It now looks unlikely that passage of federal cap & trade legislation for greenhouse gasses will occur this year, despite the American Clean Energy and Security Act (Waxman-Markey) having passed in the house, a similar but more stringent version (Boxer-Kerry) having passed out of Committee, and the Obama Administration being strongly in favor of such legislation.

I imagine this development must be unsettling for the senior management of companies such as Duke Energy, FPL, NRG, and PSEG that have worked so hard to push for a legislative approach that balances acknowledgment of the potential consequences of climate change with the need to maintain the reliable and affordable supply of electricity upon which our society and way of life depends.

Endangerment Finding Implications
Perhaps the biggest reason to feel unsettled is the progress the Environmental Protection Agency (EPA) is making on the regulatory front. As per my April 22 blog post, the EPA’s “Endangerment Finding” proposed that CO2 and five other greenhouse gases “threaten the health and welfare of current and future generations," making them subject to regulation under the Clean Air Act.

Last week, the EPA announced its latest step – it sent its final endangerment finding proposal to the White House Office of Management and Budget.  If approved, and in the absence of federal legislation, the EPA could regulate CO2 under the same Act (the Clean Air Act of 1970 and its subsequent Amendments) as SO2 and NOx are being regulated.

With the proposed emissions thresholds cited in the endangerment finding, EPA estimates that 400 new sources and modifications to existing sources would be subject to review each year for GHG emissions. Does this not sound eerily familiar to the existing New Source Review (NSR) process embodied in the Clean Air Act as it affects SO2 and NOx? It sure does to me. And in my view, NSR -- by penalizing actions to increase the efficiency and/or output of existing coal fired units -- is one of the most egregious examples of "perverse incentives" in the history of US government regulation. 

Uncertainty and Certainty Abound
No matter how the details of this new rulemaking are finalized, they represent a new source of uncertainty, on top of existing uncertainties associated with the CAIR regulations for NOx and SO2 now in the process of being rewritten by the EPA. There exists, however, one omnipresent certainty: that regulations for both CO2 and the traditional "criterion pollutants" are going to become more as opposed to less stringent; and that these more stringent regulations -- no matter the timing or details -- are going to add to the challenges fossil-fired generators face in keeping aging plants with aging workforces reliable and economically viable.