstanding th e issues surrounding the lack of federal enforceability of offsets created outside the U.S.).52

Current NSR emissions offsets regulations allow only for intra

- pollutant offsets. B as ed on existing offsets guidance , it is unclear if methane emissions reducti ons offsets, for example, could be used to meet an NSR offsets requirement for CO 2 . This potential lack of flexibility could decrease the available pool of projects eligible to be used to create offsets, greatly increasing the difficulty and cost of compl y ing with NSR offsets provisions.

Overall, EPA must look closely at the restrictions on emissions offsets currently imposed by 40
C

. F

. R

. 51, Appendix S. While the restrictions may be suitable and necessary for traditional criteria pollutants where acute exposure issues are an important factor, for GHG emissions, where it is of no value to set local health

- based emissions levels, these restrictions would be a detriment to the creation and use of GHG offsets.
D. EPA’s CAA Authority Related to Auctions, Fees an d Revenue Collection The ANPR states that the ―CAA does not include a broad grant of authority for EPA to impose taxes, fees, or other monetary charges specifically for GHGs and, therefore, additional legislative authority may be required if EPA were to a dminister such charges,‖ which EPA then refers to in the ANPR ―collectively as fees

. ‖ 60 73 Fed. Reg . 44411 , col. 1. The ANPR adds that ―EPA may promulgate regulations that impose fees only if the specific statutory provisions at issue authorize such fees, whether directly or through a grant of regulatory authority that is written b roadly enough to encompass them.‖ Id . As an example, the ANPR refers to section 110(a)(2)(A) of the CAA , which provides that each SIP must ―include... control measures,

60 The words ―broad grant of authority‖ are somewhat misleading as they suggest that there may be some more limited grant of authority for EPA under the CAA. That certainly is not the case regarding taxes, which may only be imposed b y a statute enacted by Congress. EPA does not have any statutory authority to impose taxes for GHGs or other purposes.53

means, or t echniques (including economic incentives such as fees, marketable permits, an d auctions of emissions rights)..., as may be necessary or appropriate to meet the applicable requirements‖ of the CAA, 61 and states that ―[u]nder this provision, some states intend to auction allowances ,‖ citing CAIR , while others might use the NO x SIP call rule. See id

. However, those are requirements for the states and are not an authority for EPA to apply independently. 62

As to fees, the ANPR said that ―[a] fee program differs from a cap

- and

- trade program because it does not establish an overall emissions limit‖ and thus EPA has ―not taken a position on whether, given this limitation, a fee program fits the definition of a  ̳standard of performance.‘ ‖ 73 Fed. Reg . 44411. However , the ANPR states that under section 111 ―costs may be considered when establishing NSPS regulations, and a fee may balance the consideration of assuring emissions are reduced but not at an unacceptably high cost. In addition , there may be advantages of i ncluding an emissions fee feature into a cap

- and

- trade program‖ as a price ceiling. Id

. It adds that the ―use‖ of such a ceiling ―that is not to be triggered except in the case of unexpectedly high (or low) control costs may be viewed differently under t he auspices of the CAA than a stand

- alone emissions fee .‖ Id

. The ANPR then requests ―comments on what CAA provisions, if any, would authorize emissions fees to control GHG emissions, and whether there are other approaches that could be taken under the C AA that would approximate a fee.‖ It also requests comments on ―the use of emission fee programs under other sections of the Act .‖ Id

.

61 Section 110(a)(2)(E) of the CAA requires that the SIP provide ―necessary assurances‖ that a s tate ―will have a dequate .

. . authority under‖ s tate law to ―carry out‖ the SIP ―or portion thereof .‖ The ANPR notes that ―states have authority to impose emission fees as incentive s as part of their SIPs and collect the revenues

. ‖ 73 Fed. Reg. at 44411. 62 C iting section 110(a)(2)(A) of the CAA, the ANPR also asserts that if and when EPA promulgates a F ederal Implementation Plan (FIP), EPA has the authority, like a state, to ―impose emission fees as economic incentives ,‖ but the ANPR adds that EPA ―has never‖ imposed such FIP

- related fees. Id.

.54

Provisions of section 110(a)(2)(A) also allow the use of other ―economic incentives‖ that include ―fees‖ and ―marketab le permits .‖ Thus, it would appear that if such auctio ning were allowed in the context of section 111, which was applied in the CAIR and NO x SIP c all rules, emissions fees should also be interpreted to be allowed as well. In addition , in the case of auct ions, if a state has the authority to auction allowances in accordance with an EPA rule providing for an
EPA

- administered cap

- and

- trade program, presumably the state could also provide a safety valve or price ceiling in connection with the auction, unless EPA, as part of a rule, precluded it.

In the case of both auctions and fees, a significant issue is what authority EPA or the state has to collect the revenues and use them for various purposes such as energy conservation, development of technologies, m itigation of costs to low

- or medium

- income ratepayers, or other purposes. In the case of the states, the various EPA rules ( e.g . , CAIR, NO x SIP c all) indicate that EPA defers to the states as to authority to collect and use revenues. As to EPA, footnote 62 of the ANPR explains that, even in the case of Federal FIPs, any revenues deri ved from the imposition of fees must be ―deposited in the Federal Treasury under the Miscellaneous Receipts Act, and not [be] retained and disbursed by EPA ,‖ which may explai n why EPA has ―never‖ imposed FIP fees. 63

63 31 U.S.C. § 3302, which is known as the ―Miscellaneous Receipts Act,‖ provides: (a) Except as provided by another law, an official or ag ency of the United States Government having custody or possession of public money shall keep the money safe without

– (1) lending the money; (2) using the money; (3) depositing the money in a bank; and (4) exchanging the money for other amounts.55

Only Congress can amend this requirement , as articulated in the 1990 CAA amendments , in which Congress included section 416 in title IV , directing EPA to promulgate regulations establishing a ―Special Allowance Res erve containing allowances to be sold under this section‖
and directed EPA to ―withhold‖ 2.8 percent of the allocation of allowances annually beginning in 1995. Under s ection 416(c), EPA was directed to establish a ―Direct Sale Subaccount‖ in the

reserve in order to offer allowances therein to ―any person‖ at a statutory set price of $1,500 per allowance, adjusted by the Consumer Price Index ,‖ with a priority for purchase to any independent power producer. Section 416(d) directed EPA to establish an ―Auct ion Subaccount‖ in the reserve for allowances to be sold at annual auctions. The auctions are to be ―open to any
person ,‖ and EPA was directed to e nsure that the regulations ―specify‖ that the ―allowances shall
be allocated and sold on the basis of the bi d price, starting with the highest

- bid priced bid and continuing until all allowances for sale at such auction have been allocated‖ and that no ―minimum price‖ may be ―set‖ for their purchase.

For both sales, Congress carved out limited exceptions to the Miscellaneous Receipts Act regarding the ―proceeds‖ from the sales. In the case of direct sales, EPA is required to transfer the proceeds of ―a ny sale‖ within 90 days thereof ‖ without charge, on a pro rata basis to the owners or operators of the affected units from whom the allowances were withheld‖ and that any
unsold allowances be ―transferred‖ to the Subaccount for Au ction sales. In the case of auction

(b) Excep t as provided in section 3718(b) of this title, an official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury as soon as practicable without deduction for any charge or claim.56

sales, EPA also must transfer the proceeds within 90 d ays ―on a pro rata basis‖ to such owners or
ope rators. In the case of unsold allowances offered for sale but not sold, they are to be ―returned with out charge, on a pro rata basis ‖ to such owners or operators. For both, section s 416(c)(6) and (d)(3) of the CAA state : No proceeds of any sale under thi s subsection shall be held by any officer or employee of the United States or treated for any purpose as revenue to the United States or to the Administration.

T he Miscellaneous Receipts Act is a formidable obstacle that only legislation can change

.

In ad dition, while EPA cap

- and

- trade, or emissions fee, ―model rule‖ programs established by rule, as in the NO x SIP c all, may be workable from a NO x budget standpoint, they are not satisfactory from a national climate change standpoint. Since auctions, the se tting of fees and the use of proceeds are all dependent on state

- by

- state authorities and priorities that will differ significantly, there will be no national uniformity, an undesirable outcome that could lead to increased costs, disparities between region s that result in emissions leakage, and other bad
consequences .

VI. Review O f Proposed Regulatory Pathways For Stationary Sources A nd Associated Technical Support Document A. Comments on CAA Programs

– NAAQS, NSPS, HAPs, PSD/NSR and Title V

– and Regulation of GHG s. As the ANPR correctly acknowledges, the Supreme Court‘s Massachusetts v. EPA decision has potentially broad implications well beyond mobile sources. The Court‘s holding that GHGs are ―air pollutants‖ means that EPA potentially has authority to regu late one or more GHGs under all significant CAA t itle I programs, including the national ambient air quality standards (NAAQS),57

the new source performance standards (NSPS) program, hazardous air pollutants (HAPs),
p revention of s ignificant d eterioration (P SD) and n ew s ource r eview (NSR), as well as under title VI ( stratospheric ozone) and title II ( mobile sources and fuels ) . This section discusses the above
CAA t itle I programs except for EPA‘s authority to utilize cap - and

- trade programs , which is addresse d in s ection V.

