NYU Law School Sponsors Cap-And-Trade Petition; Proposes Market-Based Approach to Controlling Motor Vehicle Emissions

The Institute for Policy Integrity (IPI), a nonprofit advocacy think-tank organization at NYU School of Law, has filed a petition for rulemaking with Lisa P. Jackson, the Administrator of the EPA. The petition proposes a cap-and-trade system to control greenhouse gas emissions from fuels used in the transportation sector. The petition is apparently the first to address emissions from motor fuels. The comprehensive proposal encompasses emissions from motor vehicles, non-road vehicles, and aircraft. IPI emphasizes the benefit of a market-based approach to emissions control, as opposed to a “command-and-control” system. The petition reflects the IPI’s lengthy April 2009 report that assessed the EPA’s options for regulating greenhouse gas emissions.

IPI claims that EPA’s response is mandatory under Massachusetts v. EPA, in which the Supreme Court held that 1) greenhouse gases are “air pollutants”; 2) in responding to a petition, EPA responses must have “reasoned justification” or must “conform to the authorizing statute”; and 3) “The harms associated with climate change are serious and well recognized.”

In its petition, IPI requests that the EPA first, make a positive endangerment finding, and second, propose and finalize regulations, pursuant to its “ample authority” under the Clean Air Act, in particular Sections 211 (motor vehicles) and 231 (aircraft). Notably, the EPA recently proposed such a finding for emissions from new motor vehicles.

The IPI espouses a system that creates market-based incentives that allow the market to naturally find the most cost-efficient way to reduce emissions. Because a command-and-control system would prescribe the particular conduct for many actors, IPI claims that this would impose costly requirements on the transportation sector. However, cap-and-trade would allow businesses to adhere to the Clean Air Act, while finding ways to comply at the lowest possible cost. IPI also notes the transparency of this system, and the possible benefits for international trade. A key feature of the proposed system is that allowances are auctioned off, as opposed to a permit give-away system. In short, the emissions cap will raise the cost of fuel, which will send a price signal to conserve and switch to cleaner fuels. According to IPI, the revenues from auctions will offset the price increase, prevent harm to the middle class, and avoid windfall corporate profits.

IPI emphasizes that this comprehensive approach will prevent the EPA from addressing individual petitions piecemeal. Also, IPI warns of a “collision course” with Congress, noting that Congress will likely pass broad cap-and-trade legislation that would supersede any command-and-control mechanisms that EPA creates. In fact, on June 26, the House passed the American Clean Energy and Security Act of 2009 (ACES), which establishes a cap-and-trade system for stationary sources. The IPI therefore claims that its proposed regulations would prevent EPA from wasting time and resources on new command-and-control regulatory measures.