POLICY MEMORANDUM FOR CONGRESSMAN GEORGE MILLER

Prepared by Lyle Birkey

Assignment: As a staffer for a United States Congressman, provide a policy brief

for an upcoming (hypothetical) congressional vote that would either empower the USEPA to regulate greenhouse gas emissions or would

block the USEPA from regulation of greenhouse gas emissions.

Lyle D. Birkey Energy Policy Analysis

Johns Hopkins University Master of Science in Energy Policy and Climate

October 14, 2013

To: Congressman George Miller From: Lyle Birkey, Staffer for U.S. Congressman Date: October 23, 2013 Re: Blocking GHGs from Federal Regulation

1. INTRODUCTION This policy memorandum addresses the upcoming vote to block the Environmental Protection Agency (EPA)’s regulation of greenhouse gases under the Clean Air Act (CAA), and specifically focuses on the impacts of such regulation on the U.S. economy. The early evidence of climate change is already incurring crippling economic costs and international scientific consensuses project an acceleration of such economic liabilities. On the other side of the debate, the administrative expenses associated with federal regulation of greenhouse gases may be a costly venture for American taxpayers and may result in higher energy prices passed onto the end consumer. Through close examination of the economic expenses associated with either avenue, this policy memorandum concludes that Congressman George Miller should vote against blocking the EPA from regulating greenhouse gasses through the CAA because (1) the cost associated with increased storms, wildfires and sea level rise will rise as climate change becomes more severe on a multi-decadal timeline, (2) the estimated costs of greenhouse gas regulation under the Clean Air Act will come at a cost initially, but the costs will reduce as more efficient technologies are installed, and (3) the regulation of greenhouse gases under the CAA can boost the U.S. economy through job creation and global competitiveness.

2. BACKGROUND It is important to be clear about the historical context of the Clean Air Act in order to understand our current judicial juncture.

A. What the Clean Air Act was originally designed to regulate Although the Clean Air Act was originally passed by congress in 1963, the Clean Air Extension of 1970 drastically broadened the Act to cover both state and federal jurisdictions for both stationary and mobile source of air pollution. The law encompassed four regulatory categories: National Ambient Air Quality Standards (NAAQS), State Implementation Plans (SIPs), New Source Performance Standards (NSPS), and National Emissions Standards for Hazardous Air Pollutants (NESHAPs). The National Environmental Policy Act (NEPA) was adopted in 1971, establishing the EPA, which was intended to manage a variety of

legislation including the regulations of the Clean Air Act and its newly-defined component parts.

B. Recent Path toward Regulating Greenhouse Gases under the Clean Air Act Under section 202(a)(1) of the Clean Air Act, the Administrator of the EPA is required to establish standards which are, “applicable to the emission of any air pollutant from…new motor vehicles or new motor vehicle engines, which in [her] judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare.”1 The latter portion of this language concerning the word “reasonably” and the phrase “endanger public health or welfare” are where the EPA finds regulating greenhouse gases to fall within their regulatory jurisdiction. In the 2007 Supreme Court case, Massachusetts v. EPA, the court held that, “greenhouse gases fit well within the Act’s capacious definition of ‘air pollutant’” 2and therefore grants the EPA the authority to regulate greenhouse gas emissions from new motor vehicles. Since 2007, a number of cases have explored the EPA’s obligation to regulate greenhouse gases. Most notably, the courts ruled that:

i. Six GHGs threaten the health and human welfare of current and future generations (commonly referred to as the “Endangerment Finding”), and

ii. The EPA could limit their guidelines of polluters to the largest stationary sources emitting more than 100,000 tons per year of GHGs which would exclude smaller factories, restaurants and farms (commonly referred to as the “Tailoring Rule”).

The significant details of the “Tailoring Rule” are what bring us to our next section.