T he April 10, 2008 , hearing of the House Energy and Air Quality Subcommittee (Energy and Commerce Committee) on regulating GHGs under the CAA, described many complications and problems:
Chairman Dingell said that if Congress fails to move, lawsuits will force EPA to regulate GHGs under the CAA; regulating GHGs under the CAA could cause a ―glorious mess‖ and shutdown or slowdown of industry and the economy; and it would be ― insane ‖ to leave this judgment to the long and complex regulatory a n d litigation process, which could amount to 100 rulemakings and thus no certainty. Former EPA General Counsel Ludwiszewski stated that if EPA stretches the existing CAA regime to meet the needs of GHG regulation, it will enter uncharted legal territory, inviting legal challenge, delaying protection of the environment and creating uncertainty in business planning. Attorney Glaser cautioned that with regulation of GHG s under the CAA ―the country will experience years, if not decades, of regulatory agony, as EPA will be required to undertake numerous, controversial, time

- consuming, expensive, and difficult regulatory proceedings, all of which will be litigated.‖
EEI agrees with these assessments because the Act does not provide the tools needed to efficien tly and effectively address this global issue , and therefore cautions EPA against regulating GHGs under its existing CAA authorities.

In th e remainder of th is sub section, EEI discusses more specifically the difficulties and implications associated with e ach of the title I authorities that EPA could potentially utilize to regulate GHGs . Where applicable, EEI comments on topics related directly to regulation of58

GHGs from electric uti lities. Also discussed below are comments related to EPA‘s Stationary
Sou rce T SD

. 1. N AAQS

a. Background The program with the broadest potential implications for GHG sources is the NAAQS program under sections 108 and 109, which has been called the ―centerpiece‖ of the CA A

. Sierra Club v. Costle , 657 F.2d 298, 315 n. 23 (D.C. Cir. 1 981). The CAA requires the Administrator to publish, and ―from time to time thereafter revise,‖ a list of air pollutants: 1) emissions of which, in his judgment, cause or contribute to air pollution which may reasonably be anticipated to endanger public h ealth or welfare; 2) that are emitted from numerous or diverse mobile or stationary sources; and 3) for which air quality ―criteria‖ have not been issued. 64 CAA § 108(a). Once a pollutant is listed under section 108, EPA is obligated to develop a criter ia document (an assessment of the latest scientific knowledge) and primary and secondary air quality standards. Id .; CAA § § 109(a), (b). ―Primary standards‖ must be set at a level ―requisite‖ to protect public health with an ―adequate‖ margin of safety. CAA § 109(b)(1). ―Secondary standards‖ must be set at a level requisite to protect ―public welfare,‖ defined to include such things crops, weather, climate and property. CAA § § 109(b)(2), 302(h).

Once NAAQS are established, EPA must designate counties as being in attainment or non

attainment with the standards. CAA § 107. Counties deemed to be in attainment must develop SIPs demonstrating how they will maintain compliance, whereas non

- attainment areas must develop SIPs demonstrating how they will come into attainment with the standards ―as soon as

64 There ar e six listed criteria pollutants: ozone, nitrogen dioxide, particulate matter, SO 2 , carbon monoxide and lead.59

practicable‖ but no later than five years after designation. 65 CAA § 110. States and counties that fail to submit SIPs or to attain NAAQS in a timely fashion face potential sanctions and a federal takeover of their CAA programs.

Non

- attainment areas must also comply with several other requirements that are statutorily triggered whenever an area is so designated. In particular, such areas must implement non attainment NSR, reasonably available control measu res and technologies to reduce emissions, and meet periodic reduction milestones. NSR would apply to ―major‖ sources ( i.e. , those that have the potential to emit more than 100 tons per year of GHGs) and would require new and modified sources to: 1) obtain a preconstruction permit; 2) meet the ―lowest achievable emission rate‖ (LAER); and 3) obtain offsets at least equal to the amount of GHGs emitted from the new
or modified source.

EEI is concerned that EPA may be forced by the CAA to set primary or se condary NAAQS for GHGs were it to respond to Massachusetts v. EPA by determining that automobile GHGs are endangering public health or welfare. However, as discussed further below, the NAAQS program is ill equipped to deal with a global phenomenon like cl imate change. Establishing GHG NAAQS would trigger impossible obligations for states and enormous burdens on society.

b. Deficiencies w ith regulating GHG as a criteria pollutant and establishing NAAQS There are a number of reasons why the NAAQS program is ill

- suited to regulate domestic GHG emissions for climate change purposes.

65 The statute provides that states must come into attainment within five years, but it authorizes EPA to grant one five

- year extension. In a d dition, states can seek two additional one

- year extensions. Thus, under the CAA, states can obtain up to 12 years to attain the (non

- ozone) NAAQS.60

First , w hen considering setting a primary (health

- based) NAAQS for CO 2 or other GHG s , EEI agrees with EPA‘s observation that ―current and projected levels of ambient concentrati ons of the six GHGs are not expected to cause any direct adverse health effects, such as respiratory or toxic effects...‖ 73 Fed. Reg. 44427

. EPA also states, ―Current ambient concentrations of CO 2 and other GHG remain well below published thresholds for a ny direct adverse health effects, such as respiratory or toxic effects.‖ Id

. at 44425.

EPA has no guidance on how to define a GHG primary or secondary standard with an ―adequate‖ margin of safety that is ―requisite‖ to protect public health or welfare

. N o federal agency, state, foreign jurisdiction or international body has proposed such a standard. N o literature specifies a precise concentration that is necessary to protect the public health or welfare of the U

. S. , and EPA lacks specific information t o establish a level at which health or welfare effects from GHGs may occur now or in the future.

Second, the NAAQS regulatory option faces two challengi ng but necessary considerations: Number 1 , EPA should consider the beneficial effects of CO 2 and G HG s, such as reductions in cold weather

- related mortality, increased agricultural (food) productivity and forest growth. In fact, GHGs and CO 2 in particular are necessary to sustain life on this planet as we know it

. Number 2 , EPA should consider that NAA QS are only relevant to substances in the ―ambient air‖ to which the general public has access (as opposed to the upper atmosphere where most of the chemical reactions that lead to climate change occur). EPA needs to consider how to
differentiate the eff

ects of GHGs in the ambient air from those in the upper atmosphere.61

Third, the NAAQS approach makes little sense for GHGs because, under the program, states are generally charged with maintaining and attaining NAAQS. However, individual states and

cou nties have little or no control over the level of GHGs in the atmosphere, and thus no control over their ability to comply with a NAAQS, due to the nature of GHG diffusion and residence time in the atmosphere. 66 Nevertheless, assuming that a NAAQS would be set at a level that renders the entire country in non - attainment, each state would have to develop, within three years of being designated, a SIP that demonstrated compliance and addresses all of the NAAQS non

attainment requirements. The global nature of the problem renders it impossible for states to make such a showing. D omestic reductions in GHGs can easily be overtaken by emission increases elsewhere in the world. Requiring states to go through this exercise would waste resources that could be bett er spent elsewhere. Further, even if states do complete the SIP process, it would likely lead to a national patchwork of regulations that would be ineffective, inefficient, and difficult for companies , as well as regional metropolitan areas, cities and ot her jurisdictions to navigate efficiently

.

Fourth , the NAAQS attainment deadlines would be unworkable for GHGs. While the CAA allows potentially up to 12 years for areas to come into attainment or face statutory sanctions, such a deadline is unrealistic to reduce GHGs significantly, particularly because several of the major GHGs have atmospheric lifet imes that span many decades. In other words, actions taken

66 If the NAAQS for a GHG like CO 2 were set sufficiently high, such as at a concentration of 400 ppm, perhap s the entire country would be classified in attainment. However, this would not create mechanisms to reduce GHG emissions. Nor would it be long before international emissions would make it impossible for states to achieve this standard. Moreover, this w ould put states in the difficult, if not impossible position, of having to show in their SIPs how they could maintain compliance with such a standard.62

to comply with a NAAQS would not lead to reductions in the amount of GHG in the atmosphere for ma ny years.

Fifth , the NAAQS process does not allow for costs and feasibility to be considered when setting the standards. This, no doubt, could lead to absurd results.

Sixth , there remains some uncertainty regarding whether EPA has authority under sec tion 110 to establish a cap

- and

- trade program, which is the kind of program that is being discussed in Congress and in the states as the best regulatory tool for GHG control. Issues related to cap

- and

trade are discussed in s ection V of these comments.

T he ultimate consequences of EPA setting GHG NAAQS would be sanctions for inevitable noncompliance and , more importantly, a significant loss of industry and jobs to other nations. This leakage of industry and jobs likely would lead to even higher net globa l GHG emissions.

c. Other c onsiderations EPA solicits comments on the possibility of setting only a secondary GHG NAAQS. Although EEI does not support the establishment of a GHG NAAQS, were EPA to pursue that course, we agree that the Agency should only esta blish a secondary ( i.e ., welfare) standard. First, as EPA itself acknowledges, ―the direct effects of GHG emissions appear to be principally or exclusively welfare

- related.‖ Id

. at 44478

. Historically, EPA has established NAAQS for pollutants that lead to direct health impacts. Second, a secondary NAAQS would at least provide for relief to states on the issue of attainment deadlines. Instead of a fixed deadline, states would have to attain the secondary standard as expeditiously as possible. It is no table that there is no precedent for EPA to set only a secondary standard.63

EPA also asks whether it should list all six GHGs as a group rather than individually if the Agency decides to pursue the NAAQS program. There are numerous technical challenges w ith the grouping approach, but EEI believes it would be far preferable to regulating only CO 2 because to do so would ignore other potent GHG s . Further, regulating only CO 2 would eliminate promising compliance strategies. Regulating each GHG individual ly would also ignore the fact that it is the collective concentrations of all GHGs in the atmosphere that is the ―problem,‖ not the concentration of any one compound , and might well complicate the ability to use a cap and trade program to achieve the most cos t

- effective emissions reductions

. 2. N SPS

a. Background Under CAA section 111, the Administrator is required to adopt NSPS for categories of emission sources that ―cause, or contribute significantly to, air pollution which may reasonably be anticipated to endan ger public health or welfare.‖ CAA § 111(b)(1)(A). EPA is also required to review, and if appropriate, revise, the NSPS every eight years to ensure that the standards continue to protect public health and the environment. CAA § 111(b). NSPS apply equal ly in attainment and non - attainment areas. Currently, there are 84 NSPS, including several that apply to fossil fuel

- powered steam generating units and electric utility steam generating units. See,
e.g ., NSPS subparts D and Da.

