The court decision striking down the Clean Air Interstate Rule, a major loss for clean environmentalists, can be traced directly to the sulfur trading program often (mistakenly) considered an example of the success of trading over other forms of regulation. Because the new permitting process would have overwritten existing permits, the electric utility industry was able to successfully argue that these regulations would have resulted in economic damage.
You won't find this in the New York Times article itself but in the mp3 of a background interview in a sidebar of the NYT online story. Although the court was careful not to say so directly, in essence this was a "takings" argument. [Update] (In response to comments, I don't think I successfully make a case that this is a movement towards takings. I'll return to the subject of at a later date. But the main point of this post is that undermining the value of permits is one basis for this ruling - and they do say that right in the ruling (linked in a an early comment.)) The court ruled that that the EPA was not allowed to devalue certain acid rain permits. This is a damn good reason not to turn pollution into property rights (or pseudo property rights in the first place.
And thanks to Brian Tokar for his email -- sent to a list I'm on -- that pointed this out.
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Comments
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ce1907 Posted 11:52 am
14 Jul 2008
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Gar Lipow Posted 4:32 pm
14 Jul 2008
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amazingdrx Posted 1:07 am
15 Jul 2008
That was my suspicion all along about carbon trading, that by pricing carbon it amounted to selling the atmosphere. The permits were property rights to the air.
A scheme to sell property rights to the oceans is brought up once in awhile too, as a way to halt pollution and overfishing.
Great observation Gar. This is useful against corporatarian "free" market arguments.
http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin
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Wolverine Posted 2:25 am
15 Jul 2008
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Ken Johnson Posted 3:11 am
15 Jul 2008
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Sean Casten Posted 4:45 am
15 Jul 2008
To the extent that CAIR would have replaced a mandate with a C&T regime, the argument still doesn't quite hold water to me, since there still is no contract being severed. (e.g., it's not as if people were being paid for SOx pre-CAIR and now were getting paid less).
OK, I've got not legal training. But I don't see the causality that makes this a takings issue.
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Max8806 Posted 9:09 am
15 Jul 2008
And Sean, CAIR didn't replace a mandate with a cap/trade, that was CAMR. CAIR tightened the existing SO2 cap/trade program by saying 2 allowances would have to be surrendered for every 1 ton of emissions, as opposed to 1 allowance previously.
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Gar Lipow Posted 11:32 am
15 Jul 2008
A takings issue is a Constitutional issue and so constrains even action by legislatures including Congress.
The court never used the term "takings", but I (and some legal scholars) think the logic is backdoor takings argument.
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Wolverine Posted 1:31 am
16 Jul 2008
That said, however, it's folly to speculate about why a court ruled a certain way. If the court decision didn't mention a taking and that issue was not argued, we should just deal with the legal arguments like we would in any other case. As to political rulings, there's really not much we can do about the reasons for judicial decisions that remain within the judges' heads short of radically changing the system somehow.
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Max8806 Posted 4:56 am
16 Jul 2008
EPA actually promulgated CAIR not as a rule under Title IV of the CAA (which sets up the trading program), but under section 110(a)(2)(D)(i)(I). This section relates to State Implementation Plans (SIPs) for achieving National Ambient Air Quality Standards (NAAQS). Under 110 authority listed above, EPA must require SIPs to not only ensure their own compliance ("attainment") with NAAQS standards, but curtail pollution within one state that interferes with downwind states' attainment of NAAQS standards.
The pollutants at issue were particulates and smog. SO2 and NOx are precursors to these, so EPA has authority under 110 to mandate reductions in SO2 and NOx from states that "significantly contribute" to nonattainment for particulates and smog in downwind states. Instead, EPA decided to just ratchet down the existing SO2 and NOx programs. While this may be a good thing to do (I certainly think it is) it doesn't in any way ensure that the actual reductions that take place will be in areas that are "significant contributors" to nonattainment in other states, so it exceeds the authority under 110(a)(2)(D)(i)(I) it was issued under.
