The Energy Markets Podcast

S4E2: NRDC's David Doniger discusses the Chevron doctrine case pending before the Supreme Court, and addresses past and present efforts to regulate carbon emissions

January 31, 2024 Bryan Lee
S4E2: NRDC's David Doniger discusses the Chevron doctrine case pending before the Supreme Court, and addresses past and present efforts to regulate carbon emissions
The Energy Markets Podcast
More Info
The Energy Markets Podcast
S4E2: NRDC's David Doniger discusses the Chevron doctrine case pending before the Supreme Court, and addresses past and present efforts to regulate carbon emissions
Jan 31, 2024
Bryan Lee

Who better to discuss the ramifications of the Supreme Court's apparent path toward striking down the long-standing legal precedent known as the Chevron doctrine than the lawyer who argued the original case 40 years ago?

Natural Resources Defense Council Senior Attorney David Doniger is a lion of the environmental movement who has been instrumental in the environmental group's efforts to rein in air pollution from fossil fuels and emissions of ozone-depleting chemicals. He has been a fixture at the NRDC since 1978, except for the years during the Clinton administration when he played key environmental roles at both the White House and the Environmental Protection Agency.

Doniger discusses recent oral arguments before the Supreme Court  in a case challenging the Chevron doctrine and the ramifications of unwinding the regulatory deference legal principle. We also discuss the history of efforts to regulate carbon emissions that contribute to climate change, and how a key Supreme Court decision blocked the government from adopting economically efficient solutions and limits the Environmental Protection Agency to promoting technology-based solutions in a rulemaking expected to be finalized in the coming months.

Support the Show.

Show Notes Transcript

Who better to discuss the ramifications of the Supreme Court's apparent path toward striking down the long-standing legal precedent known as the Chevron doctrine than the lawyer who argued the original case 40 years ago?

Natural Resources Defense Council Senior Attorney David Doniger is a lion of the environmental movement who has been instrumental in the environmental group's efforts to rein in air pollution from fossil fuels and emissions of ozone-depleting chemicals. He has been a fixture at the NRDC since 1978, except for the years during the Clinton administration when he played key environmental roles at both the White House and the Environmental Protection Agency.

Doniger discusses recent oral arguments before the Supreme Court  in a case challenging the Chevron doctrine and the ramifications of unwinding the regulatory deference legal principle. We also discuss the history of efforts to regulate carbon emissions that contribute to climate change, and how a key Supreme Court decision blocked the government from adopting economically efficient solutions and limits the Environmental Protection Agency to promoting technology-based solutions in a rulemaking expected to be finalized in the coming months.

Support the Show.

S4E2: David Doniger, Natural Resources Defense Council
(transcript edited for clarity)

EMP: Welcome to the Energy Markets Podcast. I'm Bryan Lee, and today we're talking with David Doniger, senior attorney and senior strategic director for climate and clean energy with the Natural Resources Defense Council. David is a lion of the environmental movement who's been with the NRDC since 1978, except for the years during the Clinton administration, serving first on the White House Counsel on Environmental Quality, and then various posts at EPA. We reached out to David after the Supreme Court just last week held oral argument on a legal doctrine known as the Chevron doctrine, and the court appears poised to jettison yet another piece of settled law, which emerged from Chevron USA v. NRDC. So who better to parse this for us than the lawyer who argued the Chevron case before the court for NRDC? David, welcome to the podcast.

DD: Thank you very much. Forty years from then to now.

EMP: And that's why I said it's yet another piece of settled law that this Court seems determined to jettison here. And so let's walk through this history here, this 40-year history. The Chevron doctrine emerged from litigation over a Reagan Administration rulemaking on Clean Air Act mandates for the oil and gas sector. Justice Neil Gorsuch’s mother, Anne, was the head of EPA. And now her son appears to be one of the conservatives on the court leading the charge to undo this precedent. David, walk us through this. What was happening with the Reagan administration rulemaking? You lost the case.