Emission standards unde r the NSPS program must reflect ―the degree of emission limitation achievable through the application of the best system of emission reduction‖ that has been ―adequately demonstrated,‖ while considering the ―costs of achieving such reductions and any64

non - a ir quality health and environmental impact and energy requirements.‖ CAA § 111(a)(2).
This standard is sometimes referred to as the b est d emonstrated t echnology, or BDT.

Generally, NSPS adopted under section 111(a) apply only prospectively to ―new‖ or ―modified‖
units. 67 Existing sources are grandfathered from the standards unless and until they are modified or ―reconstructed.‖ CAA section 111(d) provides an exception to the general rule, however. Under this provision, EPA may issue a SIP call to st ates to establish standards of performance for any existing source that emits an air pollutant that 1) is not a criteria pollutant and 2) is not a HAP emitted by a source category regulated under CAA section 112. If states fail to submit a SIP, EPA may es tablish a FIP for existing units.

b. Deficiencies with the NSPS a pproach The NSPS program carries a number of deficiencies that call into question the appropriateness of using it to address GHGs

.

First , existing NSPS do not apply economy

- wide, meaning that EPA‘s response would be only partial and would not likely achieve the least

- cost GHG reductions. 68 This is in stark contrast to the major GHG legislative proposals that are pending before Congress.

Second , s ection 111 regulations for GHGs may lead to ver y costly controls that are simply unrealistic for certain sources, even though they would provide little or no benefit in terms of overall GHG reductions. Although the statute expressly authorizes EPA to consider costs in

67 A ―new‖ source is any source that commences construction after the date EPA proposes an NSPS or revis ed NSPS. A ―modified‖ source is one whose hourly emission rate increases as a result of a physical or operation change. 68 NSPS apply only to 84 regulated source categories.65

choosing the standard, EPA has st ated that the systems on which a standard is based need not be actually in use or achieved in practice at potentially regulated sources or even at a commercial scale. 73 Fed. Reg

. 44354, 44487.

Third , there remains much uncertainty regarding whether EPA has authority under section 111 to establish a cap

- and

- trade program. Issues related to cap

- and

- trade are discussed in s ection V of these comments.

Fourth , another potential problem with regulation of GHGs from stationary sources under section 111 is that, to regulate existing sources, EPA must issue a state SIP call and cannot dictate to the states the specific control mechanism to be adopted. Thus, even if EPA proposes a cap

- and

- trade approach for existing sources, as EPA experienced with CAMR , the states are not obligated to follow suit. And in light of the significant state activity on climate change, some states might be unwilling to adopt an EPA proposed cap

- and

- trade system, instead insisting that each unit within the state reduce GHG emissions to a specified level. This could create an environment of conflicting and duplicative regulations for industries , including electric utiliti es, operating in multiple states.

Fifth , EPA claims that it has flexibility to postpone or decline to set GHG lim its for source categories with small GHG contributions or for which no effective means of reducing emissions currently exists. Id

. at 44490. EEI understands that sources with small GHG emissions logically might be treated with delay or even not be regula ted. However, if those small sources are numerous, their total GHG emissions could be very significant. EEI does not support ignoring66

significant emission sources or those which, for example, currently or will not in the near future have definitive emiss ions monitoring capabilities, especially if the lack of emissions monitoring capabilities is due more to monitoring ca pabilities not existing than to not investing in monitors

. Instead , emission s estimates (calculations) may be acceptable in some cases.

Sixth, EPA addresses aspects of identifying BDT with regard to ―adequately demonstrated,‖ current and future, and to whether the Agency can establish two

- phased or multi

- phased standards with increasing stringency for future years. Id. at 44487. The CAA clearly requires a review of NSPS every eight years. This time period is more than adequate to incorporate new control technologies as those become proven and commercially available. EEI believes it is important that standards track research, developmen t and demonstration of needed technology to assure they are feasible and cost

- effective. With regard to the possibility of phasing in performance standards, EPA suggests consideration of an NSPS for utilities based on energy efficiency by users and custom ers in Phase 1 and fuel switching, ACT and CCS in Phase 2. Id

. at 44491 . Such a program may not be consistent with the NSPS program, which require s that a standard be based on BDT and technologies that are demonstrated, commercially available and
cost

- ef fective.

Seventh, EPA characterizes CCS technologies as promising for the power sector and other
sectors and solicits comments on criteria that it should use to evaluate whether CCS technologies are adequately demonstrated to be available in these secto rs. Id . at 44492. EEI is not aware of any compilation of criteria to evaluate whether CCS technologies are demonstrated to be available for the power sector. Furthermore, it is very early to develop such criteria, given that67

CCS technologies are only n ow in the earliest stages of development and demonstration. DOE, EPRI and the Coal Utilization Research Council have developed detailed roadmaps describing the future development an d demonstration needs for CCS. 3. H APs

a. Background Section 112 of the CAA reg ulates HAPs. In 1990, Congress codified a list of 189 HAPs. None of the six primary GHGs is included on the list today. T he Administrator may add pollutants to the list of HAPs if they present, or may present, through inhalation or other routes of expo sure , a threat of adverse human health effects (including, but not limited to, substances which are known to be, or may reasonably be anticipated to be, carcinogenic, mutagenic, terotagenic, neurotoxic, which cause reproductive dysfunction, or which are ac utely or chronically toxic) or adverse environmental effects whether through ambient concentrations, bioaccumulation, d eposition, or otherwise . . . . CAA § 112(b)(2) (emphasis added).

Once the Administrator lists a HAP, he or she must establish a sta ndard for major sources that reflect ―the maximum degree of reduction‖ in HAP emissions that is achievable, taking into consideration the cost of achieving the emission reduction, any non

- air quality health and environmental impacts, and energy requirement s. CAA § 112(d)(2). This standard is also referred to as the maximum achievable control technology ( MACT ) . MACT determinations are made on a case

- by

- case basis. ―Major sources‖ include new and existing sources that have the potential to emit at least 10 tons per year of any of the listed substances, or at least 25 tons per year of any combination of substances.

Due to the interconnected nature of the CAA, there are some advantages of regulating under section 112 ( e.g ., exemption from the PSD program, NS PS and NAAQS). Id

. at 44495.68

However, these potential benefits are outweighed by deficiencies described below, including the lack of flexibility and the tight timetables.

b. Deficiencies with HAP a pproach Regulation of GHGs under section 112 would make litt le sense and could lead to draconian regulation of innumerable GHG sources under the CAA. Regarding CO 2 or GHG s as HAPs,
EPA states , ― C urrent and projected levels of ambient concentrations of the six GHGs are not expected to cause any direct adverse healt h effects, such as respiratory or toxic effects. . . .‖ 73 Fed. Reg . 44427

. EPA also states, ―Current ambient concentrations of CO 2 and other GHG s remain well below published thresholds for any direct adverse health effects, such as respiratory or toxic effects.‖ Id

. at 44425

.

First , a decision by EPA to list GHGs as a HAP under 112 would be vulnerable to a legal challenge because, unlike the other listed HAPs, GHGs do not pose a direct threat to human health through exposure.

Second , of all of the primary stationary source control programs in t itle I, section 112 carries the most inflexible and stringent requirements for regulated sources. Meeting the two

- year deadline for developing a standard after a new source category is listed would be difficu lt , if not impossible

. Id

. at 44494. Major sources under the provision must employ MACT, which is determined on a case

- by

- case basis, and they must do so within three years after a standard is promulgated. Thus, as soon as a control limit is available f or relevant sources, it may become required, even if it is cost prohibitive. The short timetables for implementation also do not allow time for emerging GHG technologies to be further developed. Id

. at 44495.69

Third , this is all the more problematic give n the sheer number of GHG sources that would qualify for regulation based on section 112‘s exceedingly low ―major‖ source threshold. Despite EEI‘s preference for economy

- wide solutions, a program under section 112 would be simply unworkable

. 4. P SD/ NSR

a. Backg round CAA section 165 prohibits the construction or modification of a major source of air pollution unless, among other things: 1) a permit has been issued for such proposed facility; and 2) the proposed facility is subject to BACT for each pollutant subj ect to regulation under the CAA.
See CAA § § 165(a)(1) and (4) . To be deemed a major modification subject to PSD permitting, a physical or operation change must result in significant net emissions increase of a regulated air pollutant. See 40 C.F.R. § 52 .21. EPA‘s regulations further define ―significant‖ to mean with respect to pollutants for which EPA has not promulgated specific thresholds, ―any emissions rate.‖ Id. at § 52.21(b)(23)(ii). BACT reviews and applications are done case

- by

- case.

In the ANPR, EPA states its belief that PSD program requirements become applicable immediately upon the effective date of the first regulation requiring GHG control under the Act.
73 Fed. Reg

. 44497

- 98. If EPA decides to regulate GHGs under any section of the CAA, any physical or operation change that results in any increase

— even as little as a pound

— would trigger PSD permitting and BACT requirement s for many sources.

