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.

The Staying Power of GHG Regulation

Amid lots of external 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 major 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 accomplishments that will commit the country to reducing 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 regulatory 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 issued jointly by EPA and NHTSA 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 for model years 2014-2018, and in July 2015 proposed requirements through model year 2027.

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, November 2013, and July 2015, has been and continues to be used to justify new regulations to reduce GHG emissions.

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.  EPA 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 Plan.  In October 2015, EPA finalized rules to set GHG emission standards for new and existing coal- and gas-fired power plants, on a state-by-state basis, through 2030.  This rulemaking is the centerpiece of President Obama’s Climate Action Plan, announced in June 2013. 

High GWP Gases (HFCs and methane).  The President’s Climate Action Plan also promised action to reduce certain gases posing a high global warming potential (GWP), namely hydrofluorocarbons (HFCs) and methane.  On July 20, 2015, EPA issued a final rule prohibiting certain HFCs used in automobile air conditioners, commercial refrigeration systems, and building insulation products. On November 9, 2015, EPA proposed HFC restrictions for new refrigerant management programs.  With respect to methane emissions, which have been trending downward in recent years, EPA proposed New Source Performance Standards on September 18, 2015 to reduce methane leaks from the oil and natural gas sectors.

Appliance Standards. In the first term, the Department of Energy (DOE) issued minimum energy efficiency standards for residential refrigerators, residential clothes washers, water heaters, and fluorescent light bulbs.  So far in the second term, DOE has issued final standards for electric motors; furnace fans; external power supplies; distribution transformers; commercial clothes washers; commercial HVAC, refrigeration, and water heating equipment; direct heating equipment and pool heaters; general service fluorescent lamps and incandescent reflector lamps; automatic commercial ice makers; fluorescent lamp ballasts; walk-in coolers and freezers; packaged terminal air conditioners and packaged terminal heat pumps; ovens; ASHRAE; beverage vending machines; dehumidifiers; grid-enabled water heaters; external power supplies; and single-packaged air conditioners and pumps.

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 approach (Plan A) is international agreement by all major-emitting countries to reduce GHG emissions in the atmosphere to a sustainable level, followed by or including the 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 B, all the while holding out hope for an international agreement at some point in the future (perhaps starting with the upcoming international summit scheduled for December in Paris). 

Lacking any better alternative, leading companies in sustainability should participate constructively in these domestic regulatory efforts.  There is certainly room for improvement if the goal is to reduce GHG emissions most efficiently.  

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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