DD: That's true. There's a lot of ironies here. And the Reagan administration came in in 1981. The Clean Air Act had been amended in 1977. There had been amendments to strengthen the requirements for new industrial projects that were being built in the most polluted areas of the country. Congress had had some initial ones in 1970 and they beefed them up big time in 1977. Well, the incoming Reagan administration was listening to oil and gas – and it wasn't just them, steel, almost every industry you can think of. They all wanted to be able to build new industrial projects in urban areas willy nilly, regardless of the requirements that the Congress had just established. The Reagan administration through Anne Gorsuch attempted to achieve this result by changing the definition of what all those requirements applied to. They applied to stationary sources. Well, everybody up to that point thought that the stationary sources were things like boilers and blast furnaces, you know, real pieces of equipment that did real work and emitted real pollution. They came up with a bubble concept and the effect of the bubble concept was to allow about 90% of the projects to evade the requirements that we were talking about. And we didn't like that. NRDC brought suit and we won in the U.S. Court of Appeals in Washington in a case called NRDC v. Gorsuch. We argued that the law was just plain as day that the definition of a source couldn't be tweaked the way they wanted. We won on a different basis, though. The Court of Appeals had issued three different decisions – this was the third one – on the meaning of the definition of a source. And to my mind that got it all mixed up. But they ended up with a rule that you could do this in some programs and you could not do this in other programs, depending upon the purpose of the program. And this was basically the invention of nine different judges – three panels of three. Well, this went up to the Supreme Court and what really got the attention from the justices was an unhappiness that the D.C. Circuit judges were deciding these cases not based on what the law said, or what range of options Congress gave the agency, but the judges were substituting their own view of what the best way to find the source and run the programs was – their own policy views. So very apparent in the Chevron decision is a rebuke to the lower courts – stop it. Stop asserting your own policy views. You have two tasks. The first step is to read the statute and use all the tools of statutory construction and determine whether it has a definitive meaning – a single meaning. And if you decide, though, that the Congress has given the agency, some leeway, some space to make some choices, then you should respect the choices the agency makes, you know, as long as they're not whacko. As long as they're considered reasonable. But you don't have to agree with them. And that became the governing paradigm for how judicial review should work for the last 40 years. So even though we lost on the question, was this specific definition of a source as clear as we thought it was? We thought that it was better to have an arrangement where the Congress could enlist the agency to say that some of these problems are too detailed, or we're not going to be able to foresee them, or there's just too many of them. And so we need your help, agencies, and we're going to ask you to make some of these second-level interpretations and carry out the law accordingly. First by, you know, the courts looking to see whether you have just blatantly violated something we've decided, or whether you're operating in the range of options that we gave you. And that turned out to be a pretty stable approach for dealing with not just environmental regulation, but all kinds from economic regulation, you know, SEC and Federal Trade Commission stuff, food and drug stuff. You name it, labor law, this principle for how courts should interact with the agencies. And the court decision said, as the rationale, the Congress, of course, and then the President are politically accountable to the people. They're elected. Judges are not elected. Judges have no business substituting their policy views for those of the politically accountable branches. We knew – everybody knew – that that meant during conservative administrations you would have narrower interpretations of law and in liberal administrations you would have broader ones. And that seemed to please everyone as a neutral principle.

EMP: So this came to be known as Chevron deference because it called for the courts to defer to the expertise of the regulatory agencies, who have the expertise that the judges do not. 

DD: If the Congress has settled something, pure and simple, it left the agency no discretion, then so be it. But if the Congress has purposely or, because they can't foresee everything, left some questions unanswered, well, better to have them answered by the agency subject to a check on their reasonableness than to have judges, you know, make their own minds up.

EMP: Well, it seems that now with this court, that is not sufficient. It certainly has not gone the way of industry in the last 40 years, the way the initial decision went for industry. Tell us about the oral arguments, what did the justices’ interactions with the attorneys tell you about where they're going to go with this?

DD: Well, first, let me say something about what the challengers are looking for. Now, the two challengers are two small businesses who run herring boats, But that's sort of a red herring because behind them are the titans of industry and especially the titans of right-wing industry.

EMP: Charles Koch, et al. 