If EPA establishes a NAAQS for GHGs and designates the nation as being in non - attainmen t , particularly severe requirements would apply to new sources, including a requirement that new sources achieve LAER, which is defined as ―the most stringent emission limitation‖ contained in70

any SIP or that is ―achieved in practice‖ by the same or a simi lar source category, whichever is more stringent. Non

- attainment NSR permitting carries substantial burdens.

b. Consequences of GHG r egulation under PSD and NSR non - attainment p ermitting Were EPA to regulate GHGs under any major provision of the CAA, the imp lications under the PSD and NSR non - attainment programs would be severe.

First , there would be a large increase in the number of construction and modification activities that would trigger PSD review. EPA estimates that permitting authorities now issue about 200

- 300 new PSD permits nationally per year. If GHGs become regulate d pollutants, EPA asserts that this figure is projected to balloon by a factor of 10

. Id. at 44354, 44499. EPA‘s estimate does not even taken into account the number of sources th at would come under regulation based on their ―potential to emit,‖ putting aside their actual emissions. Nor does this estimate account for the increase in permits that would be required for modifications to existing major GHG

sources. Id . A recent repo rt by the Chamber of Commerce estimates that in one year more than 1 million mid

- size to large commercial

- sector sources, almost 200,000 industrial

- manufacturing sector sources and more than 17,000 large agricultural

- sector sources would emit enough CO 2 pe r year to be exposed to PSD permitting requirements . U.S. Chamber of Commerce, ―A Regulatory Burden: The Compliance Dimension of Regulating CO 2 as a Pollutant‖ ( Sept

. 2008 )

. EPA addresses several alternatives for reducing the burden of the PSD program in the GHG context (streamlined approaches, general permits, and higher thresholds) , but the agency‘s legal theories to support reducing these burdens are uncertain and would be challenged in court.71

EPA discusses several regulatory options for mitigating some of the effects of NSR on major new sources or modifications that increase GHGs. These options include raising de minimis limits, redefining ―major sources‖ of GHG as sources with the potential to emit 10,000 or 25,000 tons per year of GHG emissions, and creating guidance for presumptive GHG BACT for categories of sources so that BACT analyses by applicants and reviewers are streamlined. T he legal basis for such changes may be s uspect

. Further, even if national environmental groups claim they will no t oppose such approaches, it would only take one successful challenge from

one local or regional group to undermine EPA‘s potential PSD ―fixes.‖

EPA acknowledges that there have been concerns about the PSD program due to its complexity, cost, uncertainty and resulting construction delays. From the permittee‘s perspective, a single permit can take months or even years to finalize, costing hundreds of thousands or even millions of dollars. At a March 13, 2008 , hearing of the House Select Committee on Energ y Independence and Global Warming, witness Glaser said that a PSD permit takes 12

- 18 months from the date it is filed to become final. And t hese permits are done on a case

- by

- case basis.

In fact, EPA has quantified the typical burden of the NSR and PSD permitting processes in response to the Federal Paperwork Reduction Act. 73 Fed. Reg

. 45436

- 3 7

. This notice cites that a docket has been established for this Information Collection Request , and in that docket is an EPA report 69 detailing the burden and cost to a permit applicant. Table 6

- 1 states that based on actual experience with 282 PSD permits, the average annual number of hours expended by the

69 C

. Wheeler, Information Collection Request for Prevention of Significant Deter ioration and Non

- attainment New Source Review (40 C

. F

. R

. P arts 51 and 52), U.S. Environmental Protection Agency

.72

applicant was 866 , with an average cost of $12 4,940 . For a non - attainment NSR permit, the annual number of hours expended by the applicant was 642 , and the average cost $6 2,665

.

The EPA report also estimates the burden and cost to state and local permitting agencies. Table
6

- 2 states that based on actual experience with 282 PSD permits, the annual number of hours expended by the applicant was 301 , with an average cost of $23 ,245 . For a non - attainment NSR permit, the annual number of hours expended by the applicant was 127 , and the average cost $ 9,807

. The additional EPA burden, from Table 6

- 3, was not insignificant.

Given a massive increase in permit applications if GHG s we re regulated under the CAA , human

resources and financial burdens on permit applicants and on state and local permitting authorities would be tremendous. State agencies would be c rippled by the weight of the many new permit applications , and substantial delay would be the norm. The overall regulatory burden would be so enormous that construction in cities and other localities throughout the nation could be seriously depressed and the economy and employment greatly affected

.

Second , EPA is severely limited by statute to try to alleviate the problems raised here because the CAA specifies precisely what a ―major‖ source is. The statute lists 28 specific categories of stationary sour ces that are considered ―major‖ under the PSD program if they emit at least 100 tons per year of any pollutant. CAA § 169(1). Other categories of stationary source s qualify as ―major‖ sources if they emit at least 250 tons per year of any pollutant. Id

. EPA suggests that it could ignore the ―plain meaning‖ of the statute by relying on certain judge

- made doctrines, such as the doctrine of ―administrative necessity‖ and ―absurd results.‖ But courts seldom invoke73

these doctrines and, when they do, it is o nly in exceptional situations, which EPA has not shown or even intimated in the case of GHGs. Therefore, EPA‘s assertion that these doctrines could apply to the PSD program is speculative.

Third , EPA were to promulgate a rule establishing emissions limit s on GHG emissions from mobile sources or stationary sources, PSD permits would need to contain an emissions limit for GHGs that reflect BACT and address other substantive PSD program elements ( e.g ., the requirements to consult with the Federal Land Manage r regarding the potential impact o n visibility of proposed construction in Class I areas). It is not clear what would be considered BACT for GHG purposes, but many would argue that ACT and CCS or both would be required, despite their costs , energy penalti es (in the case of CCS) and lack of readiness for commercial deployment at this time

.

Fourth , if EPA establishes a NAAQS for GHGs and designates the nation as being in non attainment , p articularly severe requirements would apply to new sources, including a requirement that new sources achieve LAER. LAER does not allow for consideration of costs,
energy or environmental impacts of the emissions reduction s technology.

Fifth , as for power plants, the desire to avoid PSD would kill many projects that could improve efficiency. Such projects would be avoided because if a project would increase the efficiency of a generating unit, it would likely run more hours and increase its CO 2 emissions, thus triggering
PSD.74

5. Title V p ermits

a. Background Title V of the 1990 CAA Amendments requires each state to develop and implement a comprehensive operating permit program for most sources of air pollution. This program facilitates enforcement by requiring that all federal regulations applicable to a source be contained in one single document. Typically, each state administers its own t itle V permit program, but EPA retains authority to review and approve the state‘s program, as well as individual permits.

Title V requires a state program to provide for permitting of any major stationary source that has the potential to emit 100 tons or more of any air pollutant, as well as any ―major source‖ as defined by section 112 of the CAA (which, as discussed above, includes sources that emit 10 tons per year of one HAP or 25 to ns per year of more than one HAP). Thus, because t itle V‘s ―major source‖ definition uses lower emissions thresholds than that of the PSD program, t itle V applies to more sources than the PSD program.

Title V permit applications must contain detailed i nformation, including all emissions of pollutants for which the source is major and all emissions of regulated air pollutants, a description of air pollution control equipment, and identification of all federal air pollution control requirements. Moreover , a responsible corporate official must certify the truth, accuracy and completeness of the application. 40 C.F.R. § 70.5(d). Before a permit issues, the permitting authority must provide procedures for public notice and comment, as well as the opportuni ty to hold a public hearing on the draft permit. 40 C.F.R. § 70.7(h).75 b. Deficiencies with t itle V r egulation Application of t itle V to sources based on their GHG emissions would create similar administrative problems as those raised above in the PSD contex t, as well as several additional difficulties.

First , if GHGs became ―regulated pollutants‖ under the CAA, even more sources would be subject to regulation under t itle V than under the PSD program because, as explained above, t itle V emissions cutoff is 100 tons per year for all source categories (rather than 250 tons per year for certain categories under the PSD program). According to EPA‘s own estimates, more than 550,000 additional sources would require t itle V permits than the approximately 15,000

- 1 6,000 sources currently regulated under t itle V. EPA states that the burden of title V permits in a GHG regulatory context would be overwhelming unless the number of covered sources could be reduced. 73 Fed. Reg

. 44512. The Chamber of Commerce estimates that more than 1 million sources could be subject to PSD , and each of those and more would be subject to title V requirements. Similar to the PSD program, EPA addresses several alternatives for eliminating the burden of the title V program in the GHG con text. EPA‘s legal theories support ing the reducing of these burdens are uncertain.

Second , regulatory deadlines make t itle V particularly problematic as applied to a newly regulated pollutant traceable to so many sources, like GHGs. Title V requires sou rces to submit permit applications within one year of a source becoming subject to the program, which means that if GHGs were to become subject to control requirements, many sources would be applying for t itle V permits at the same time. As a result, perm itting authorities would face unrealistic
t itle V permit processing demands. Such demands would likely make it impossible for76

authorities to act on t itle V applications within 18 months, as generally required, which could ignite a wave of litigation over missed deadlines. CAA § 503(c).

