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Letter Dated 06/23/09 - Environmental Protection Agency

June 23, 2009

BY ELECTRONIC MAIL

U.S. Environmental Protection Agency
EPA Docket Center (EPA/DC)
Mailcode 6102T
1200 Pennsylvania Avenue, N.W.
Washington, D.C. 20460

Re: Docket ID No. EPA-HQ-OAR-2009-0171, Comments on EPA’s “Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act”

To Whom It May Concern:

The Office of Advocacy of the U.S. Small Business Administration (Advocacy) respectfully submits the following comments in response to the proposed rule published by the U.S. Environmental Protection Agency (EPA) on April 24, 2009, entitled “Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act.” 74 Fed. Reg. 18,886 (April 24, 2009).

As discussed below, Advocacy, on behalf of the small entities we represent, is concerned that (1) the current Clean Air Act is neither an effective nor an efficient mechanism for EPA to use to regulate greenhouse gases, (2) regulating carbon dioxide (CO2) for the first time under the Clean Air Act will be complex and disruptive, and (3) regulating CO2 and other greenhouse gases (GHGs) under the Clean Air Act will negatively impact small entities, including small businesses and small communities. Accordingly, Advocacy recommends that EPA (1) defer to ongoing efforts by Congress to enact climate change legislation, (2) defer any decision to regulate CO2 until the agency has gained experience with regulating other GHGs, (3) establish applicability thresholds for GHG regulations that exempt small entities, and (4) conduct Small Business Advocacy Review Panels for sectors of the economy where small entities are heavily affected by GHG regulations.

The Office of Advocacy

Congress established the Office of Advocacy under Pub. L. No. 94-305 to advocate the views of small entities before Federal agencies and Congress. Because Advocacy is an independent body within the U.S. Small Business Administration (SBA), the views expressed by Advocacy do not necessarily reflect the position of the Administration or the SBA.(1) The Regulatory Flexibility Act (RFA),(2) as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA),(3) gives small entities a voice in the rulemaking process. For all rules that are expected to have a “significant economic impact on a substantial number of small entities,”(4) federal agencies are required by the RFA to assess the impact of the proposed rule on small entities,(5) and to consider less burdensome alternatives.

Feedback from Small Entities

In response to EPA’s publication of its proposed endangerment finding, a number of small entity representatives have contacted Advocacy and expressed their concerns about EPA’s regulation of GHGs through the Clean Air Act’s regulatory framework. On May 22, 2009, Advocacy hosted a small business roundtable to obtain additional small business input on the proposal, as well as to consider possible alternatives. The following comments and recommendations are reflective of the discussion during the roundtable as well as other conversations with small entity representatives.

Background

EPA proposed the endangerment finding for vehicles under section 202(a) of the Clean Air Act in response to the U.S. Supreme Court’s 2007 decision in Massachusetts v. EPA.(6) The Court found in Massachusetts v. EPA that GHGs are air pollutants under section 302 of the Clean Air Act (CAA),(7) and that EPA therefore has the authority to regulate GHGs under the CAA. The Court further directed EPA to (1) find that GHGs contribute to climate change, which endangers public health and welfare, or (2) find that GHGs do not contribute to climate change, or (3) explain why it cannot or will not make an endangerment finding. On July 30, 2008, EPA published an Advance Notice of Proposed Rulemaking (ANPR) entitled “Regulating Greenhouse Gas Emissions under the Clean Air Act,”73 Fed. Reg. 44,354 (July 30, 2008). EPA discussed several Clean Air Act regulatory programs in the ANPR that could provide a basis for regulating GHGs.(8) The ANPR requested comment on whether these CAA programs would be appropriate mechanisms for addressing climate change, and whether EPA should find that GHGs contribute to climate change and endanger public health and welfare. On November 28, 2008, Advocacy submitted comments to EPA concerning the ANPR. See Attachment A. Advocacy expressed concern that EPA’s effort to regulate GHGs through the CAA framework is likely to result in negative impacts on small entities, since the CAA was not designed to deal with “pollutants” that have the characteristics of GHGs. On April 24, 2009, EPA published its proposed determination that a mix of six greenhouse gases(9) in the atmosphere may reasonably be anticipated to endanger public health and welfare.(10) While the proposed endangerment finding relates only to mobile sources of GHGs (e.g., automobiles and trucks) under section 202(a) of the CAA, if EPA finalizes the endangerment finding, the agency will be able to regulate stationary GHG sources as well. EPA will likely be petitioned to regulate all GHG sources, regardless of their size or their relative contribution to climate change.