DD: Yeah, and the whole network of conservative billionaire-funded legal groups. These folks are coming in with highfalutin arguments about how the judges have allowed themselves to give up the function the constitution assigns only to them which is to decide what laws mean. And they also have arguments that Congress isn't doing its job because it's asking for help from agencies instead of making all these decisions itself. What their real agenda is, is if they could get the court to say that the agencies really don't have that kind of interpretive leeway then, you know, and you're going to leave this to the personal predilections and policy preferences of judges, well, you're going to get very different outcomes. They may be more conservative these days. Although that might depend on what judge you draw and what part of the country you go to. But at least at the Supreme Court to be conservative about this. That means it's much harder for Congress to meet the challenges that the modern world throws at us. I mean, just in any given field Congress writes a law, is capable of writing a law, reviewing a law, maximum once every 10 years or so. They can't deal with this stuff day-to-day, month-to-month. If you want a program administered, you have to have an agency to administer it. Congress can’t make all those decisions itself. It doesn't have the bandwidth, it doesn't have the expertise. It doesn't have the foresight to see what's going on or foresee what will go on. And so at the very best, you know, Congress would be playing catch up all the time. Well, what does that mean from the point of view of the Koch brothers and the like? Well, they don't want to be bothered. They want maximum freedom of action – liberty – and they don't particularly care about the impact that their financial or pollution or food safety or whatever decisions have on people. At least they don't care about that in the same way that the members of the public do and members of Congress do. So you're basically enfeebling the Congress, enfeebling the federal agencies, and they are always going to be playing – even more so than they do now – catch up, and you know, be able to deal with a fraction of the problems that the modern world is throwing at people. Remember, though, a law like the Clean Air Act is not there just to burden the liberty of companies that emit stuff. It's there to protect the liberty of the people who have to breathe that stuff. And those people end up, you know, unable to effectuate their own protection, so to speak. They need to rely on the government.

EMP: You can't rely on a Congress that hasn't been able to pursue legislation under regular order for over a decade.  

DD: Well, that was a separate project to gum up the Congress. 

EMP: Tell us about the oral arguments, what did we learn from them? 

DD: Okay, so they came in the lawyers as I described with those kinds of objectives and they basically hit three groups of justices. Now, Justice Gorsuch and Alito, Thomas and apparently Kavanaugh seem to fall into a group that say, we want to reassert our role, our judges’ role, in making these interpretive decisions. They didn’t say that much, but that's definitely the direction that we're going. The second group, which is the liberals, led by Kagan and Jackson and Sotomayor, and they were posing the rationale for keeping judges out of this sort of decision making and having the politically accountable and expert agencies at the fore. And Justice Kagan had some very interesting hypotheticals. She said to the lawyer for the herring boats, consider a chemical or substance which is supposed to improve your cholesterol. Is that a dietary supplement or a drug? And those are two different legal categories and they are regulated differently under the food and drug laws. She gave several other examples. One was sort of future oriented. We're going to have to regulate artificial intelligence. Do you think Congress can do that all by itself? Do you think judges would be better at it than an expert agency? And to me, those are pretty telling points. The Chief didn't really show his hand. One point he made is that the High Court has not been using the Chevron doctrine for the last few years. So why is this so important? And the lawyers for the herring boats said, well, because the lower courts still are. But that led to some back and forth with other justices about, well, why are they still doing it? The need is still there. The problems to be solved are still there. And the choice – do you want judges putting forward their own policy views with no constituency? Or do you want the politically accountable branches to be doing that? And Justice Barrett had an interesting line of questions asking about, well, what happens to the thousands of decisions that have been made under the Chevron rubric in the last 40 years? And she got a pat answer, that, well, the results would stand. But she went right past that. She said, but don't you expect that litigants to loft? Before would come back and petition the agencies and the courts to revisit the same question? And aren’t we going to get a lot of chaos? She didn't get a good answer. So you know, where does this lead? I don't think we know exactly what they're going to do. We should be pretty confident that there are the votes there to say something very negative about Chevron and limit it in some way. But we don't know whether it could be as little as a sort of injunction to the lower judges – spend more time struggling with whether the law has a clear meaning. Don't be so quick to jump to the conclusion that what Congress wrote is ambiguous and thus gives agencies discretion. I'm actually totally fine with that. If you go back to the beginning, if the court had spent more time struggling with the definition of source, we would have won the original case. It could be a difference in the treatment of statutes which are sort of positive in saying, here's a task we definitely want the agency to take on versus things that come up in silences, you know, the words that have nuances that people didn't appreciate at the time – or actually which clever lawyers make up nuances for words in statutes that they really never had the time. And there are some questions where the laws are just silent in this silent in this. And does silence convey authority or the silence convey no authority? So you could find some limitations in Chevron that leave the basic structure there. And that the other end of the spectrum they say the judges say, Well, why not? We’re now, we're a different breed of judges. We're not these liberal activists. We're textualists. We can keep our own policy views out of this. And I think that's where Justice Alito is at. You can see in the Sackett decision, the water pollution decision from a year ago, it’s just dripping with policy implications, but he either doesn't acknowledge them or doesn't see them. 