Third , EPA notes that t itle V requires permitting authorities to collect permit fees adequate to support the costs of running the title V program. Because most states charge t itle V fees on a dollar per ton basis, EPA ―ex pect[s] that the fee revenues [for GHG sources] would be grossly excessive‖ for what is needed to process permits for GHG sources. Thus, EPA notes that permitting authorities would need to consider other options for fees, such as a lower cost per ton for GHGs, fixed fees for applicants below a certain size or no fees for smaller GHG sources. Id

. at 44513. Title V permitting fees should apply to all sources regardless of size. As EPA notes, title V requires that the permitting process be self

- funding. I n the options that EPA discusses, it focuses only on relief for small sources (including the possibility of waiving fees for small

source s ). Any relief given for fees should apply to all sources regardless of size. Large sources should not have to subsid ize the permitting cost s for smaller sources.
B. Comments on Stationary Source T S D To supplement the ANPR‘s discussion of stationary sources, EPA included in the docket a TSD that ―provides technical and other background information on the approaches, advan tages and disadvanta ges, legal and policy questions ‖ (p. 2). 70 A significant portion of the TSD is devoted to discussion of possible approaches to reducing GHG emissions from the largest stationary sources of emissions, with particular emphasis on industri al boilers, including those used to produce electricity. See TSD at 11

- 18. EPA explores the application of section 111, New

70 The TSD is titled ―Technical Support Document for the Advanced Notice of Proposed Rulemaking for Greenhouse Gases; Stationary Sources, Secti on VII,‖ and is designated as a ―Final Draft.‖77

Source Performance Standards, to electric utilities with the goal of setting work performance standards for improving boiler effi ciency (as measured by reductions in net heat rate) as a means for reducing GHG emissions without affecting net electrical output.

EPA notes that the approaches in the TSD are meant to be illustrative and are designed to facilitate discussion between the Agency and stakeholders. See id . at 11. Consistent with EPA‘s stated purpose for the TSD, EEI provides its assessment of the possible GHG reduction approaches discussed and provides additional issues for EPA to consider if it should move forward with reg ulations built on any of these options. 1. EPA’s discussion of efficiency improvements fails to consider costs or NSR r equirements. A significant element in EPA‘s proposed approach for reducing emissions from utility boilers is
net heat rate reductions at ex isting units through a range of options that are ―well known in the industry, but for many reasons are not equally feasible from plant to plant or from unit to unit in a plant.‖ Id. at 16. While EEI does not disagree that there are many known ways to imp rove boiler efficiency at existing generating plants or for specific units, EPA‘s assessment of why
such measures currently are not in place fails to address several elephants in the room.

First, EPA‘s discussion of feasibility with respect to efficienc y improvements is limited to technical considerations. Such improvements and the related reductions in GHG emissions will come at a cost that is likely to affect retail electric rates. In a rulemaking context, EPA would be required to consider these cost s in any analysis of the economic impact of the proposed efficiency requirements.78

Second, s uch efficiency improvements likely would trigger the CAA‘s NSR requirements if implemented at existing plants. As discussed previously in s ection V .A , being subjec t to the NSR program and more specifically, the PSD portion of the program, would result in enormous delays in construction of any efficiency improvement modifications as utilities would be required to obtain pre

- construction permits. In addition, the gen erator would be subject to BACT requirements, an expensive and time

- consuming process that requires an assessment of all possible control options even before the technological option is implemented. Subjecting a generator to this level of delay, uncertain ty and cost does not encourage or incent efficiency improvements. 2. EPA should explore and address options for reducing GHG emissions from all fossil fuel
- fired generating p lants.
T he Agency focuses its discussion on efficiency improvements at coal plants. I n 2007, nearly 50 percent of electricity in the U.S. was generated using coal. Among other fossil fuels, natural gas accounted for more than 21 percent of production. 71 To the extent that the examples that EPA provides in the TSD are meant to be illustr ative and not exhaustive, our industry will not be able to avoid all types of fossil fuel generating plants ultimately being targeted to control GHG emissions. It is certainly true that natural gas boilers are more efficient than those using coal and ther efore do not emit GHGs as intensively per unit of heat input. However, EPA may overstate the limits on improving efficiency

– e.g ., optimizing control systems and installation of higher efficiency com ponents, among others

– of natural gas

- fired boilers by stating that there are few

71 See EEI, ―Electric Companies Use a Diverse Mix of Fuels to Generate Electricity, 2007 National Fuel Mix‖ at http://eei.org/industry_issues/energy_infrastructure/fuel_diversity/pie_fueldiversity.pdf , which is based on the Power Plant Report (EIA

- 906) and Combined Heat and Power Plant Report (EIA

920).79

physical options for improving efficiency at natural gas

- fired simple cycle and combined cycle turbine plants. 72 See TSD at 16. 3. Fleet
- wide efficiency improvement targets cannot and s hou ld not be p romulgated . In the TSD, ―prel iminary analysis indicates‖ that individual coal plants could reasonably be expected to reduce net heat rates between 2 and 5 percent, considering site

- specific characteristics. 73 Setting fleet

- wide reduction targets for net heat rate reductions would not be workable, for the reasons the Agency notes: Plant

- specific characteristics, including coal type and production process, among others, will significantly affect the plant‘s ability to reach the target. At a minimum, should EPA establish such targets, t hey should take into account plant

specific characteristics. In addition , any remedy for failure to achieve heat rate reductions should be similarly flexible.

The TSD states that the install ation of new, high

- efficiency power plants and the retirement of older plants will reduce the average heat rate for the fossil fleet. See id . at 17. While it is possible for new supercritical or ultra

- supercritical plants to achieve net efficiencies of more than 40 percent, it would be problematic to use this as a ba sis for future efficiency standards. First, there are insufficient data at present on the GHG emissions of such plants , and it may be some time before sufficient information exists that could be used to create proposed future standards. Second, developin g incentives for new high

- efficiency power plants may not be sufficient to cause as quick a turnover in the existing coal fleet a s EPA implies is possible. It will take

72 Moreover, if ambitious GHG reductions in the 60

- 80 percent r ange are the goal, even natural gas - fired plants will need CCS to achieve necessary emissions cuts. 73 Heat rate improvements , like many of the other measures EPA discusses in the TSD, are incremental measures available now , but they would not be sufficient to achieve ambitions emissions reductions goals.80

decades

– and considerable expense

– to replace all or most existing coal plants or un its thereof , particularly when it takes between 5

- 10 years to permit and build a new generating unit

. 74 In the context of GHG emissions, EPA should avoid statements that would support a determination that these designs are BACT outside of any official proc eeding

.

Along these same lines, EPA notes tha t some comments on the recently amended NSPS for electric utility boilers urged the Agency to regulate GHG emissions, including by mandating the use of integrated g asification combined c ycle ( IGCC ) technologie s, among other things. See id

. at 17. IGCC technologies are relatively untested. There are only five plants in the world currently using IGCC to produce electricity , only two of which are in the U.S . Data from these plants do not provide a sufficient basis for evaluating the technology‘s capability. Moreover, IGCC is not a pollution control technology, but an electric generation technology that emits as much CO 2 as other technologies. 75 At present, the only way to reduce emissions from an IGCC facilit y would be through CCS , which is not commercially available at this time. 76 As EPA

74 Indeed, permitting delays could be even longer. For example, it is likely that the recent Environmental Appeals Board decision, In re Deseret Power Electric Cooperative , PSD Appeal No. 07

- 03 (Nov. 13, 2008 ), which remanded a PSD permit back to EPA Region 8 to consider whether to require a CO 2 BACT limit, will further delay new plant construction. The case focused on a permit for a new coal

- fired plant, but the potential ramifications extend to all generation that emits CO 2 . 75 Massachusetts Institute of Technology (MIT) , The Future of Coal : Options for a Carbon

Constrained World , Table, 30 (2007). Table 3.5 shows that emissions of CO 2 per kilowatt

- hour ( KWH ) of 500

- MW I GCC and supercritical pulverized coal plants are nearly identical and, in fact, that IGCC plants actually emit slightly more CO 2 . 76 EPRI, the Coal Utilization Research Council and MIT have all recognized that CCS will not likely be commercially available on a widely deployable basis until around 2025

. The TSD, constrained by its focus on efficiency improvements consistent with regulation under section 111, does not address other technolog y - based approaches to reducing GHG emissions, like CCS. EEI will b e submitting comments in EPA‘s rulemaking on proposed Safe Drinking Water Act underground injection c ontrol regulations for the geologic storage of CO 2 , Docket EPA

- HQ

OW

- 2008

- 0390, on December 24, 2008.81

notes in the TSD, efficiency improvements lead to GHG emissions reductions. Consequently, requiring IGCC technology at all future generation plants at this time would not reduce emissions without other action. 4. Biomass co - firing is possible at many facilities, but should not be r equired . EPA states that ―bio

- mass co - firing mi ght eventually substitute for 2

- 5 percent of coal used in the current coal fleet ‖ to reduce GHG emiss ions

. S ee TSD at 17 . EEI agrees that co

- firing is possible at the rates that EPA suggests, but is concerned about biomass supply

– a significant constraint on a specific plant‘s ability to substitute bi omass for coal or other fossil fuels is access to bio mass. Consequently, EPA should not promulgate any standards that would require a certain percentage of co

- firing. In a worst case scenario, such a requirement could force an electric utility to greatly increase transportation sector GHG emissions when tr ansporting biomass from great distances to the generation site. At a minimum, any such requirement should ensure that generators are not penalized if biomass is not reasonably available for use in co

firing. 5. EPA must resolve issues related to its authorit y under section 111 before

imposing standards on utility b oilers. The TSD‘s entire discussion of the efficiency improvement s that could be mandated under

s ection 111‘s NSPS program depends upon EPA‘s authority under that section to promulgate work practic es, which is limited by s ection 111(h). This section states that ―work practice standards,‖ which include ―design, equipment, work practice or operational standard[s] , ‖ are only available as a regulatory tool if the Administrator determi nes that the pollu tant at issue cannot be emitted through a conveyance designed to capture the pollutant or if the application of measurement methodology is not economically or technologically practicable. EEI takes no position on how s ection 111 may circumscribe EPA‘s aut hority in the context of improving82

boiler efficiency to reduce GHG emissions, but urges the Agency not to embroil the power sector in another situation in which utilities are required to make expenditures to comply with regulations that are subsequently in validated by the courts as beyond the Agency‘s statutory
mandate. 77 Stranding costs not only increases rates but also reduces the amount of investment that electric generators have available for other GHG emissions reductions efforts. 6. EEI will comment on a ny proposed metric for measuring boiler e fficiency . T he Agency notes that it ―would need to develop a metric for measuring and benchmarking boiler GHG emissions in terms of the unit‘s output‖ to inform its efforts to improve efficiency under NSPS. TSD at 18. It would be premature to comment on such a metric at this time, but we look forward to assessing the merits of such a tool if and when EPA proposes one.

