If you ask Americans who pay attention to climate change what they think about our climate policy, it is more than likely that you will get opinions about the 2022 Inflation Reduction Act. The IRA gets a lot of press for the very good reason that it is by far the most far-reaching law Congress has ever passed to directly address global warming. Together with the Infrastructure Investment and Jobs Act enacted the year before, federal lawmakers allocated no less than half a trillion dollars for financial incentives and large-scale projects to stimulate building out the new renewable energy economy. Solar and wind farms are iconic, highly visible features of the new energy world, obviously necessary and naturally the focus of most people’s attention (favorable or not).
There are, however, two required pieces for a successful climate policy, and the IRA focuses mostly (though not entirely, as we’ll see) on just one of them – building the new technology. The other piece, far less glamorous yet also very important, is to rapidly shrink the coal, oil and natural gas industries. Here, unfortunately, we’re doing much less well. The signature approach – an aggressive, economywide carbon tax paid by fossil fuel companies – has been a political nonstarter in the US for decades despite an overwhelming consensus by economists that it is the best way to go. With a national carbon tax off the table, policymakers have resorted to the next best thing – using administrative regulations to curtail greenhouse gas emissions. This approach comes with the crucial proviso that the rules be properly authorized by some underlying law that Congress has passed. That is environmental law 101, yet with respect to the worst climate pollutant, carbon dioxide, the regulatory approach has so far failed spectacularly at precisely this point.
The basic problem is that the US has never enacted a federal law well-suited to regulating CO2 emissions. The seemingly obvious choice is the Clean Air Act, which was passed in various stages going back as far as the 1960s, and attained its nearly final form with a set of amendments enacted in 1989. The CAA, however, was written before the era of concern about climate change, and it is structured to address conventional pollutants, such as sulfur and nitrogen oxides from industry smokestacks and car exhausts, that are present in the atmosphere at far lower concentrations than CO2, and that directly impact human health as well as the environment. Nonetheless, in the bellwether 2007 Massachusetts v EPA case, the Supreme Court ruled by a 5-4 vote that CO2 does qualify as a pollutant that the CAA can regulate. The EPA then followed up with an endangerment finding showing how CO2 and other greenhouse gases threaten human health and the environment. This set the stage for the Obama administration’s signature climate initiative: the Clean Power Plan.
The CPP was supposed to aggressively limit carbon dioxide emissions from coal and natural gas-fired electric power plants, but its design, paradoxically enough, was simultaneously too timid and too aggressive. Too timid, because the target it set – a 32% reduction in electric power sector emissions by 2030 as compared to 2005 – was so modest that it was reached by market forces alone before 2020. Too aggressive, because it relied on a set of “building blocks” that included substituting solar and wind for coal-fired power. Fossil fuel groups sued to block the regulations, and in 2016 the Supreme Court agreed, staying the CPP from ever going into effect.
After six more years of litigation (which included enactment and subsequent invalidation of a much weaker Trump administration rule) in 2022 the Supreme Court finally issued the final word in its fateful West Virginia v EPA decision. The Court said that the CAA does authorize EPA to regulate CO2 emissions from individual power plants, and may specify the “best system of emissions reduction” to accomplish this. That gives a potential boost to carbon capture and storage technology in the revised regulation that the Biden EPA is writing now. But the Court also said that EPA is not allowed to effectively redesign the entire power sector by requiring solar and wind to substitute for fossil fuels – so-called “generation shifting” – holding that the CAA doesn’t authorize that. So the CPP ultimately fell because it contained this flawed building block.
To be fair, in the lawsuit the Obama EPA did make good arguments that generation shifting should be allowed, as described in a dissenting opinion by the liberal wing of the court. President Obama also faced a hostile Republican House majority in his last six years in office, making new climate legislation essentially impossible and driving him to use the regulatory approach. Unfortunately, the Supreme Court also used the West Virginia v. EPA case to articulate its new “major questions doctrine.” This very general principle says that agency rules are suspect if, like the CPP, they have expansive economic or social impacts that are outside the authority provided by the underlying law. The concern is that “expansive impact” is very much in the eye of the beholder, and the Court’s rightward shift may mean that, going forward, the doctrine will provide a rationale for curtailing other aggressive regulations relevant to the green energy transition.
Most of the new federal climate regulatory action is now focused not on CO2 but methane, the second most important greenhouse gas, which contributes about 30% to global warming. Methane is tough to control because a good deal of it comes from so-called “nonpoint” sources, especially agriculture, where emissions enter the atmosphere over large diffuse areas. The technology for capturing methane from coal mines is also expensive and hard to install. However, methane leaks and flaring from the oil and gas infrastructure are readily addressed, and a number of regulatory efforts to this end were pursued beginning in the second term of the Obama administration. Obama’s EPA put new rules in place to require oil and gas facilities to control methane leaks, and his Bureau of Land Management enacted regulations requiring gas capture and leak repair at wellheads on federal lands. But both rules were repealed by the Trump administration, which never got around to writing new ones. This highlights a crucial weakness of regulations: although mandated by the authorizing law, agencies have a lot of wiggle room on how strict to make them, and how quickly they act.