EMP: In Sackett, you're talking about the wetlands decision. 

DD: Yeah. Anyway, if you turn the same question over to conservative judges in West Texas or southern Louisiana versus in California or New York, you're going to get – potentially if they let their own so-called best judgment or their own sense of best policy govern them – you're going to get wildly different answers. So you're going to find litigants shopping even more than they do already for the most favorable court to be in. And you're going to find a lot of variation. And the Supreme Court, you know, it deals with only about 50 or 80 cases a year. It's just setting itself up for a much bigger policing job, even if it cares about consistency at all. 

EMP: Well, certainly that's something that Barrett was concerned about. 

DD: Yeah.

EMP: And I’m wondering if you've got the four conservative justices, let's assume they want to jettison the Chevron doctrine, but it seems to me between the three liberal justices, Roberts and Barrett, you might have a five-person majority that could salvage this somehow.

DD: It's possible. And that's obviously what I'm hopeful for. But one other thing to recognize is the difference between this case and, you know, something obviously in a different category of importance – the abortion decision. You know, the Roe v. Wade, was adopted in the ‘70s but there was really nothing before it. So it recognized the reproductive rights and then 50 years later, when the conservatives were bent on overruling it, they overruled it in a sense, that was that. But Chevron didn't create this structure. Chevron just re-articulated the structure that existed for a hundred years before that. And you can find hundreds of decisions in which the Supreme Court says, we give great respect to the views of the agency the Congress assigned to carry out a given law and that's built up all this expertise and that knows what it's doing. So even if you just erased Chevron, you’d have to decide how to articulate what the standard of judicial review is. What kind of respect, whatnot, do you give the agencies? Now one case that kept getting mentioned is called Skidmore. And Skidmore deference, or Skidmore review is, you give the agency the power to persuade. In other words you agree with it if you agree with it. You listen carefully and see if it persuades you. But if it doesn't, you're not bound by it. And you could see lip service to this principle of being persuaded if you find what they have said persuasive. That turns out to be a tautology, because if you're not persuaded, then they haven't been persuasive. It's not very much recognition for both the expertise and for the institutional arrangement Congress has been deliberately creating. So you could have a juristocracy or another decision that tends towards juristocracy. And mainly, it will tend to diminish the capacity of the federal government to respond to new problems. Because already with the Major Questions doctrine, that's an exception from Chevron. They say, well, normally we would defer to the judgment of the agency. If what they're trying to do is novel, something they haven't done before. And if it looks like it has big consequences, then we won't give them any deference and we’ll require Congress to speak very clearly before they have the authority to do what they asserted. Which is a way of, you know, you're always telling Congress, go bring me rock. Bring me a new rock. 

EMP:  Well, I guess at some point before the end of the term we'll have a decision from the court on this. Let's switch gears here a little bit and talk about the history of efforts to regulate carbon emissions under the Clean Air Act. I mean, you've been there since the beginning. And you know all of the details in and out of this. So in preparing for this, I was interested to see in your writings that all the way back in 1970 that the Congress recognized that there might be a need to address carbon. So there is language in the original Clean Air Act that gives the agency, EPA, authority to regulate these emissions. They just didn't do that in the initial criteria pollutants, correct?