VII. As sessment of PHEV Issues Raised In Connection With The ANPR’s Discussion Of Mobile Sources A nd T itle II . EEI is pleased that in the ANPR EPA considers PHEVs and their use in reducing tailpipe emissions potentially to zero when operate d in the ―all

- electric mode‖ and the related concern for increased emissions from electric ity generation

. S ee 73 Fed . Reg

. 44439

- 40 . Electric transport has the p otential to reduce GHG emissions dramatically in the U.S. and globally. EEI urges increased funding for the development and commercial deployment of PHEVs as part of the portfolio of technologies needed to red uce GHG emissions and would like to hi ghlight certain information for consideration in this proceeding and by others addressing this issue

.

77 See section V for a discussion of the recent vacatu r of EPA‘s CAIR and CAMR trading programs .83

A. Electric Drive Significantly Reduces Net GHG Emissions . Many studies 78 have shown that the use of electric drive w ill significantly reduce GHG emissions and indicate that c urrent PHEVs, on average, produce just one

- third of the GHGs emitted by traditional, gasoline

- fueled vehicles. 79 According to a joint study by EPRI and the Natural Resources Defense Council (NRDC), PHEVs have the potential to reduce cumulative U.S. GHG emissions by as much as 10.3 billion tons from 2010 to 2050. 80 Widespread adoption of PHEVs could reduce GHG emissions from vehicles by more than 450 million metric tons annually in 2050, which is equi valent to taking 82.5 million passenger cars off the road. 81 Moreover, a PHEV‘s ability to operate in an electric

- only mode will help to reduce other emissions, including
NO x and SO 2 .

When assessing the potential for electric vehicles to reduce emissions from mobile sources, EEI encourages EPA to consider all types of electric drive vehicle , including PHEVs , battery electric vehicles

– wh ich also are known as all

- electric vehicles

– and n eighborhood electric vehicles . In addition, EEI expects that there will be more use of electric drive in medium and heavy duty applications, such as utility bucket trucks.

78 EEI recommends that EPA also review publications from the Nation al Renewable Energy Laboratory , http://www.nrel.gov/docs/fy07osti/41410.pdf , and from t he Argonne National Laboratory, http://www.transportation.anl.gov/modeling_simulation/GREET/publications.html

. 79 L. Sanna, ―Driving the Solution: The PHEV Hybrid Vehicle,‖ EPRI Journal 14 (f all 2005)

. 80 EPRI & NRDC, ―EPRI Executive Summary: Environmental Assessment of P lug

- in Hybrid Electric Vehicles ‖ ( 2007 )

. 81 EPRI & NRDC, ―EPRI

- NRDC Report Finds Environmental Benefits of D eploying PHEVs,‖ press release ( July 1 9, 2007 )

.84

B. Usin g Electricity for Transportation Will R esult in Greater Net GHG R eductions Over T ime . Increased demand for electricity ultimately will not r educe the overall GHG benefits of electric transportation. Although emissions that directly result from electricity production will vary according to the local electricity fuel mix, increasingly stringent power plant regulations and
GHG emissions reductio ns requirements ( whatever the regulatory regime that is eventually adopted ) will continue to cut net emissions as PHEVs are introduced into the marketplace.

This is consistent with past performance in the power sector. Over the past 38 years utilities and generation companies complying with federal legislation have reduced NO x and SO 2 emissions. According to EIA ‘s Electric Power Annual 2004 , total electric utility industry SO 2 emissions in 1993 were 14.472 million metric tons (MMT) and total NO x emissi ons were 7.801 MMT . By 2006, according to the Electric Power Annual 2006 , those numbers had dropped significantly to 9.524 MMT of SO 2 (a 34.2 percent reduction) and 3.799 MMT of NO x (a 51.3 percent reduction). This occurred while total U

. S

. electric gene ration rose from 3.19 7 t rillion KWH to 4.065 Trillion KWH (a 27.1 percent increase). 82 Furthermore, on a per unit basis, the amount of NO x generated per K W H went down by 61.4 percent in that time period , and the amount of
SO 2 gene rated per K W H went down by 48.2 percent

.

Data supports the conclusion that similar reductions in GHG emissions can be expected. T he July 2007 EPRI/NRDC report, supra nn. 8 8 & 8 1 , which modeled GHG emissions from the power sector , found that f or nearly every type of fossil fuel po wer plant, lower or significantly lower GHG emission intensi ty (amount of GHG emitted per KWH generated) going forward

.

82 EEI , Statistical Yearbook of the Electric Power Industry , Washington, D

. C

. ( May 2008 )

.85

Consequently, using electricity for transportation should reduce net GHG emissions in the long
term. However, to avoid penalizing th e power section for increased emissions by electric utilities, legislators must provide allowances, credit s or other compensation to utilities in order to reflect accurately the relative contributions to the net decrease in overall emissions. C. EPA’s Analysi s of Upstream Emissions Associated with Transportation Fuel Production Must Be Consistent across Fuel Types.
I n the context of upstream emissions, the ANPR discusses the possibility of considering vehicles and fuels as a system, rather than isolated compo nents, as well as the use of the life

- cycle approach to GHGs, when assessing mobile source emissions. EEI offers the following
comments :

If EPA were to consider the ―well to wheels‖ type of analysis for mobile sources , all fuel types should be included

. Moreover, all upstream emissions should be included in the analysis. See 73 Fed. Reg. at 44434, 44438. For example, if power plant emissions are to be included as part of the life

- cycle GHG analysis for electric vehicles, emissions like the following m ust be included as well : Oil refinery emissions

. Fuel deliver y emission s (for gasoline, diesel, biofuel and other fossil fuel vehicles)

. Biofuel refinery emissions

. Natural gas production and delivery emissions for compressed natural gas vehicles

.

EPA w ould not want to create a regulatory regime that consider ed only tailpipe emissions for one fuel type and consider ―well to wheels‖ emissions for ano ther fuel type. EPA should be fuel neutral and market neutral in any GHG regulations.86

In addition, EPA al so must consider offshore fuel production issues. Entities should not get GHG credits for moving fuel production offshore in order to ―reduce‖ domestic emissions while increasing overall GHG emissions associated with the fuel production process.
D. Inter
- Ind ustry Trading Would Maximize the Emissions Benefits of Electric Drive under a Cap
- and
- Trade Program. In the ANPR, EPA suggests a variety of approaches for regulating mobile source GHG emissions, including allowing credit or allowance trading under a cap

- a nd

- trade program to maximize flexibility in meeting emissions reductions targets. See id

. at 44438. EEI agrees that the most economically efficient market

- based approach for reducing GHG emissions would be
economy - wide, to the extent possible, and that e missions allowances or credits should be allowed to be traded across sectors, and especially between mobile sources and non

- mobile

source s . See id

. at 44440.

Inter

- industry, multi

- sector trading would maximize both the economic and environmental opportun ities of electric drive vehicles , creating a ―win

- win‖ situation that reduces costs to consumers, automakers and utilities, while increasing GHG emission s reductions.
E. Under a Cap
- and
- Trade Program, Utilities Should Get Credit for Activities that Support Electric Drive . While not d irectly related to the supply of power for the use of electric drive vehicles, utilities engage in a variety of other activities that should be viewed as key components of the infrastructure needed to support electric drive tran sportation. For example, utilities may offer the following programs in support of electric drive:87

Financial incentives to consumers , businesses and automakers

. Incentives to state and local government s and businesses for installing publ ic or private c harging stations. Installation o f public charging stations. Installation of advanced meters associated with a smart grid to hel p ensure that vehicles are only or primarily charged during off

- peak times (or when low

- or zero - carbon fuels are providing elect ricity to the local or regional grid).
To the extent that utilities provide these types of incentives to support electric drive, utilities should receive credit for these activities.

VIII. Other Issues

– CAA Regulation O f GHG Emissions Shoul d Be Tailored To Avoid E ffects O n Other Media . In the ANPR, EPA notes that ―a n effective GHG control program may require application of many technologies and approaches that may in turn result in increased discharges to water, generation of solid materials that require a ppropriate disposal, or have other impacts to the environment that may not be addressed under the CAA. ‖ 73 Fed. Reg . 44408.

