Arthur G. Fraas

Greenhouse Gas Regulation Under the Clean Air Act: Structure, Effects, and Implications of a Knowable Pathway

It appears inevitable, absent legislative intervention, that regulation under the Clean Air Act (CAA) will move beyond mobile sources to the industrial and power facilities that emit most U.S. greenhouse gas (GHG) emissions. We analyze the mechanisms available to the EPA for regulating such sources, and identify one, New Source Performance Standards (NSPS) as the most predictable, likely, and practical, i.e. knowable, pathway. Based on the legal structure of the NSPS and the EPA’s traditional approach, we analyze a hypothetical GHG NSPS for one sector, coal electricity generation. This analysis indicates that efficiency improvements and perhaps biomass cofiring could be implemented through the NSPS, yielding modest but meaningful emissions reductions. Trading could also rein in costs. Though analysis is limited to one sector and does not include modeling of costs, it suggests that CAA regulation, though inferior to comprehensive climate legislation, could be a useful tool for regulating stationary-source GHGs.

Looking backward to move regulations forward

Rigorous ex post analyses can improve regulatory policies Research-based evidence is critical for understanding and improving the impact of government regulation on society. Positions promoted by the Trump Administration question the effectiveness of many regulations, making their rigorous analysis all the more critical. Yet such research is relatively rare, especially for environmental rules, the most costly type of federal regulation in the United States (1). The principal source of information on costs, benefits, and distributional consequences of major regulations are ex ante studies such as regulatory impact analyses (RIAs) routinely conducted on proposed rules by U.S. federal agencies. Despite their rigor and complexity, RIAs are developed at “the point when the least is known and any analysis must rest on many unverifiable and potentially controversial assumptions” (2). By contrast, retrospective analysis can reaffirm (or question) the effectiveness of rules and the accuracy of RIAs and thereby aid the rational allocation of societal resources. Despite this advantage, many obstacles prevent widespread development of such ex post analyses. We discuss approaches to ex post analysis and suggest steps to broaden its use.

Cheaper Fuels for the Light-Duty Fleet: Opportunities and Barriers

The shale gas revolution in the United States has dropped the price of natural gas (NG) significantly. Combined with new fuel and vehicle technologies, an opportunity exists to expand the use of NG throughout the economy, including in the light-duty fleet of cars and trucks. This expansion could involve the direct combustion of the gas in the form of compressed natural gas or liquid petroleum gas or, alternatively, the use of natural-gas-based liquid fuels such as ethanol or methanol. This paper examines the potential economic, environmental, and national security gains from replacing a portion of the domestic gasoline use in the light-duty fleet with these various NG-based fuels. Also examined are the regulatory barriers to the expanded use of the fuels. We find that these NG-based fuels could yield significant fuel cost savings relative to conventional gasoline in the light-duty fleet, along with gains to national security and, possibly, some environmental benefits.

A Retrospective Study of EPA’s Air Toxics Program under the Revised Section 112 Requirements of the Clean Air Act

Under the 1990 Clean Air Act Amendments, the US Environmental Protection Agency (EPA) was required to establish standards limiting air toxics emissions from industrial plants. This paper examines the effect of five of the largest cost rules issued by EPA in the initial round of air toxics rulemaking over the 1995 to 2000 period. Our estimates suggest that plants in the printing and publishing and pulp and paper industries realized important reductions in their air toxics emissions in the period between publication of the final rule and the effective date for compliance with the rule—although the reduction in air toxics emissions by pulp and paper mills falls short of EPA’s ex ante projections. However, our estimates suggest that plants in the other three industries—petroleum refining, pharmaceutical, and wood furniture—achieved little or no additional reduction in air toxics emissions over the compliance period in response to EPA’s air toxics rules. Finally, the paper explores steps that EPA should take in setting up future retrospective analyses.

Comparing the Clean Air Act and a Carbon Price

Over the last half decade, a variety of federal legislative proposals for limiting greenhouse gas (GHG) emissions have been put forward, most of which would set a price on carbon. As of early 2013, the one politically plausible policy appears to be a carbon tax, passed as part of a larger fiscal reform package. Meanwhile, the US Environmental Protection Agency has begun regulating GHG emissions from a variety of sources using its authority under the Clean Air Act. It may be necessary to choose between these two policies, however. The Waxman–Markey cap-and-trade bill that failed in 2009 would have preempted much of this authority, and it appears likely that a carbon tax law would do the same. But how can one make this choice? What are the key questions and issues to consider? The purpose of this paper is to compare these policies. Our aim here is therefore not to determine whether an exchange is wise or unwise. Instead, our intention is to give policymakers and other interested readers an impartial assessment of both policies and, in particular, the features that are important to a comparative evaluation. We don’t give answers, but hope at least to give the right questions to ask.

Comments on EPA’s Proposed Carbon Pollution Standard for New Power Plants

The U.S. Environmental Protection Agency’s (EPA) proposed greenhouse gas (GHG) performance standards for power plants are an important step forward in regulating GHGs in terms of both their substantive impact and legal precedent. Nevertheless, we have some concerns with the proposal, which we discuss in the following comments submitted to the agency. The majority of our comments are directed to ways that EPA can increase certainty for the industry—reducing costs and, possibly, improving environmental outcomes. We highlight two specific areas of concern. First, the current proposal contributes to the significant uncertainty facing existing sources. Second, EPA’s proposed averaging option for new facilities that will install carbon capture-and-storage (CCS) technology in the future, although intended to create a flexible pathway, unfortunately creates some new regulatory uncertainty. We also comment on EPA’s decision to combine most coal and gas generators into a single source category. We believe this decision is legally valid and practically important, and that EPA should resist pressure to reconsider.

A Comment on 'Efficient Pollution Regulation: Getting the Prices Right' by Muller and Mendelsohn

In their recent paper , Efficient Pollution Regulation: Getting the Prices Right (henceforth, EPR), Muller and Mendelsohn describe a broader, more appealing concept of efficiency that incorporates information on damages caused by emissions from specific sources: “The science and economics related to pollution control”, they write, “have advanced to the point where regulations can now move from cost-effectiveness to efficiency.” We argue that despite the appeal of the EPR solution, its conclusion that source-specific marginal damage estimates are ready for use in regulations is simply incompatible with the empirical evidence presented in EPR. In particular, we explore the implications of the EPR finding of negative marginal damages from NOx emissions for many heavily populated counties. The associated nonconvexities, we show, imply that the source-specific trading ratios that EPR advocates lead to unattractive outcomes not likely to be efficient. We also discuss how the EPR assumption that the regulators know damages with certainty oversimplifies key aspects of efficient air pollution regulation.