DD: Yes, well a little bit more generally, Congress said here are five pollutants you have to regulate. And then here's the authority to recognize additional pollutants as you get the information that tells you that they are endangering public health or the environment. And that formula is present in several different parts of the Clean Air Act. So the authority was there to identify greenhouse gases – carbon dioxide – as having serious dangers, and then to regulate them under the various provisions of the Clean Air Act. The very first of those cases came up under the motor vehicle provisions where a number of states and environmental groups petitioned EPA to do that, and this was during the George W. Bush administration. And the Bush administration said, no dice. We're not doing that. We don't think the term “air pollutant” is broad enough to cover carbon dioxide. Well, that went up to the Supreme Court. And the same justice, Stevens, who wrote the Chevron opinion, wrote an opinion under the Chevron doctrine, saying this is a case where, at step one, it's crystal clear the term “air pollutant” is a very broad term. It's described as any chemical substance emitted from an industrial activity into the air. And if it's harmful, it's supposed to be regulated. So EPA you made a mistake of law. Go back and think it over again. And during the Obama administration, the EPA determined, yes, indeed, the greenhouse gases endanger our health and welfare. And they should be regulated as they are emitted from motor vehicles. And those standards actually, they were quite controversial, but they were set and went into effect in 2010. And we have a lot cleaner cars than we would have as a result of that. And there were subsequent efforts to require carbon emissions from power plants to be controlled. A bunch of states brought a lawsuit that was actually outside the Clean Air Act. It was an old theory from a hundred and – now 110 years ago from Oliver Wendell Holmes, who wrote a decision called Georgia v. Tennessee Copper, in which he ruled, the Supreme Court ruled, that Georgia could sue the smelter on the other side of the border because the emissions from the smelter, which we would now call acid rain, were killing the forests on the Georgia side of the border. The Supreme Court ended up holding in 2011 that those states could not bring that lawsuit under the what was called federal common law, because Congress had given this job to EPA under the Clean Air Act. And so, in that decision, eight to nothing, the Supreme Court said that EPA has the authority to curb carbon pollution from power plants. And even since, when in 2022, the Supreme Court in West Virginia v. EPA says well not that way. You can't do it that way. The court went out of its way to say you do have a traditional approach to using that authority that you could use for this pollutant like any other pollutant. So even though EPA’s Clean Power Plan, which was quite innovative in its design, using market principles to an extent that hadn't been used before, the Supreme Court said, well, you can't do that. That's too big. Too new. But you can do the traditional technology-based pollution controls. That's still within your power. And that's what EPA is in the midst of doing now.

EMP: Yeah, so it was Massachusetts v. EPA that confirmed EPA has authority to address CO2. And then it was West Virginia v. EPA, where the Obama Clean Power Plan was struck down. I thought it was very interesting that, you know, the Trump administration had rescinded the rule, it was a moot point. But yet this Supreme Court fell all over themselves to take up the case as soon as they could in order to put out what they call the Major Questions doctrine.

DD: It is ironic to say the least that the design of the Clean Power Plan really was different from what had been done before. But the impact of the Clean Power Plan was nothing, because the power industry had undergone such rapid change driven by market forces and other incentives so that they met the targets that the Clean Power Plan had set out for 2030, they met those targets in 2019. So the first argument from ourselves and from the government was, this is a case about nothing. It may be an innovative technique, but there's no big impact. So how have you got a major question? And there's some sleights of hand in the opinion to get there, basically relying on the 2015 EPA’s estimate of how much it would cost, which turned out to be all wrong.

EMP: Tell me about the innovative approach in the Clean Power Plan. Was that basically emissions trading?

