Environmental Protection Agency

One of the most important and challenging initiatives for the President-Elect will be putting a price on carbon, but there is no clear institutional home in the federal government for the approach he has advocated (cap and trade). Most legislative proposals to date for controlling carbon emissions have identified the Environmental Protection Agency, which is appropriate given that it is the regulatory agency that now manages a cap and trade program for sulfur dioxide emissions under the Clean Air Act. A carbon dioxide cap and trade system, however, is a much larger scale proposal, and it is as much a revenue program as it is pollution control or regulatory policy.

Any federal effort to change the U.S. energy posture will have to assign high priority to identifying and promulgating quality and consistent information about global climate change, a priority President-Elect Obama mentioned on the campaign trail. Reliable, consistent information on climate change is hard to come by for federal agencies, particularly those that have to plan for how to deal with future climate-related contingencies (such as the Department of Defense and FEMA), given that 13 different agencies or offices have some jurisdiction over climate change issues. Moreover, public attitudes on climate change are going to be critical to national transformation, and despite the hard work of a committed core of government personnel, the federal government’s ability to conduct education and outreach on these issues is ad hoc at best and anemic in general.

Our initial findings suggest that the EPA would be the right home for the regulatory side of such a program, as it already administers similar programs for phasing out ozone-depleting substances under the Montreal Protocol and SO2 and NOx under the Clean Air Act. The last major GAO examination of the SO2 program was in 2002; the only major examination of the full acid rain regulation program was provided by the EPA itself in 2006. Assessing the accomplishments and lessons learned of these programs would be extremely helpful in designing a viable cap and trade system. A new GAO assessment, as soon as possible, would be very helpful. The EPA, however, is likely not the best place to handle the permit auctioning side of a cap and trade program. The new Treasury Office of Environment and Energy may be a logical home for the program’s revenue administration, although the office size would have to increase and it would need to continue to strengthen its existing relations with the EPA and DOE. It is worth considering also engaging the Department of Commerce in the business development side of the pro- gram. It would be helpful to establish and fully resource a standing Cap and Trade Interagency Team immediately in order to identify the ingredients of success for such a program (e.g., federal domain over transmission line and pipeline sites or safety and liability regulations for carbon capture and sequestration), to help negotiate with Congress to draft legislation accordingly, and to execute the program once Congress passes the legislation.