C. The Current Status of the Debate On October 15, 2013, the U.S Supreme Court addressed a primary legislative question: “Whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” From the EPA’s viewpoint, this question kicks in another section of the Clean Air Act which is called the, “Prevention of Significant Deterioration,” or PSD. That section requires the EPA to regulate emissions from any

1 42 U.S.C. § 4521(a)(1). Retrieved from 2 549 U.S. 497 (2007); http://www.supremecourt.gov/opinions/06pdf/05-1120.pdf

emitter above 100 tons per year for any pollutant. In the case of GHGs, however this would encompass everything from large apartment buildings to small farms. Since the EPA must adhere to regulations which are economically and technically feasible, this low threshold of GHG emissions needed to be “tailored” to include the top emitters like coal-fired power plants, but to exclude small businesses and agriculture. The tailoring rule has raised the PSD standards to 100,000 tons of CO2 per year. Clearly this is still a contentious issue, which is what has led up to the congressional bill that we are currently assessing.

3. COST OF INACTION ON CLIMATE CHANGE

A. Recent economic expenses related to climate change The costs of climate-related issues are already beginning to become evident. In 2012, climate-related droughts, super storms, hurricanes, blizzards, heat waves, and wildfires in the United States were directly responsible for 349 deaths and caused an estimated $139 billion in damages. Over 3,500 monthly weather records for heat, rain, and snow reached all-time highs in recorded history. In 2012, the costs of extreme weather in the United States added up to almost 1 percent of the nation's GDP. For comparison, this is roughly equal to half of all the sales taxes states collected in 2012.3

B. Projected expenses for climate change BAU over the next 50 years Projecting economic impacts almost a century into the future is of course surrounded with uncertainty. Any complete projection, however, would include substantial effects due to the growth of the U.S. population and economy. With a bigger, richer population, there will be more demand for energy and water – and quite likely, more coastal property at risk from hurricanes. Climatologists predict a range of outcomes that could result from business-as-usual (meaning steadily increasing) emissions. The business-as-usual case is the worst of what the IPCC calls its “likely” predictions for the A2 scenario. With every day that current trends in greenhouse gas emissions continue, the business-as-usual case becomes more probable. i. Estimated Costs of Hurricanes under BAU

3 Ackerman, Frank, and Elizabeth A. Stanton. The Cost of Climate Change: What We’ll Pay If Global Warming Continues Unchecked. Rep. Natural Resources Defense Council, May 2008. Web. 23 Oct. 2013.

Annual damages caused by increased intensity of U.S. hurricanes are predicted to total $422 billion in 2100 in the business-as-usual case.4

ii. Real estate losses and sea-level rise Annual U.S. residential real estate losses due to sea-level rise are predicted to amount to $360 billion in 2100 in the business-as-usual case.5

iii. Changes to the energy sector Annual U.S. energy expenditures (excluding transportation) will be $141 billion higher in the 2100 in the business-as-usual case as compared to today’s climate conditions continued throughout the century.

iv. Droughts and Agriculture Annual costs of business as usual for water supply could reach almost $1 trillion per year by 2100. Anticipated gains in crop yields may be small and would in any case vanish by mid-century.6

4. COST PROJECTIONS OF FEDERAL GHG REGULATION Several industry-sponsored reports, such the American Council for Capital Formation (ACCF), have quoted economic losses to federal regulation of greenhouse gas to cost the U.S. 1.4 million jobs, would depress investment capital by as much as $300 billion. On the other hand, economists and researchers who have compared actual costs with initial projections report that regulations generally end up costing far less than the dire predictions from industry and even below cost projections by the Environmental Protection Agency itself.

A. Costs Estimates of Current Clean Air Act Regulation In the EPA’s most recent Prospective Study – 1990 to 2020, the costs of the Clean Air Act are severely overshadowed by the estimated benefits by a factor of 30 to 1. While costs of the CAA amounted to $66 billion, the estimated benefits from reduced health costs, prevention of early deaths, and increased productivity due to reduction of suck days as totaled $2 trillion.7

4 Ibid. 5 Ibid. 6 Ackerman, Frank, and Elizabeth A. Stanton. The Cost of Climate Change: What We’ll Pay If Global Warming Continues Unchecked. Rep. Natural Resources Defense Council, May 2008. Web. 23 Oct. 2013. 7 United States. Environmental Protection Agency. Office of Air and Radiation. The Benefits and Costs Ofthe Clean Air Actfrom1990 to 2020: Summary Report. US EPA, n.d. Web. 24 Oct. 2013.