DD: Well, emissions trading comes in many different flavors. And I would say there are two important characteristics of the Clean Power Plan. Or at least as the Supreme Court interpreted it. The Supreme Court interpreted it as a cap-and-trade program. It actually wasn't. It was an emission rate trading program. So there was actually no limit on how much emissions any given plant or all the plants together could emit. There's no cap. There was a rate. In other words, how many pounds of CO2 you could emit per megawatt hour of electricity. But if the demand for electricity went up, so could the amount of pollution. And if the demand for electricity went down, so would the output of pollution. Let's put that fundamental error of the court to one side, but the other thing that got their goat was that the Clean Power Plan was deliberately intended to put coal, gas and renewables all in one basket. And because coal is dirtier than gas, which is dirtier than renewables, any system of emission limits, would tend to push the industry away from coal towards gas and away from gas towards renewables. And the court said, EPA, you don't have a mandate from Congress to do this deliberate shifting of generation from one type to another. Now, there was a very interesting back-and-forth between Justice Kagan and Justice Roberts. Justice Kagan in her dissent saying what difference does it make if you operate by pollution controls, you know, traditional pollution controls? They make the dirty plant more expensive to operate. That's going to make the cleaner plant more attractive to operate, and you're going to get a shift. And Justice Roberts responds in a footnote in his majority opinion, he says it makes all the difference. There’s a world of difference between in effect doing it on purpose and having it be an incidental effect of doing what you have been authorized to do, which is to put on technology-based controls. So EPA is trying to follow the word of the Chief Justice now. No deliberate engineering of the market shares of the different power sources. But follow your mandate to make the dirty ones accountable for the pollution and then let the economics follow its nose. Now six weeks after the June 2022 court decision, Congress passed the Inflation Reduction Act. The Inflation Reduction Act did three things that are relevant here. First thing is it includes lots of incentives to reduce the cost to industry and to consumers of renewable energy and but also of cleaner forms of fossil energy. So CCS (carbon capture and storage), hydrogen, those kind of technologies are very heavily incentivized. Second thing Congress did was it said, let's not monkey around anymore with whether CO2 is an air pollutant. They wrote it into the Clean Air Act. In the Inflation Reduction Act there is an amendment to the Clean Air Act that says that the six greenhouse gases are air pollutants. So that's all settled. And the third thing that Congress did was tell EPA to wind it up and do it again. To write a new standard for power plants taking into account the new baseline that would be created by all these incentives. In other words, take into account the new economics. And so that is what EPA is doing now is trying to write a new standard under the preexisting Clean Air Act with the modification from the Inflation Reduction Act that clears up that greenhouse gases are air pollutants, and instructs EPA to regulate powerplant greenhouse gases again, and to do it taking into account the cost reductions that have been made by all the incentives.

EMP: So is this going to be a technology-driven approach versus a more economically efficient market-based approach?

DD: Well, I think the way to put it is that the environmental regulatory instrument is an emission limit that reflects technology.

EMP: So that technology can take into effect solar and wind. 

DD: Well, yeah, but you know, if you're looking at a coal plant, you're trying to figure out what's the maximum reduction you can make at a reasonable cost, the reference point is probably carbon capture and storage. Now, that doesn't mean that a power plant has to install carbon capture and storage it means they have to meet the emission rate limit that reflects that. If they can find another way to do that, fine. If they choose instead to operate other power plants, that's also fine. That's the incidental effect of the pollution controls, which Justice Roberts agreed with Kagan, that, you know, if you make something more expensive, it's going to be used less compared than the things that are cleaner. So you can see that there's an interplay between the regulatory requirements which, in a sense, add costs, the congressional incentives, which reduce cost, and then market decisions that individual companies make about what's the best mix of power plants for my for my needs – also energy efficiency and so on.

EMP: So what's your thinking on the timetable for EPA coming out with this?

DD: Well, the administration has promised to finish the rule by April so we're looking at the homestretch now. They will have to explain it both as consistent with the Major Questions doctrine and as consistent with Chevron, so to speak. There were questions underneath – you know, the big question it decided in West Virginia was can you do a cap-and-trade program that deliberately shifts generation between the three types of power plants? And the answer was no. But, yes, you can still set standards based on the best demonstrated technology and so on. But all of those terms are at least potentially subject to debate. The power industry likes to say the technologies need to be commercially demonstrated. We like to say that, no, it has to be capable of being installed in the timeframe and at the cost which has been projected – has been allowed and been protected. And the lower courts over the last fifty years have, by and large, taken our view on that not the authority – you know, you can’t require things that are not already on the market.

