Granting Emissions Waiver Will Lead to De-stimulus

President Obama has directed EPA Administrator
Lisa Jackson to reconsider the Bush Administration’s denial of a Clean
Air Act waiver that would allow California to establish first-ever
greenhouse gas emission standards for new cars and trucks. Granting the
waiver would strike another body blow to the collapsing U.S. auto
industry. It could also jump-start the process of transforming the
Clean Air Act into a gigantic de-stimulus package.

The principal greenhouse gas emitted by motor vehicles is carbon dioxide (CO2). Since no technology exists to capture CO2
emissions from internal combustion engines, the main way to decrease
emissions per mile is to decrease fuel consumption per mile. Hence,
climate doomsters are big fans of fuel-economy standards.

Congress tightened federal fuel economy standards a year ago, when it enacted the Energy Independence and Security Act. EISA
requires automakers to increase average new-car fuel economy to 35
miles per gallon—a 40% increase in stringency—by 2020. At the time EISA was enacted, only two out of 1,153 vehicle models on the road met the 2020 standards. So EISA
not only sets an ambitious target, it threatens the existence of what
remains of our auto industry. The National Highway Traffic Safety
Administration estimates that compliance with the EISA standards during the five-year period covering model years 2011-2015 would cost automakers almost $50 billion.

Worse, granting the waiver would make CO2
a “regulated pollutant” under the Clean Air Act. That in turn would
trigger a regulatory cascade through other provisions, including some
that have nothing to do with motor vehicles.

For example, any building or facility that has the potential to emit 250 tons per year of CO2
would become a “major stationary source” for purposes of the Act’s
Prevention of Significant Deterioration (PSD) pre-construction
permitting program. Before any firm could build a major stationary
source of CO2, or modify an existing source in a way that would increase emissions, it would have to obtain a PSD permit.

To qualify for PSD
permits, firms must undertake a complex investigation to determine how
to comply with “best available control technology” (BACT) standards.
This process is costly and time-consuming. In 2007, each PSD permit on average cost $125,120 and 866 burden hours for sources to obtain.

Traditionally, BACT determinations and PSD
permitting have applied only to large industrial concerns, because only
large facilities have the potential to emit 250 tons per year of air
quality-damaging pollutants. However, as a U.S. Chamber of Commerce
study shows, approximately 1.2 million previously unregulated buildings
and facilities actually emit at least 250 tons of CO2 per year. All would be vulnerable to new regulation, controls, paperwork, and penalties under the Act.

The EPA estimates that even a ten-fold increase in PSD
permitting from 200-300 permits per year to 2,000-3,000 permits “could
overwhelm permitting authorities” and subject firms to “new costs,
uncertainty, and delay in obtaining their permits to construct.” Yet if
firms seek to modify just 3% of the 1.2 million previously unregulated
buildings and facilities that would qualify as major sources of CO2, state and local agencies would have to process 40,000 PSD
permits per year. The costs, delays, and uncertainties produced by this
administrative quagmire would bring new construction to a screeching

Proponents deny regulating CO2 emissions from motor vehicles would have these consequences. They say the act’s provisions are not self-executing, EPA has no wish regulate thousands of small sources under PSD, and leading environmental groups have no intention of suing EPA to compel such action. Thus, we are assured, there’s nothing to worry about.

This argument fails on two counts. First, as a matter of law, once CO2 is a regulated pollutant under the Clean Air Act, EPA must apply PSD to CO2
sources with a potential to emit 250 tons per year. Second, the major
environmental groups do not have a monopoly on Clean Air Act
litigation. Applying PSD to CO2 would empower legions of NIMBY (“Not
in my backyard”) activists to block or delay construction of strip
malls, big box stores, fast food restaurants, or other facilities they
deem undesirable.

Given all the bashing that former EPA Administrator
Stephen Johnson took for denying the waiver, it is somewhat surprising
that Jackson hasn’t declared what she intends to do. Maybe—just
maybe—this reflects a dawning realization that the California waiver is
no longer just a stick to beat George Bush with, but must now be
handled with care because the Obama Administration could end up taking
ownership of enormous new regulatory burdens in a time of fiscal and
financial crisis.

Mr. Lewis is a Senior Fellow the Competitive Enterprise Institute