B. Costs to Industry Environmental costs are a small percentage of industry revenues. According to 2005 data from U.S. manufacturers, their total pollution abatement spending represented less than one percent of the $4.74 trillion value of the goods they shipped. The abatement costs include capital and operating costs for all pollution controls, not just those related to clean air. Air pollution control is responsible for less than half of these costs.8

C. Costs to Employment Contrary to industry projections, historical environmental regulations have accounted for less than “1/10th of 1% of job loss in the U.S.” An example of this, the Clean Air Act was projected to result in severe job loss in the period between 1990 and 1997 according to industry reports, but actually only 7,000 jobs were lost from the regulation compared to 10 million workers being laid off for non-environmental reasons during the same time period.9

5. GHG Regulation and Job Growth The regulation of greenhouse gases under the Clean Air Act can boost the U.S. economy through job creation and global competitiveness. The effects of the Clean Air Act’s Low Carbon Fuel Standards (LCFS), for example, are already “creating over 150,000 jobs in clean vehicle research, development, and production and another 150,000 are expected from the manufacturing industry”10 according to a report from the Natural Resources Defense Council. The Bureau of Labor Statistics (BLS) recently identified 3.1 million green jobs in the U.S. These jobs extended into various economic sectors and demonstrated faster growth than the overall economy. Manufacturing is the leading sector producing these jobs and the BLS statistics show that a majority of these jobs are accessible to workers without a college degree.11 In a similar study, the Northeast States for Coordinated Air Use Management issued a report showing the economic benefit of requiring a10 percent reduction in carbon pollution from all fuels over the next 10 years. This report argues that the region would see employment increases by 9,490 to 50,700 jobs and gross 8 Goodstein, Eban, Kristen Sheeran, Peter Dorman, John Laitner, and Jonathan Isham.Climate Policy and Jobs: An Update on What Economists Know. Issue brief. Economics for Equity and the Environment Network, June 2010. Web. 25 Oct. 2013. 9 Ibid. 10 Gutis, Phil, Lisa Goffredi, Lise Stevens, Carlita Salazar, and Sue Rossi. Tech. N.p.: n.p., n.d. Supplying Ingenuity: U.S. Suppliers of Clean, Fuel-Efficient Vehicle Technologies. Natural Resources Defense Council, Aug. 2011. Web. 24 Oct. 2013. 11 Pollack, Ethan. Counting up to Green: Assessing the Green Economy and Its Implications for Growth and Equity. Tech. Economic Policy Institute, 10 Oct. 2012. Web. 28 Oct. 2013.

regional product increases by 2.1 billion to 4.9 billion over the next ten years. Not only are there projected to be more jobs, but higher paying jobs with household disposable income estimated to increase by 1 billion to 3.3 billion.12 These facts suggest that regulating carbon emissions and reinvesting in the green jobs sector could be a boon for the U.S. economy.

6. Conclusion Considering the factors outlined in this memorandum, the recommended action by Congressman George Miller is to vote against blocking the EPA from regulating greenhouse gas emissions under the Clean Air Act. The cost of climate change is already costing the American public dearly, history has proven that arguments declaring that the economy will suffer from GHG regulation under the Clean Air Act have been empirically inaccurate, and current trajectories and best available estimations show that GHG regulation will boost the economy and make the United States more globally competitive.

12 Manion, Michelle, Arthur Marin, Andrew Dick, Jason Rudokas, Matt Solomon, Allison Reilly-Guerette, and David Ganzi. ECONOMIC ANALYSIS OF A PROGRAM TO PROMOTE CLEAN TRANSPORTATION FUELS IN THE NORTHEAST/MID-ATLANTIC REGION. Rep. Northeast States for Coordinated Air Use Management, July 2011. Web. 26 Oct. 2013.