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Will Cass Sunstein stick up for small business, or bless EPA's legal hair splitting?

Today, Reps. Lamar Smith (R-TX), Sam Graves (R-MO), Trent Franks (R-AZ), and Lynn Westmoreland (R-GA) sent a letter to Office of Information and Regulatory Affairs (OIRA) Administrator Cass Sunstein sharply critical of EPA's December 7, 2009 finding that "air pollution" from carbon dioxide (CO2) and other greenhouse gases (GHGs) endangers public health and welfare. 

"On the basis of EPA's endangerment finding," the legislators warn, "virtually every economic activity undertaken in America stands to come under the thumb of federal regulation." They explain: "These actions begin with EPA's and the Department of Transportation's proposed new light vehicle emission standards, continue through greenhouse gas (GHG) preconstruction and operating permit requirements for stationary sources and extend as far as the mind can contemplate." They continue: "In these ways, EPA threatens to burden our economy with vastly expanded regulation not contemplated by Congress when it passed the Clean Air Act." 

Yes, indeed. As I discuss here and here, EPA's endangerment finding starts a regulatory cascade that could (1) subject tens of thousands of previously unregulated small businesses to Clean Air Act (CAA) Prevention of Significant Deterioration (PSD) pre-construction permitting regulations, (2) subject millions of small businesses to CAA Title V operating permit requirements, and (3) compel EPA to establish national ambient air quality standards (NAAQS) that would effectively require the United States to de-industrialize. The Supreme Court pushed EPA to make the endangerment finding in its April 2007 Massachusetts v. EPA decision.

The four Members of Congress ask OIRA chief Sunstein to make EPA convene a Small Business Advocacy Review Panel to develop and evaluate regulatory alternatives to mimimize the endangerment finding's impacts on small business. Until and unless EPA does this, the lawmakers say, the endangerment finding should be "withdrawn."

The representatives acknowledge that EPA's proposed October 2009 Tailoring Rule  "seeks to delay for a handful of years the imposition of requirements on sources emitting less than 25,000 tons of carbon dioxide per year." However, this fix is by design temporary, and it is legally dubious, since EPA would be flouting clear statutory language. Under the CAA, entities must obtain a PSD permit in order to construct or modify a facility with a potential to emit 250 tons per year of a CAA-regulated air pollutant, and a Title V permit in order to operate a facility with a potential to emit 100 tons per year.

EPA estimates that if these provisions are enforced as written, the number of entities applying for PSD permits would jump from 280 to 41,000 per year, and the number applying for Title V permits would jump from 14,700 to 6.1 million per year. The flood of permit applications would overwhelm agency administrative resources, the permitting programs would implode under their own weight, construction activity would grind to a halt, and millions of firms would find themselves in legal limbo -- all in the midst of the worst economic downturn since the Great Depression.  

It will be interesting to see how Sunstein responds to the lawmakers' letter. Will he stick up for small business and honor the spirit of the Regulatory Flexibility Act (RFA), or will he bless EPA's evasive legal semantics? 

Under the RFA, agencies are to convene a small business review panel unless the agency head certifies that the proposed regulation will not have a "significant impact upon a substantial number of small entities."  In a recent year, each PSD permit on average cost $125,120 and 866 burden hours for sources to obtain (just the paperwork and administrative costs, exclusive of any associated technology investments). The going rate for Title V administrative fees is $43.75 per ton, implying a virtual carbon tax (exclusive of administrative expenses) of $4,375 for a small business emitting 100 tons of CO2 per year. The Tailoring Rule estimates (p. 55338) that if small sources of CO2 must comply with the law as written, rather than as doctored by EPA, they will incur an expense of more than $38 billion just for Title V compliance over the next six years.  A significant economic impact by any standard.

Note also that the $38 billion figure refers just to the direct expenses small firms would incur to comply with Title V. It does not include the reduced output and job losses due to the diversion of resources to regulatory compliance. Nor does it include the loss of investment in firms that, due to their sheer number, face years of delay and uncertainty in obtaining permits to build or operate their facilities.

The endangerment finding is what tees up all these costs and consequences, so you'd think it would be a no brainer that it has "significant impact upon a substantial number of small entities."

Well, EPA says otherwise. In the Endangerment Finding (p. 66545), Administrator Lisa Jackson certifies that EPA's findings "do not in-and-of-themselves" impose new requirements on small entities. Hence, there's no need for an RFA review panel. Similarly, EPA's GHG motor vehicle standards proposal (p. 49628) certifies that it would not have a significant impact on a substantial number of small entities, since the standards would apply to automakers, very few of which are small businesses.

By making new cars more costly, however, the rule could adversely affect thousands of auto dealers, most of whom are small businesses. EPA says not a word about that potential impact. More importantly, the GHG motor vehicle standards are what directly trigger the PSD and Title V requirements.

EPA says the Tailoring Rule (p. 55349) won't have a significant impact on a substantial number of small entities, because it "will relieve the regulatory burden associated the PSD and Title V operating programs for new and modified major sources that emit GHGs, including small businesses." So EPA acknowledges there is a burden to be relieved -- a PSD/Title V burden. Where does that come from?  The endangerment finding and the GHG motor vehicle emissions rule. Yet EPA claims those actions have no impact of any consequence for small business.   

Isn't legal hair-splitting grand? Of course, the findings "in-and-0f-themselves" regulate nothing -- but they compel the adoption of GHG motor vehicle standards under CAA Sec. 202, which then automatically trigger pre-construction permitting requirements under Secs. 160-160 and operating permit requirements under Secs. 501-507.

The endangerment finding also sets the stage for regulation of GHG emissions from motor fuels under CAA Sec. 211, non-road engines and vehicles under Sec. 231, the establishment of GHG new source performance standards (NSPS) for scores of industrial source categories under Sec. 111, and the establishment of economy-wide NAAQS regulation of GHGs under Secs. 107-110.  "Yes, Your Honor, I pulled the trigger, but I am innocent; the bullet killed the man!"

And if litigation and the logic of the CAA compel EPA to establish NAAQS for CO2 and other GHGs, which could easily qualify as the most expensive rulemaking in history, you can bet your bottom dollar what EPA will say. There's no significant impact on a substantial number of small businesses, because NAAQS "in-and-of-themselves" don't regulate anybody. The actual regulation of businesses large and small will be done by the states, through their State Implementation Plans (SIPs). "Once the rockets are up who cares where they come down, that's not my department," says Wernher Von Braun.

Small business clearly needs an advocate in the room and at the table whenever EPA deliberates about any regulatory action pertaining to greenhouse gases and CO2. Congress enacted the RFA to protect small business from regulatory excess. Right now it's not working. Cass Sunstein has an opportunity to ensure that small businesses have a say in regulatory decisions affecting their very survival. He should seize it.