With the Obama administration releasing the details of its fuel economy and vehicle emissions standards this week, what does the car rule mean for the broader regulatory picture? During today's OnPoint, Roger Martella, former general counsel at U.S. EPA and currently a partner at Sidley Austin, discusses the significance of the administration's move to regulate vehicle emissions. He also comments on whether an endangerment determination will be a sufficient negotiating tool for the United States at this year's international climate talks in Copenhagen.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Roger Martella, former general counsel at U.S. EPA and currently a partner at Sidley Austin. Roger, always great to have you on the show.
Roger Martella: Thanks for having me back Monica.
Monica Trauzzi: Roger, this week the Obama administration released the details of its fuel economy and emission standards. Things are beginning to move pretty quickly coming out of EPA. How important is the car rule sort of bigger picture?
Roger Martella: Sure, well, there's two things about the car rule. On the surface it's about increasing the miles per gallons of cars. I think they're 35.5 miles per gallon until 2016 and that's pretty noncontroversial. Everybody understands that, even the auto manufacturers don't seem to be complaining about that. But you talked about the bigger picture and that's really the significance here. The car rule represents the first time EPA will ever be regulating greenhouse gases from anything and that's a very significant step across that threshold. The day that the car rule gets finalized we will now be in a world where greenhouse gases are regulated pollutants under the Clean Air Act and far beyond cars, that has ramifications for all sources of greenhouse gases. It means that EPA will not only have the authority, but in some cases the duty to address greenhouse gases from all sources of emissions.
Monica Trauzzi: And we've really begun seeing a significant shift in the mindset about using EPA as the vehicle for greenhouse gas emission regulation. What are the main reasons for why this shift is happening?
Roger Martella: Well, we've come back from the August recess with something of a fundamental role reversal. When we left in July it looked like the legislation had a lot of momentum and we were going to be looking at a cap-and-trade approach that would preempt the EPA. When we came back in September from the August recess there's been a role reversal where now we're looking to EPA as moving forward as the primary source of greenhouse gas controls. And there are really three reasons for that. One is it does look like the legislation is losing momentum and people are looking to EPA to fill in that gap and saying we have tools under the Clean Air Act to comprehensively regulate greenhouse gases sooner. The second reason is the environmental groups themselves have somewhat shifted their strategy. If you asked them a year ago they would have said we really aren't enthusiastic about EPA doing this. We would much prefer a cap-and-trade approach in the alternative. Now they've changed that message and the environmental groups are arguing that they want both EPA to do this simultaneously with a cap-and-trade system. So they want EPA to do this first and then have the cap and trade come in next. And the third reason I think relates to Copenhagen. Given the increasing unlikelihood of legislation and the fact that the Obama administration wants to have something in place for Copenhagen they can go there prepared with a comprehensive strategy under the Clean Air Act and say the U.S. is stepping up, controlling greenhouse gases, but we're doing it with existing authority as opposed to this new cap-and-trade approach.
Monica Trauzzi: And the enviro approach is linked to pre-emption?
Roger Martella: Yes, the working assumption, again a year ago, even after Massachusetts v. EPA was the environmental groups were pursuing the Clean Air Act because that's all they had. That was the only tool at their disposal, but they were never shy in saying it was a second choice at best. They would much prefer a cap-and-trade legislation. But over the months of July and August that message changed fundamentally and they were very open about it and they said we now no longer want to put the Clean Air Act aside. We want to preserve EPA's Clean Air Act authority. We want a dual system where EPA is using a command-and-control approach for stationary sources, for coal-fired power plant, and meanwhile Congress enacts a cap-and-trade approach for more of a market-based system. And the ramifications there are if EPA moves forward first it's going to be much harder to preempt them later. It means it's more likely EPA will be retaining its authority over the long term.
Monica Trauzzi: So, at this point we're waiting on an endangerment finding and the PSD threshold rule. What's your best sense of what the timeline might be over the next couple of months?
Roger Martella: Sure, well, there's three pieces of the puzzle that have to come together between now and March. There's the endangerment determination, there's the car rule, and as you mentioned the PSD rule. The endangerment determination and the public comment period is closed. Our understanding is it's pretty close to being finalized. EPA could release that at any time between now and March, sometime probably later this fall, probably before Copenhagen. So we're expecting to look out for that any time. The car rules being proposed was proposed this week. There's a 60 day comment period and it's pretty clear that will be finalized in March of 2010. So, we're looking at March of 2010 as a date where that rule will take effect. The PSD rule we expect to be released virtually any day, any moment. That will probably sync up with the car rule and be finalized at about the same time, be finalized around March of 2010. There will be a public comment period on that as well.
Monica Trauzzi: And why is the PSD rule significant?
Roger Martella: The PSD rule, when I try to explain this to people I call it the innocent bystander rule. I think what EPA is trying to do with the PSD rule is kind of take the innocent bystanders out of the way of all this, because what happens is, again, the significance of the car rule. On the day that the car rule is finalized we talked about greenhouse gases become regulated pollutants. That means for any new source, any source including the boiler in your home, you would be required to get a permit if you had to make a modification to your boiler or if you got a new boiler. EPA doesn't want that to happen to you. They're not worried about your boiler. So what they're trying to do is they're trying to draw a line between the big guys and the little guys and they're saying we're going to require these permits for the big guys, but not worry about the little guys right now and this is the PSD threshold. Well, they're raising the PSD threshold to 25,000 tons. Twenty-five thousand tons has kind of become this biblical number in the climate change debate. The legislation uses it, EPA uses it. And what 25,000 tons represents is basically the largest 13,000 sources of greenhouse gas emitters in the country. So they're drawing that line between big guys above 25,000 tons and the little guys. The big guys will require permits and those permits will include control technologies for greenhouse gases. So this is important, as of March, if you have to get a permit you may be a power plant, you may be a petroleum refinery, you're going to have to get a permit that includes greenhouse gas controls. As for the little guys, you're off the hook for now. You don't have to do anything right now, but the legal authority EPA is using to protect you, to protect the innocent bystanders is somewhat shaky. They know that. They're doing what they can to protect it, but there's no guarantee they're going to be off the hook forever.
Monica Trauzzi: You mentioned the upcoming U.N. meeting in Copenhagen a couple of times and the big question is what is the U.S. delegation going to bring to the table at that meeting? Is EPA regulation enough to satisfy the international community or are they sort of going to look at the lack of movement from Congress as a failure?
Roger Martella: I think clearly the first choice for the administration would be to be able to go to Copenhagen and say, look, we've passed this cap-and-trade legislation. It shows how serious we are, how committed we are and we're putting this into effect. But I think they have a backup plan. I think the backup plan will go something like this. We may not have a cap-and-trade legislation, but we can use existing authority to achieve effectively the same goals and here's the comprehensive strategy under the Clean Air Act we're going to use to basically achieve the same goals we would have done with cap and trade. It may look different. It may work differently, but at the end of the day we're committing to reduce greenhouse gas emissions. And so that comprehensive strategy likely would involve EPA using the existing Clean Air Act to regulate, again, not just cars, but every source of greenhouse gas emissions including other types of stationary sources.
Monica Trauzzi: Any sense that the Obama administration might try to make a last final push before Copenhagen for the legislation to happen or does it really look like they're using the EPA strategy here?
Roger Martella: My understanding at this point and I can't obviously speak for the administration, but currently the priority seems to be on health care and I think it would probably depend on the likelihood of the outcome of the healthcare debate whether they're willing to divert more resources into resolving climate change.
Monica Trauzzi: OK, we'll end it right there. Thank you, as always, for coming on the show.
Roger Martella: Thank you Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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