The New Era of Climate Federalism

The new era of American climate federalism is, in many respects, a regulatory blast-from-the-past.  And that may actually be a promising development, particularly for its placement of states at center stage in policy design and implementation.

The Environmental Protection Agency’s unveiling of long-anticipated carbon emission regulations for power plants dashes more than a decade of expectations that the federal government would enact some version of a cap-and-trade program for carbon.  Remember McCain-Lieberman, Boxer-Lieberman-Warner, and Waxman-Markey, among dozens of others. 

All failed to gain Congressional embrace and all struggled to figure out what to do with the wide range of pre-existing state policies.  Indeed, Waxman-Markey proposed putting all 23 states that had some form of cap-and-trade at that point into a five-year climate purgatory, frozen from further action but potential candidates for a later thaw.

The new EPA proposal lacks the market razzle-dazzle of cap-and-trade but reverts to a well-established model that has worked quite well for generations under the remarkably durable Clean Air Act:  The federal government sets emission-reduction standards but gives states considerable latitude to design their own approach to reach them under state implementation plans (or SIPs).  In this case, Section 111(d) will be used in seeking a 25% emissions reduction from 2005 levels by 2025 and then aiming for a 30% cut by 2030.

This plan reflects the fact that states not only have substantial regulatory oversight of their power sector but that many have long been pursuing home-tailored strategies to reduce emissions. This has contributed, along with declining demand for electricity linked to the recession and the surge of natural gas replacing coal via hydraulic fracturing, to significant emission reduction in this sector since the baseline year of 2005.  So states get to build on recent experience rather than start from Square One.

Three Reasons to be Optimistic About the EPA Proposal

First, states now have the opportunity to enter into serious negotiations with EPA about how to design these policies and take advantage of experience they have gained in recent years.  In the case of the Northeast, for example, nine states have already been pursuing their own version of cap-and-trade in the power sector for several years.  And they recently tightened their emissions cap.  Their experience now presumably goes into the intergovernmental negotiation process of SIPs.  Even states that have been vehemently opposed to this new EPA approach have their own clean electricity stories to bring forward.  Think Texas and its remarkable surge of wind energy under a state renewables mandate embraced by Governors George W. Bush and Rick Perry.

Second, EPA has decades of experience in working with states on these matters and even some prior expertise on carbon given the earlier focus on permits for newly-proposed power plants.   Some states have responded to this with litigation and bombast.  But others have used this opportunity to begin to think through longer-term strategies that might prove applicable to this new area of engagement.

Third, the EPA is led by Gina McCarthy.  The role of EPA Administrator is invariably one of the toughest posts in the federal government, with litigation and Congressional laments sure to follow virtually every possible decision.   But McCarthy has emerged as one of the few Cabinet-level stars in an Obama second-term that has not exactly stunned the world with its administrative prowess.

In fact, it has been some time since we have seen an EPA administrator so focused on core goals but also so capable of working with states and other key constituents. This clearly stems from her extensive track-record at the state and local levels but also a style of engagement rarely seen in Washington.  Is there anyone more qualified in the United States to launch this new era of climate federalism than Gina McCarthy?

Like all new regulatory provisions, this one will have its bumps and delays.  And 2025 is a long way off, making it hard to know just how this approach will fare and whether it will even endure.  But it builds on two generations of work in air quality that have been among the leading achievements of the federal government during that time.