The Agency is correct that the application of many technologies and control options to effectively reduce GHG emissions could resu lt in increased discharges to other media whether directly through discharges resulting from a technological process , or through secondary impacts such as reduced capacity or efficiency as a result of the parasitic load of the removal technology or design and process changes necessary to accommodate the technology. Further, undesirable

e ffects on other media could result from unintended consequences from such varied things as mining for different fuels, fuel pro cessing and transport changes.88

While it wou ld be too speculative to predict specific impacts in other media, it is appropriate for the A gency to recognize that such impacts will occur and determine an effective strategy t o address those impacts. EPA also sho uld recognize that reducing GHG emissio ns cannot be viewed in a vacuum or assumed to be the only appropriate environmental outcome.

Ultimately, some means to optimize the balance between GHG reductions and impacts in other media from GHG control technologies and management strategies should be developed . This methodology must be sensitive to the national, regional and local prioriti es regarding other environmental media. An effective framew ork for GHG also would account fo r all potential impacts

– on energy, material, terrestrial an d aquati c media

– in a careful and appropriately quantified manner. In addition, balancing the direct and secondary environmental impacts tha t may occur is necessary to avoid uni ntended consequences and optimize the environmental result in a sustainable manner

– accounting for any expected increased costs of energy production, efficiency impacts and the debits that may be incurred by other environmental media.EEI Global Climate Change Principles – February 8, 2007

 Solutions compatible with a market economy that deliver timely and reasonably priced greenhouse gas reductions. EEI supports federal action or legislation to reduce greenhouse gas emissions that:

 Involves all sectors of the economy, and all sources of GHG;

 Assures stable, long-term public/private funding to support the development and deployment of needed technology solutions;

 Assures compliance timelines consistent with the e xpected development and deployment timelines of needed technologies;

 Employs market mechanisms to secure cost-effective GHG reductions, and provides a reasonable transition and an effective economic safety valve;

 Establishes a long-term price signal for carbon that is moderate, does not harm the economic competitiveness of U.S. industry and stimulates future investments in zero- or low-carbon technologies and processes;

 Addresses regulatory or economic barriers to the use of carbon capture and storage and increased nuclear, wind or other zero- or low-GHG technologies;

 Minimizes economic disruptions or disproportionate impacts;

 Recognizes early actions/investments made to mitigate greenhouse gas emissions;

 Provides for the robust use of a broad range of domestic and international GHG offsets;

 Provides certainty and a consistent national policy; and,

 Recognizes the international dimensions of the challenge and facilitates technology transfer.1 APPENDIX B Endangerment Analysis In this Appendix, we review in detail issues that Environmental Protection Agency (EPA or Agency) should address before making any endangerment finding under the Clean Air Act (CAA or Act) with respect to greenhouse has ( GH G ) emissions from any source, mobile or stationary. This review focuses on materials EPA provi ded in the Advance Notice of Proposed Rulemaking ( ANPR ) , 1 particularly the Endangerment Technical Support Document (Sixth Order Draft) (June 21, 2008) (TSD) A. The ANPR Relies on Limited Core References When Addressing Effects of Climate Change in the United States . The ANPR‘s preface to section V, titled ―Endangerment Analysis and Issues,‖ states that this section presents EPA‘s ―work to date on an endangerment ana lysis in response to the Supreme Court‘s decision in Massachusetts v. EPA ,‖ which ―ruled that EPA must either decide whether GHG emissions from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or explain why scientific uncertainty is so profound that it prevents making a reasoned judgment on such a determ ination.‖
73 Fed. Reg . 44421. Further, ―[i]n response to the remand, EPA analyzed synthesis reports and studies on how ele vated concentrations of GHGs in the atmosphere, and other factors, contribute to climate change, and how climate change is affecting, and may affect in the future, human health and welfare, primarily within the United States.‖ Id . The ANPR adds that ―[w] e also analyzed direct GHG effects on human health and welfare, i.e ., those effects from elevated

1 73 Fed. Reg

. 44354 (July 30, 2008).2

concentrations of GHGs that do not occur via climate change,‖ and that ―this information is contained in the Endangerment Technical Support Document .‖

The TS D states that its ―purpose‖ is to ―provide scientific and technical support for an endangerment analysis regarding‖ GHG emissions under the CAA and that it ―is a final internal EPA draft‖ that has ―undergone initial EPA review as well as federal expert rev iew‖ (p. 1). The Introduction goes on to explain that the document ―relies most heavily on existing, and in most cases very recent, synthesis reports of climate change s cience and potential impacts, which have gone through their own peer

– review processes includin g review by the U.S. Government ‖ (p. 4). Indeed, table 1.1, titled ― Core references relied on most heavily in this document,‖ lists 15 reference documents, including: the three 2007 Working Group volumes of the Intergovernmental Panel on Climate Change‘s ( IPCC ) Fourth Assessment Report (AR4) ; five of the Synthesis and Assessment Products (SAPs) of the U.S. Climate Change Science Program (CCSP), all completed in 2006, 2007 or 2008; four reports of the National Academy of Science issued in 2001, 200 5, 2006 and 2008; an EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks (2007) ; 2 and a ―Scientific Assessment of the Effects of Global Change on the United States,‖ which is a report prepared pursuant to the Global Change Research Act of 1990 (15
U.S .C. § 2921 et seq .) and which draws from the IPCC AR4 , as well as the CCS P Report (p. 4)

. This latter Assessment explains that it ―focuses primarily‖ on the U.S., but ―given the global nature of the issues it also discusses international impacts‖ (p. 18).

2 Section 1 of the TSD states that ―[t]he most recent inventory was published in 2007 and includes annual data for the years 1990

- 2005‖ (p. 9). However, there is a later inventory, which was published April 15, 2008

— or before the Sixth Order draft was released

— and which ―presents estimates by the United States government of U.S. anthropogenic greenhouse gas emissions and sinks for the years 1990 through 2006‖ (Introduction, p. 1

- 1).3

In section 1, ―Introduction and Background,‖ the TSD further explains why EPA relies ―most heavily on these sy nthesis reports,‖ stating that

they 1) are very recent and represent the current state of knowledge on climate change science, vulnerabilities and potential impacts; 2) have assessed numerous individual studies in order to draw general conclusions about the state of science; 3) have been reviewed and formally accepted by, commissioned by, or in some cases authored by, U.S. government agencies and individual government scientists and provide EPA with assurances that this material has been well vetted by both the climate change research community and by the U.S. government; and 4) in many cases, they reflect and convey the consensu s conclusions of e xpert authors

. (p. 4).
B. IPCC Regional Coverage Is Mostly Continental, Not U.S.
- Specific . In the case of the IPCC reports, the TSD observes that these assessments ―are generally global in scope but provide information at the country and regional level as well‖ and that ―[t]his document relies heavily on the North American chapter‖ of the Working Group II report (p. 5).
T he TSD then adds that this IPCC ―chapter may not provide as much regional detail within the U.S. as did the 2000 report, Climate Change Impacts on the United States; The Potential Consequences of Climate Variability and Change (NAST, 2000).‖

However, the ―NAST, 2000‖ report is not listed in table 1.1 as one of the ―Core references relied upon most heavily in this document.‖ Indeed, it is odd that the TSD indicates heavy reliance on all three IPCC Working Group reports, but at the same time, emphasizes reliance only on one chapter of the IPCC‘s Working Group I report, even though it ―may not‖ provide as much about U.S. climate change and emissions as the NAST, 2000 report, which, among other things, is not ―recent‖ or representative of the ―current state of knowledge‖ and was controversial when issued

.4

Regarding the heavy reliance on the ―North American‖ chapter of the IPCC report, both the Summary for Policymakers (SPM) for the Working Group II report and the Technical Summary for that report concern the ―regional impacts, adaptation and vulnerability‖ of the several regions listed, including the North American region. However, neither IPCC report specifically mentions the countries in the North American region: the U.S., Canada and Mexico. Rather, the IPCC discussion focuses on North America as a region.

This lack of such specific reference to countries, such as the U.S. and Canada, apparently has been a concern to the EPA in preparing the TSD for use in ANPR section V, because in the beginning of part IV of the TSD, titled ―U.S. Observed and Projected Human Health and Welfare Effects from Climate Change,‖ EPA notes that sections 7

- 1 4 of part IV ―describe observed effects, risks and projected impacts of climate change within the U.S.‖ and thus ―rely heavily on the North American chapter of the IPCC Working Group II volume‖ of AR4 (p. 62). But that IPCC chapter speaks only of North A merica ―as a whole rather than specifically for the U.S. or Canada.‖

Nevertheless, EPA ―asked the leading authors‖ of this IPCC chapter ―to make a statement about the applicability of that chapter‘s major conclusions to the U.S. , ‖ and Box IV.1 of the do cument contains a ―[s]hort statement on the relevance of the findings in IPCC AR4 Chapter 14 (North America) to the United States,‖ which was prepared by the two people referred to in the Box as ―Coordinating Lead Authors of chapter 14.‖ The ―statement‖ i s dated September 21, 2007,5

which is after the Second Order draft underwent federal expert review. Box IV.1 adds that their statement ―has not been separately evaluated or approved by the IPCC.‖

In light of the ―Principles and Procedure‖ (see Box 1.1) governing IPCC reports, the appropriateness of EPA asking two authors from a list of more than 60 ―Drafting Authors‖ of the Working Group II SPM report to make this statement with no apparent consultation with, or authorization from, the IPCC, or for that mat ter the State Department, which heads the U.S. delegation to the IPCC, should be called into question. Such a ―statement‖ by just two authors is hardly a consensus under IPCC Principles and Procedures. Most importantly, the SPM is the product of gover nment delegations, including the U.S. delegation, in ―formal, plenary session‖ and is ―approved‖ by them, not the drafting authors, ―line

- by

- line,‖ while the underlying assessment is ―accepted‖ by the Working Group members by consensus. In the case of Wor king Group II‘s ―approved‖ SPM, the IPCC comments are followed by ―information‖ on a region

- by

region basis with reference in the SPM back to the relevant chapters of the underlying assessment ( e.g ., Africa (chapter 9), Asia (chapter 10), Australia and New Zealand (chapter 11), Europe (chapter 12), Latin America (chapter 13), North America (chapter 14), Polar Regions (chapter 15), and Small Islands (chapter 16)). Except in the case of the Australia and New Zealand region, the IPCC decided not to refer to c ountries within each region.

