POLICY OPTIONS FOR THE UNITED STATES ENVIRONMENTAL PROTECTION AGENCY TO CREATE A MARKET-BASED SYSTEM TO REGULATE GREENHOUSE GASES UNDER THE CLEAN AIR ACT

Although the United States Congress has not enacted legislation to control greenhouse gas (GHG) emissions, the United States Environmental Protection Agency (EPA) has authority under the existing Clean Air Act (CAA) to promulgate regulations on GHGs. This authority stems from the US Supreme Court decision in Massachusetts v EPA (2007) and the EPA’s endangerment finding for GHGs in 2009. EPA’s regulations of GHGs could take the form of either traditional technology-based/design standards, or they could be in the form of cost-effective market-based economic incentives. This paper evaluates the feasibility of creating a market-based system, in the form of cap and trade, either under sections 108-110, National Ambient Air Quality Standards, or section 111, New Source Performance Standards, of the Clean Air Act.

This paper compares the desirability of these two options for a market-based system to regulated GHGs based on the criteria of: legal authority, economic efficiency and environmental effectiveness. While the EPA has the legal authority to create a market-based system for GHGs under either part of the CAA, this comparison supports NSPS as being more preferable than NAAQS. This is because: the EPA has already committed to regulating GHGS under NSPS; NSPS clearly allows market-based incentives; NSPS offers greater flexibility and associated cost-effectiveness; and NSPS avoids the contentious task of setting an ambient standard for GHGs that could prove either unattainable or superfluous.