It was a fairly long decision (60 pages) that identified a bunch of different things wrong, but most of it all came back to that. The issue of whether EPA has the authority to curtail allocations for allowances under the Title IV program specifically didn't even come up until page 42 or 43. There, EPA actually admitted it didn't expressly have the authority to do this, but argued since it needed to make additional reductions in SO2 and NOx under section 110, it had to modify the existing cap/trade program for them or the allowances (and so the program) would become worthless. EPA claimed achieving section 110 goals thus by tweaking Title IV was a reasonable way to "harmonize" the two. However, since the court rejected the notion that EPA's actions under 110 were within its statutory authority anyway, obviously this argument fell flat.
The bottom line is that these pollutants that travel between states and affect actual air quality need something beyond just cap/trade. I definitely don't share your skepticism of cap/trade generally, like for CO2, but here you have an issue where emissions reductions in upwind states are worth more than reductions in downwind states, because the downwind states aren't really harming other states' air quality. I think cap/trade is a good framework, but there should be minimum standards for upwind states, because a pure cap assigns equal worth to any reduction anywhere, which is inappropriate here. Section 110 gives the authority for EPA to do that, but instead it chose to just ratchet down the cap. Again, this is certainly better than nothing, but it exceeds EPA's authority under that statute, so it was vacated.
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Max8806 Posted 5:03 am
16 Jul 2008
Obviously with CAIR, as explained above, the issue was that it couldn't establish a cap/trade under narrow 110 authority, or mess with congressional allocations in the already established Title IV program. CO2 on the other hand presents a blank slate. EPA could set up a new program for cap/trade of CO2 under 111 without interfering with any other program that regulates CO2, having to delist anything, or anything else.
This is still not necessarily ideal, and good legislation out of Congress would be better. But if that's not gonna come, its worth noting that these decisions should not interfere with EPA regulation of CO2 next administration.
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BrianSchmidt Posted 1:41 am
17 Jul 2008
http://backseatdriving.blogspot.com/2008/07/gristmill-sam ...
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Gar Lipow Posted 7:44 am
17 Jul 2008
SO2 Petitioners argue EPA lacks authority to terminate or limit Title IV allowances, either through a trading program under section 110(a)(2)(D), 42 U.S.C. § 7410(a)(2)(D), or by
requiring that SIPs have allowance retirement provisions. We agree and grant the petition on this issue.
...
But whatever authority EPA may have to
establish such a trading program, we find nothing in section 44 110(a)(2)(D)(i)(I) granting EPA authority to remove Title IV allowances from circulation in the Title IV market.
That last looks to me like a backdoor takings. Why would the statute that does give authority to put forth additional regulations not allow removal or devaluing of permits? Obviously permits must be seen as having some property like right.
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BrianSchmidt Posted 9:42 am
17 Jul 2008
I agree that's strained reasoning that may get overturned on rehearing en banc or on appeal (unless Pres. Obama decides to junk the whole rule and start over).
"Obviously permits must be seen as having some property like right."
No - the court clearly says on page 44 of the pdf that EPA's problem is not a prohibition against removing permits but a lack of authorization to do so.
Finally, if you're going to call this "takings" which you shouldn't, at least call it "takings-analogous" or "pseudotakings" or anything that clearly distinguishes it from a standard takings issue, which is a constitutional issue.
(And it's great that you put the pdf link in a comment, but would be better in the main post.)
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Max8806 Posted 7:58 am
21 Jul 2008
"Environmental groups, intervening in support of EPA, argue section 301(a) of the CAA also provides EPA authority. That provision authorizes EPA "to prescribe such regulations as are necessary to carry out [its] functions under" the CAA. 42 U.S.C. § 7601(a). EPA does not rely on section 301(a), and for good reason: EPA cannot claim retiring excess Title IV allowances is "necessary" for EPA to ensure SIPs comply with section 110(a)(2)(D)(i)(I)."
That being a reference to the point I made earlier - that 110 authority is specifically for ensuring that emissions within a particular state do not interfere with attainment of NAAQS in another state. EPA never made a showing of why ratcheting down the regional cap would induce reductions specifically in the areas that contribute to nonattainment in other states - because they can't. CAIR was an admirable program, unfortunately it just exceeds the authority EPA has to implement the CAA.
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