EMP: Guest after guest after guest on this podcast in response to the question, how can we address climate concerns in the energy sector at least cost to consumers, have responded, well, we need to put a price on carbon. I guess that's a little different from cap-and-trade in terms of a tax versus cap-and-trade. But we have a history with that going back to the 1990 Clean Air Act amendments with the acid rain program, and that was controversial. Who was behind proposing the idea of emissions cap-and-trade for SO2 emissions? I know the Environmental Defense Fund takes credit for it, but I don't see any name associated with that.

DD: There's a history of academic economists proposing schemes of that kind. But basically, it became a Republican idea. And it worked. And it worked really well. Especially when you had not just the Environmental Defense Fund promoting the sort of basic outlines but you had the Natural Resources Defense Council focusing on the safeguards that would make it work. Like, for example, you have to have really good monitors in the stacks that you could count on so that people can't cheat. And, anyway, that system worked and the industry in general would still like to be regulated under that system if they have to be regulated for carbon. But, as I said at the beginning, emissions trading comes in various flavors. Emission rate trading, and then of course, the question of, you know, is the trading among coal plants and a separate pool among gas plants, etc., or is it across the whole universe? And these tools are useful, you know, in at least some degree in their different manifestations. In fact, sometimes I think emission rate trading is better for some kinds of problems than is cap-and-trade because suppose you don't know what the output of the power sector is going to be. You know, it's looked pretty flat for the last 20 years, but suddenly, we're trying to electrify vehicles and lots of other industries and so on. And there are some kinds of industries like data centers which are growing like Topsy, so you actually don't have as good a forecast of how much electricity we will need. We just know we need a lot of it and we need it to be essentially zero-carbon. And if you have an emission rate-driven system that gets your megawatt-hours down to you know, progressively lower and eventually zero, then you can make as much use of electricity as you want and not hurt the climate. So there's a lot to be said for flexibility, but not just for cap-and-trade. And there's a lot to be said for incentives. There's a lot to be said for the combination of incentives, traditional standards, and some degrees of flexibility.

EMP: Well, it certainly worked for acid rain, you know, as an alternative to scrubbers, all of a sudden, Wyoming coal became very, very valuable because it was low-sulfur, and it provided a lot of flexibility to the industry. Where else in the Clean Air Act have we had this sort of a trading approach?

DD: Well, we had emission rate trading to get rid of lead in gasoline. For example, there was a lot of complaining from the small refiners that they couldn't match the cost structure of the large ones so they would be squeezed out if they had to reduce lead from gasoline at the same rate as the big boys. And the solution EPA came up with was to establish a two-tiered system of emission limits and allowed trading. So small refiners got a break. But if they could beat their break, they could sell their credits to the big boys and vice versa. And it all worked out very smoothly. The phase out of ozone-depleting chemicals, and now the climate-changing refrigerants, the hydrofluorocarbons, is being done through essentially cap-and-trade systems. And it's working very well. You know, the kind of irony is that the herring boat fishery is a cap-and-trade system. There's a cap on how many herring you can catch each year and there are allocations to the different boats and they can trade them and you need monitors to make sure they stay within their catches. So there's a lot of room for these techniques to make things work smoothly and efficiently.

EMP: Wasn’t there also an application in the cross-state pollution issue? 

DD: Yeah, so it's kind of a hodgepodge. But the original idea for meeting the smog standards was they there were local problems. But as we learned over the last fifty years, actually the inputs, the nitrogen oxides and the fine particles that create these certain smog problems downwind originate way upwind. So you need interstate limits and, you know, Texas isn't very generous about reducing its emissions to benefit states northeast of it. Ohio etc., same thing. So you need the EPA to spell out the, the shares, if you will, that each of these states should be responsible for and then to use the cap-and-trade system to achieve it at the lowest possible cost. 

EMP: At the lowest cost. Okay, we’ll stop right there for today. We’ll return with NRDC senior attorney David Doniger in our next episode of the Energy Markets Podcast.

# # #