Pareto Policy Solutions, LLC

advancing innovation through smart regulation

Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

Climate Action has Staying Power

Amid lots of noise and clamor and debate, the Obama Administration has consistently acted to reduce greenhouse gas (GHG) emissions, often using its regulatory powers to do so.  Although each effort has been, and continues to be, debated in Congress and fought in the courts, the executive branch has racked up a growing list of actions that will commit the country to reduce GHG emissions for decades to come, long after President Obama has written his memoirs and dedicated his Presidential library.  Here are a few of the most significant actions:

Endangerment Finding.  Issued in December 2009, this EPA finding opened the legal door for regulating tailpipe emissions of carbon dioxide from motor vehicles.

Tailpipe Rule. Issued in May 2010, this rule set GHG tailpipe standards for cars and light trucks for model years through 2016.  In October 2012, the Administration extended the standards to model years 2017-2025.  (The Administration issued the first GHG standards for heavy-duty engines and vehicles in September 2011.)

Social Cost of Carbon.  The SCC is an inter-agency estimate of the external cost of GHG emissions.  ("External" means that market prices do not account for the cost of social damage attributed to GHG emissions.)  This estimate, first issued in 2010 and revised in May 2013 and November 2013, is used to justify the cost of regulation to reduce GHG emissions.

Appliance Standards. In the first term, President Obama issued minimum energy efficiency standards for refrigerators, clothes washers, water heaters, and fluorescent light bulbs.  So far in the second term, he has issued standards for electric motors, furnace fans, external power supplies, and distribution transformers.

GHG Permitting.  The tailpipe rule triggered GHG permitting for entities (e.g., manufacturers) subject to PSD and Title V permitting under the Clean Air Act.  The Administration issued the so-called “tailoring rule” (and guidance) in 2010, which limited the permit requirements to the largest emitting entities, starting in 2011. 

Clean Power Rule.  EPA recently issued a proposed rule to set long-term (by 2030) GHG emission standards for EGUs on a state-by-state basis.  This rulemaking is the centerpiece of the President’s Climate Action Plan, announced in June 2013.

High GWP Gases.  The President’s Climate Action Plan also promised action to reduce certain gases having a high global warming potential (GWP), namely hydrofluorocarbons (HFCs).  Just last week, EPA issued as proposed rule (known as the SNAP de-listing rule) to phase down the use of certain HFCs used in automobile air conditioners, commercial refrigeration systems, and building insulation products.

These (so far) successful efforts have been met by a substantial amount of opposition from the business community, historically resistant to regulation that increases operating cost.  Reflexive opposition to carbon regulation is not advisable for companies committed to sustainability.  Their focus ought to be on the appropriate role of market forces—and regulation—in reducing GHG emissions over the long term. 

For many of these companies, the ideal solution is (A) international agreement by all major emitting countries to reduce GHG emissions in the atmosphere to a sustainable level, followed by or including (B) use of market mechanisms (carbon tax or cap and trade) at the national or regional level to achieve the desired emissions reduction most cost-effectively.

This was the approach the Obama Administration first tried—but it failed to garner sufficient political support.  The Administration’s subsequent efforts—using the Clean Air Act and other legal authorities—represent Plan C, all the while holding out hope for Plan A at some point in the future. 

Lacking a better alternative, leading companies in sustainability should participate constructively in these efforts.  There is certainly plenty of room for improvement if the goal is to reduce GHG emissions most efficiently. For example, EPA’s proposed SNAP rule may inadvertently increase GHG emissions by making some building insulation materials more expensive.  And debate continues over the “correct” value of the SCC.

Forward-looking companies should also plan their product/service offerings with an eye toward assisting customers/consumers in reducing GHG emissions in the decades ahead.  This regulatory trend has staying power.

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