Full Title: How the EPA Should Modify Its Proposed 111(d) Regulations to Allow States to Comply By Taxing Pollution
Author(s): Michael Wara, Adele Morris, and Marta R. Darby
Publisher(s): Brookings Institution
Publication Date: 10/24

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Description (excerpt):

The U.S. Environmental Protection Agency (EPA) is exercising its authority under section 111(d) of the Clean Air Act to limit U.S. greenhouse gas (GHG) emissions from existing stationary sources, beginning with carbon dioxide (CO2) emissions from fossil-fuel fired electric generating units (EGUs, power plants, or covered sources) [1]. This comment examines the extent to which EPA’s proposed rule for existing power plants (the EPA proposal) and its existing regulations would allow states to comply with their obligations under 111(d) by adopting and enforcing carbon excise taxes. We find that although states can adopt carbon taxes to comply with 111(d) rules, EPA has inadvertently restricted how states can design their policies, precluding some of the most straightforward approaches. Accordingly, we recommend amendments that would give full flexibility to states to design policies as they see fit, provided those policies are enforceable and will achieve the applicable emissions guidelines.

We are pleased to submit these comments in response to the proposed rule entitled: “Carbon Pollution Plan for Existing Stationary Sources: Electric Utility Generating Units” (EPA-HQ-OAR-2013-0602), notice of which EPA provided in the June 18, 2014 Federal Register (79 Fed. Reg. 34830). We also respectfully submit these comments on behalf of the organizations and individuals listed below:

Carbon Tax Center
Friends of the Earth
R Street Institute
Alan Viard

We are scholars in the field of climate and energy policy with expertise in law and economics. Michael Wara is Associate Professor and Justin M. Roach, Jr. Faculty Scholar at Stanford Law School. His research focuses on the intersection of energy law, environmental law, and climate policy. Adele Morris is an economist. She is a Fellow and the Policy Director for the Climate and Energy Economics Project at the Brookings Institution. Her research includes analysis of the potential economic and environmental outcomes of carbon pricing policies. Marta Darby recently received a law degree from Stanford University.

The first section of this paper reviews the legal context of the EPA proposal and the relative roles of EPA and the states under section 111(d). In Section 2, we discuss the potential advantages to states of a tax-based compliance approach. In Section 3, we explore how, with some important constraints, the current regulations implementing section 111(d) and the EPA proposal allow states to comply by imposing an excise tax on the carbon content of fuels combusted in regulated sources. In Section 4, we recommend amendments to existing rules and the EPA proposal that would remove those constraints and give states full flexibility in how they can design their pollution tax policies. Section 5 concludes.