Is the Environmental Protection Agency (EPA) quietly working on a cap-and-trade scheme to ration gasoline? Will this scheme be introduced under the innocuous-sounding guise of a “low carbon fuel standard” or the newer version “clean energy fuel standard”? Lawmakers on Capitol Hill, who recently raised this warning, will soon have the opportunity to ask these very questions of President Obama’s choice to head the agency, Gina McCarthy, during her confirmation hearing next week.
The concern stems from the recent announcement by the Institute for Policy Integrity (IPI) at the New York University School of Law of its “intent to sue” EPA if the agency refuses to implement a cap-and-trade scheme for transportation fuels. Among other problems, IPI’s action looks like the beginning of another “sue and settle” rulemaking, an abuse of the regulatory process.
Sue and settle typically plays out this way: An opposition group threatens a lawsuit over EPA’s alleged failure to meet a statutory obligation through rulemaking. The issue in question is usually controversial, and, as in the IPI case, is unpopular with (because it will ultimately be paid for by) consumers. A sympathetic EPA then convenes closed-door negotiations with the group, culminating in the announcement of a legal “settlement,” in which the agency agrees to commence the very rulemaking it otherwise refused to embrace. When outrage ensues, EPA disingenuously claims its hands were tied, that they were in fact legally bound to impose higher costs on consumers—that, in effect, the “devil made them do it.”
Will EPA do the same with the IPI petition? Only time will tell. To date, the Obama-EPA has been relatively quiet about it. As Politico reported in November, “EPA didn’t have a detailed response to the group’s action Wednesday. ‘We will review the lawsuit and respond accordingly,’ said agency spokeswoman Alisha Johnson.” But given that Gina McCarthy will be appearing before the Senate Committee on Environment and Public Works next week for her confirmation hearing, it’s a good bet that she will be asked about it.
The NYU Petition: Consumers Will Pay More at the Pump
At the heart of IPI’s petition is the contention that EPA is legally obligated to regulate carbon-intensive transportation fuels to address the threat of global warming. The best way to do that, IPI argues, is to drive up the cost of conventional fuels, such as gasoline and diesel. Doing so, they claim, will reduce carbon emissions. Of course, as former EPA Administrator Lisa Jackson admitted to Congress in 2009, unilateral action by the U.S. won’t have any meaningful impact on lowering global greenhouse gas concentrations. Nevertheless, IPI argues that EPA—and one suspects that EPA would agree—is compelled to impose costly mandates on consumers, forcing them to use more expensive “alternative fuels” they don’t want. IPI acknowledges that the only way consumers are going to abandon affordable gasoline is for the government to impose regulations designed to dramatically increase the price at the pump. IPI admits this in their petition, though the admission is initially couched in a jargon-heavy manner to disguise the consequences from a skeptical public:
“As with any cap?and?trade system, covered entities would pass along the cost of the allowances to consumers, who will take into account the increased prices when deciding how much and which fuels to purchase.”
If one digs a little deeper in the petition, the acknowledgment is made in plain English:
“As soon as an emissions cap is put in place, the cost of fuels will rise…”
Furthermore, IPI also acknowledges that higher energy prices are regressive, that is, they disproportionately impact the poor:
“When an emissions cap is put in place, many consumers are likely to see increases in their fuel prices as a consequence. But this will not affect everyone equally: lower? and middle?income households spend a larger percentage of their income on energy. Because they spend more of their income on energy, the effects of an emissions cap are felt most keenly at the bottom side of the income scale—the same groups that can least afford the cost.”
IPI argues that a cap-and-trade program—another way to describe a tax—is preferable to other schemes. Executive director Michael Livermore told the Washington Examiner recently, “Market-based mechanisms, like the cap-and-trade approach advocated in our petition, are a highly cost effective and flexible means of reducing pollution.” Of course, by describing the tax as “market-based,” IPI hopes to make the scheme sound more acceptable to drivers. But as with the unpopular cap-and-trade legislation proposed by Representatives Waxman and Markey in 2009, consumers won’t be fooled. Despite the rhetoric, they understand the basic truth of these and other similar schemes: they will be taxed, and therefore pay more, for nothing in return.
Congress Has Rejected Cap-and-Trade
In reading through IPI’s petition, one senses the group is stuck in a time warp. When IPI filed the petition in 2009, they believed that Congress was on the verge of passing cap-and-trade legislation. IPI couldn’t have been more wrong. In fact, cap and trade suffered a mortal blow in the United States Senate. The bill died thanks to overwhelming bipartisan opposition. It was so unpopular even advocates, such as then-Senator John Kerry, were forced to say things like, “I don’t know what ‘cap and trade’ means.” Majority leader Harry Reid said, “We don’t use the word ‘cap and trade, that’s something that’s been deleted from my dictionary.’” Subsequently, no cap-and-trade bill has since been introduced in Congress. In fact, the US Senate voted overwhelmingly to oppose an international cap-and-trade scheme on airline travelers.
Sympathetic Obama Administration
Given its past support for cap-and-trade legislation, it’s no stretch to think the Obama-EPA would pursue cap-and-trade for gasoline and other fuels under the cover of sue and settle – particularly given questions surrounding EPA’s authority to implement an LCFS (which is, after all, just another name for cap-and-trade for fuels) under the Clean Air Act. All we can say for now is: Stay tuned.