Why EPA, not Coal Burners, Should Be In Charge on Climate Change

On February 17, Obama's Environmental Protection Agency (EPA) did something audacious that sent shockwaves throughout the coal industry: Lisa Jackson, the agency's administrator, announced that it would take a fresh look at a Bush administration memo preventing the regulation of CO2 emissions from coal-fired power plants and other sources.

Simply stating she was going to reconsider former EPA Administrator Stephen Johnson's December 18, 2008, memorandum was enough to put at least 17 coal-fired power plants currently in the pipeline on hold. These power plants, had they been approved, would have produced roughly 12,000 megawatts of power -- enough to provide the needs of 3.6 million homes -- and released about 84 million tons of CO2 per year.

What does this mean? Let's put it in context: 84 million tons of CO2 is roughly equivalent to 2 percent of all U.S. greenhouse gas emissions, and about 4 percent of all emissions from electricity the United States produced in 2007. In other words, the mere threat of regulation meant a previously expected 2 percent increase in U.S. greenhouse gas emissions was suddenly much less certain.

This promising signal was just one of several from the Obama administration's earliest days. Sadly, the word now from the White House is that President Barack Obama wants Congress to send him a "market-based cap" on greenhouse gas emissions. Ironically, it's that market-based approach -- and all that goes with it -- that may actually rob the administration of its most powerful tool in this battle for climate stability: EPA regulation.

Now, Obama is getting what he asked for: In June, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009, otherwise known as the Waxman-Markey bill. This legislation pledges to reduce greenhouse gas emissions by about 2 percent below 1990 levels by 2020 -- if all goes well. But there's a lot that could go wrong.

As a tradeoff to gain support from industry for this bill, lawmakers have agreed to strip the EPA of its authority to regulate greenhouse gas emissions from all power plants, including coal burners, under the Clean Air Act. In place of regulatory oversight, the bill allows for a free market in pollution allowances between industries. Put simply, coal-fired power plants and other large burners of energy would have a "right to pollute," which they could buy and sell with other large consumers of energy. And because these pollution rights have a cash value and would be given away for free over the next several decades, polluters will make a handsome profit from their pollution.

EPA's weakened authority is just the first of several bonuses for polluters. Under the Waxman-Markey bill, polluters could purchase carbon "offsets" -- 2 billion tons of them each year -- should they not be able to meet their cap in greenhouse gas emissions via reductions or carbon trades.

Regulated carbon reductions at power plants are the optimal-value approach: straightforward, uncomplicated, easy to quantify. Next down the value chain would be carbon trades, where Polluter A, who has exceeded his pollution target, trades with Polluter B, who has reduced his pollution by more than is required by law. Polluter A might find it too expensive to reduce his pollution according to strict regulations, so pays Polluter B for the right to claim Polluter B's share of pollution reductions.

Further down the value chain would come carbon offsets, a sort of "subprime" carbon trade. If Polluter A finds trading with Polluter B to be too challenging, Polluter A can instead claim carbon credits by buying carbon offsets.. A carbon offset is "subprime" because, unlike an emissions reduction, it is hard to prove it would not have taken place anyway. For example, some carbon offsets are claimed from methane that is captured and burned at a waste dump, transforming it into carbon dioxide, a less potent global warming agent. Other carbon offset sellers claim they are sequestering CO2 in fast-growing eucalyptus plantations -- and claim that this CO2, which would otherwise be emitted in the air, is now being stored in trees. But local regulations often require waste dumps to burn their methane. And trees grow (and die) without intervention from humans.