The remarks in the Box by the two ―Drafting Authors‖ of the SPM are inconsistent with this IPCC decision. Most importantly, they obviously are not authorized by the IPCC (under its Principles and Procedures for preparing, r eviewing, accepting and approving IPCC reports) to make such a ―statement,‖ as ―Coordinating Lead Authors of chapter 14‖ or as ―Drafting6

Authors‖ of an IPCC report, in an attempt to explain what the IPCC is approving in the SPM or accepting in the case of the underlying assessment. Further, EPA did not consult with the State Department, which headed the U.S. delegation to the IPCC on AR4, before asking the authors to make such a ―statement.‖ Accordingly, Box IV.1 should not be a part of the TSD.

This att empt to emphasize climate change ―impacts‖ in the U.S. is highlighted again in the Executive Summary of the TSD by Table ES

- 3, titled ―Balance of Projected Climate Change Impacts in the United States.‖ It again helps to explain the significance that EPA a ssigns to having the ―statement‖ by the two IPCC ―Drafting Authors‖ as a part of the TSD. The table briefly lists a series of ―Positive‖ and ―Negative,‖ and sometimes ―Uncertain,‖ statements on ―U.S. Impacts‖ in ―Sectors‖ on ―Health,‖ ―Air Quality,‖ ―Food Production and Agriculture,‖ ―Forestry,‖ ―Water Resources,‖ ―Sea Level Rise and Coastal Resources,‖ ―Energy, Infrastructure and Settlements,‖ and ―Ecosystems and Wildlife.‖ However, the only source or reference cited in the table is the IPCC AR4 report

.

But as discussed above, AR4 addresses such ―impacts‖ in the context of North America generally, and does not address such impacts concerning the U.S. and Canada specifically. Thus, the table‘s reference to AR4 as a source for U.S. impacts is inappropriat e, unless, of course, the ―statement‖ by the two authors is retained in the document, which cannot be justified in the absence of IPCC approval or authorization.

Apparently the Box IV.1 ―statement‖ and Table ES

- 3 are also important to EPA because the Agen cy connects the TSD directly to the ANPR, responding to the Supreme Court‘s remand by7

stating that it ―analyzed synthesis reports and studies on how elevated concentrations of GHGs in the atmosphere, and other factors, contribute to climate change, and how climate change is affecting, and may affect in the future, human health and welfare, primarily within the United States,‖ and that ―[t]his information.

. .is contained in the Endangerment Technical Support Document found in the docket for today‘s notice.‖ 73 Fed. Reg . 44421. Unquestionably, that connection depends entirely on the ―statement‖ by the two IPCC authors, which was neither
author ized nor approved by the IPCC

. C. The ANPR Bases its “Science Summary” on the TSD. The second part of the ANPR‘s endan germent analysis is a science summary of ―Observed Global Effects,‖ ―Observed U.S. Effects‖ and ―Projected Effects‖ globally and for the U.S. Id . at 44425. As to the ANPR‘s comments on ―observed‖ U.S. effects, as well as U.S. projections,
much of the mat erial is primarily about global effects, but with the added words ―including the U.S.‖ For example, the ANPR state s that ―[w]idespread changes in extreme temperatures have been observed in the last 50 years across all world regions, including the U.S., ‖ ― [n]early all of the Atlantic Ocean shows sea level rise.

. .with the highest rate in areas that include the U.S. east coast,‖ and the ―IPCC projects with virtual certainty.

. .declining air quality in cities due to warmer days and nights, and fewer cold da ys and nights, and/or more frequent hot days and nights over most land areas, including the U.S ., ‖ i d. at 44426 (emphasis added). These add

- on references to the U.S. have no basis in the ―core references‖ discussed above, because the core

reference mater ials utilized in the TSD are solely the IPCC reports, which, as we have explained above, are not specific to individual countries, but include material on various regions, such as North America, Africa, etc.8

The ANPR also provides a ―summary‖ of the under lying science ―reviewed and utilized‖ for the ―Endangerment discussion‖ and reiterates that it too ―relied heavily‖ on the IPCC‘s AR4, which is not U.S.

- specific. Id . at 44425.
D. EPA Issued the T SD B efore Completion of All 21 SAPs. The ANPR seeks ―commen t‖ not only on the ―best available science for purposes of the endangerment discussion‖ but also ―in particular on the use of the more recent findings‖ of the
CCSP , presumably through its SAPs.

In transmittal comments to Congress on each SAP report, EPA states that the series of 21 SAPs are ―aimed‖ at providing current assessments or evaluations of ―climate change science to inform public debate, policy, and operational decisions.‖ Yet, there is no explanation in the TSD of why some of the SAPs are reli ed upon and considered ―core references,‖ but others are not, or why it was deemed appropriate to develop and review the Second Order draft in August 2007 before all 21 SAPs were complete and available, particularly since the Massachusetts v. EPA decision was only issued four months earlier and, most importantly, did not provide a timetable or deadline for EPA to act on the Supreme Court‘s remand. In addition, we understand that some of the SAPs were completed just prior to, and after, August 2007 but befo re the TSD Sixth Order draft was issued last June, but are not included. 3 Further, we understand that all of the SAPs will be completed this year.

3 Se e, e.g ., SAP

- 2.1a, ―Scenarios of Greenhouse Gas Emissions and Atmospheric Concentrations‖; SAP

- 2.1b, ―Global

- Change Scenarios, Their Development and Use‖; and SAP

2.2, ―The First State of the Carbon Cycle Report (SOCCR), the North American Carbon Budget an d Implications for the Global Carbon Cycle.‖9

In light of the time and resources used to develop and publish the SAPs, the TSD should consider all of t hem for use in the document, to the extent they are relevant to the endangerment issues in the U.S

. E. The TSD’s Definition of “Climate Change” Differs from the IPCC’s. In section 1(a), titled ―Scope and Approach of this Document,‖ the TSD includes a propose d definition of the term ―climate change‖ as follows: Reviews a wide range of specific and quantifiable vulnerabilities, risks and impacts due to both effects induced by climate change and effects caused directly by the GHGs. Any known or expected benefit s of elevated atmospheric concentrations of GHGs or a climate change are documented as well (i.e., impacts can mean either positive or negative consequences). The extent to which observed climate change can be attributed to anthropogenic GHG emissions is assessed. The term ―climate change‖ in this document generally refers to climate change induced by human activities, including activities that emit GHGs. Future projections of climate change, based primarily on future scenarios of anthropogenic GHG emiss ions, are shown for the global and national scale. (p. 1)

. However, this definition of this term differs from the definition co ntained in at least two of the core references for this TSD . One is the above

- referenced Assessment, which definition include s natural variability. 4 The other is the IPCC reports, wherein this term ―in IPCC usage

4 The Scientific Assessment, supra p. 31 , includes as a sidebar the following definitions, the second of which is similar to the IPCC‘s definition of the term ―climate change :‖ Sidebar Global Change: Changes in the global environment (including alterations in climate, land productivity, oceans or other water resources, atmospheric chemistry, and ecological systems) that may alter the capacity of the Earth to sustain life (from the Global Change Research Act of 1990). Climate Change: A statistically significant variation in the mean state of the climate and/or in its variability, persisting for an extended period (typically decades or longer), due to either natural or human causes (adapted from the CCSP Strateg ic Plan). Note that the 1990 Act does not define ―Climate Change.‖ It would appear from the reference to the CCSP Strategic Plan that this definition would also apply to the SAPs. However, many SAPs do not have a glossary of terms. Some that do either do not define ―climate change‖ or define it in different ways ( see , e.g. , SAP 4.5, which is referred to in the core references, defines the term as ―changes in climate that depart from normal10

refers to any change in climate over time, whether due to natural variability or as the result of human activity.‖ 5 Yet there is no explanation in the TSD for this ap parent difference in the definition of the term ―climate change‖ as compared to the IPCC definition and the 1990 statutory definition, particularly since, as noted above, the document relies ―most heavily‖ on those ―references.‖ The TSD‘s definition of th is term should conform to that used by the core references.

Given these deficiencies in the scientific documentation , the endangerment TSD needs considerable revision and should not be relied upon in its present form by EPA as support for any regulation o f GHGs under the CAA.

variability, representing significant change in averages and/or extremes‖; SAP 4.3, where the definition is significantly longer and contains a ―note‖ that states that the definition in Article 1 of the FCCC ―makes a distinction between  ̳climate change‘ attributable to human activities altering the atmospheric composit ion, and  ̳climate variability‘ attributable to natural causes‖). SAP 4.3 also defines ―natural variability.‖ 5 See Working Group I SPM n. 1, AR4. The footnote adds that this ―usage differs from that in the United Nations Framework Convention on Climate Change, where climate change refers to a change of climate that is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and that is in addition natural climate variability observed over comparable time p eriods.‖