Notwithstanding these concerns, the relevant agencies under Biden have been a beehive of activity ever since he took office, much of which is coming to fruition now, after years of effort. First and probably most impactful is EPA regulation authorized by the CAA. Under a new proposed rule issued last month, most onshore oil and gas production facilities have to stop venting and flaring methane, and must instead capture and deliver it by pipeline for commercial use (or burn it for on-site heating or power generation). The new rule also puts in place much more stringent leak detection requirements at production sites as well as at selected points within the complex infrastructure for oil and gas refinement and distribution. Complementing this EPA regulation is another rule in the works from the Pipeline and Hazardous Materials Safety Administration, which will update leak detection and repair rules for natural gas (methane) pipelines under federal jurisdiction.
The Biden administration estimates that, under the new EPA rule, methane emissions from the regulated components of the oil and gas industry will be reduced by 80% compared to a business as usual scenario (if the rule were not in place). For its part, the PHMSA projects that its new rule will bring about as much as a 55% decrease in methane leakage from pipelines.
A third regulation that dovetails with the EPA rule is the levying of a new methane fee on oil and gas companies. This fee, enacted as part of the IRA, is applied to operations to be regulated by EPA under its new rule, and is levied on the portion of emissions that is not captured. It therefore works as a charge on wasted methane, basically providing an incentive for the oil and gas industry to comply with the EPA regulations on venting, flaring and leak detection. We noted above that a nationwide carbon tax has been elusive, but it is worth noting that this (admittedly limited) fee on methane actually represents the very first time that the US has imposed a fee on the release of any greenhouse gas to the atmosphere.
These three new rules are quite a lot already, but there is more. In 2021 the Biden EPA wrote a comprehensive new rule to regulate the emission of methane from landfills, and is now requiring states that have not developed individualized implementation plans to follow a uniform federal policy. And the Bureau of Land Management has updated its own regulation to control venting and flaring of natural gas on federal lands, relying on both the IRA and other laws to impose royalty fees on oil and gas companies in proportion to the amount of “wasted” methane that is not captured and used. And all of this is on top of other EPA programs that regulate CO2 emissions from cars, trucks and other mobile sources, phase out hydrofluorocarbons that have been used to replace ozone-layer depleting CFCs (yet are potent global warming agents), and administer the federal renewable fuels standard, which requires blending of ethanol and biodiesel with gasoline and petroleum diesel, respectively.
Unquestionably, all these regulations support the public good. They will foster significant decreases in greenhouse gas emissions and reduce how much warming we ultimately experience. But unlike an aggressive and escalating carbon tax, which drives energy companies to invest in green alternatives based on financial self-interest, the regulations on methane and CO2 will only mitigate the effects of fossil fuel burning, not eliminate the industry altogether. In 2015 the Supreme Court held that the cost of industry compliance must be considered when determining the stringency of regulations, and we should not expect that the new rules will squeeze the oil and gas firms too firmly. Indeed, regulation can be seen as a form of social legitimization, and the explicit inclusion of carbon capture and storage as a “best system of emissions reduction” under the Clean Air Act is actually giving the fossil fuel firms exactly what they want. In the meantime, many of the other social costs associated with continued fossil fuel mining and processing, not least the inequitable impacts on frontline communities, continue. We must recognize the benefits and limitations of government regulations as we continue to advocate for restoring a healthy climate.
Inflation Reduction Act: https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/
Bipartisan infrastructure bill (IIJA): https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/06/fact-sheet-the-bipartisan-infrastructure-deal/
Massachusetts v EPA: https://climate.law.columbia.edu/content/massachusetts-v-epa
EPA endangerment finding: https://www.nrdc.org/sites/default/files/epa-endangerment-finding-fs.pdf
Clean power plan: https://archive.epa.gov/epa/cleanpowerplan/fact-sheet-overview-clean-power-plan.html
West Virginia vs EPA: https://betterenergy.org/blog/understanding-the-us-supreme-courts-decision-in-west-virginia-v-epa/
Biden roadmap for methane regulation: https://www.whitehouse.gov/wp-content/uploads/2021/11/US-Methane-Emissions-Reduction-Action-Plan-1.pdf
Federal methane regulations; legal basis: https://sgp.fas.org/crs/misc/IF12217.pdf
IRA methane fee: https://crsreports.congress.gov/product/pdf/R/R47206
Explanation of IRA methane fee: https://community.citizensclimate.org/resources/item/19/530
PHMSA rule: https://www.federalregister.gov/documents/2023/05/18/2023-09918/pipeline-safety-gas-pipeline-leak-detection-and-repair
EPA climate change regulations: https://www.epa.gov/climate-change/climate-change-regulatory-actions-and-initiatives
Cost considerations: https://supreme.justia.com/cases/federal/us/576/743/