The Clean Air Act is Not an Effective or Efficient Mechanism to Regulate Greenhouse Gases

As Advocacy has noted in previous comments, the Clean Air Act is neither designed nor well suited to address global climate change.(11) This is because GHGs (and CO2 in particular), have characteristics that are markedly different from those of the traditional pollutants regulated under the CAA. They exist throughout the atmosphere in uniform concentrations. CO2 is nearly as ubiquitous as water vapor, and is present at a volume that is hundreds of times greater than any other regulated pollutant. Unlike sulfur dioxide (SO2) or carbon monoxide (CO), there is no GHG control device that can simply be put into a vehicle’s exhaust system or added onto a piece of equipment.(12) The traditional “command and control” structure of the current CAA is poorly suited to address GHG emissions.

While EPA believes that a market-based “cap and trade” emissions program would allow GHGs to be controlled more effectively and efficiently than a command and control approach, the CAA presently does not give EPA authority to implement such a program. Therefore, it is necessary for Congress to create the authority for a GHG cap and trade program. EPA Administrator Jackson clearly acknowledged that the existing CAA is not the best structure for dealing with climate change when she told Congress “[t]here are costs to the economy of addressing global warming emissions, and that the best way to address them is through a gradual move to a market-based program like cap and trade. There is a difference between [a] cap and trade program[,] which can be authorized by legislation and is being discussed[,] and a regulatory program.”(13) Congress is now in the process of considering such cap and trade legislation.

Beyond creating the statutory authority for a cap and trade program, Congress should properly be the architect of a national strategy for climate change. EPA has neither the resources nor the technical experience to design and oversee a national energy plan, national efficiency standards, or other components that could constitute a comprehensive U.S. climate change strategy.(14) Therefore, Congress is the appropriate body to undertake this task.

Regulating CO2 for the First Time Will Be Complex and Potentially Disruptive

Regulating CO2 in the U.S. for the first time, particularly through the “command and control” structure of the CAA, is likely to result in confusion and disruption for regulated sources, at least in the near term. Most businesses have not been required to track their CO2 emissions or to pay to emit CO2. Small business representatives have expressed concerns that GHG regulations would be an entirely new cost of doing business, requiring time and effort for facilities to understand their obligations and to develop compliance mechanisms. In the short run, GHG regulations would cause disruption as companies try to understand whether they are subject to the new regulatory program. Many of those companies would need to hire attorneys and consultants to advise them on how to comply. This, in turn, adds to the cost of dealing with new regulations.

Moreover, CO2 regulation under the CAA may also result in unintended consequences, such as exacerbating ozone pollution. By requiring CO2 reductions in the engines of new vehicles, manufacturers may be forced to trade CO2 reductions against increased emissions of other pollutants (such as oxides of nitrogen (NOx)) from those engines, potentially worsening air quality. Costly CO2-based requirements in new vehicles and equipment would also create incentives for companies to retain their old, less efficient items longer. We therefore urge EPA to consider the impact that an entirely new regulatory program for CO2 is likely to have on the U.S. economy.

Regulating GHGs Under the Clean Air Act Will Impact Small Entities

Expanding the scope of the Clean Air Act to regulate CO2 emissions and other greenhouse gases could make hundreds of thousands of small entities that have not previously had to deal with the Clean Air Act potentially subject to extensive new clean air requirements. Because relatively small facilities can generate CO2 and other GHGs at quantities far above the Act’s current applicability thresholds, small facilities could have to meet the same kind of permitting and control requirements that major stationary sources now must meet. Small businesses are particularly concerned about becoming subject to the CAA’s construction and operating permit requirements due to their CO2 emissions. These permitting requirements are complex, time-consuming, and extremely costly.(15) Affected small entities could include small businesses operating office buildings, retail establishments, hotels, and other smaller buildings. Buildings owned by small communities and small non-profit organizations like schools, prisons, and private hospitals could also be regulated.

Even if small entities were not required to go through the costly process of applying for and obtaining construction and operating permits, they could still face major new regulatory obstacles to their operations. If, for example, EPA were to develop a National Ambient Air Quality Standard (NAAQS) for CO2 and other GHGs, small entities could be heavily burdened. The wide and uniform distribution of CO2 would mean that the entire country would either be classified as “in attainment” or “out of attainment.”(16) Either way, small entities, in turn, would become subject to rigid new “one-size-fits-all” GHG requirements, regardless of local conditions or their actual emissions of GHGs.(17)

Therefore, rather than merely serving as a useful vehicle to administer a national GHG cap and trade program, establishing a GHG NAAQS would set in motion a number of statutory control measures that would be costly, inefficient, and ineffective. Small entities could have to contend with new barriers to construction and expansion, new restrictions on operating cars and trucks, and the potential for having to retrofit their existing buildings with GHG controls or to purchase equivalent credits. These NAAQS control measures would subject vast numbers of small entities across the country to standardized, inflexible GHG control requirements for the very first time, adding to the overall regulatory burdens they face. (18)

EPA’s endangerment finding would likely also result in new regulatory requirements for on-highway motor vehicles, as well as non-road vehicles and equipment. These GHG requirements would be imposed in addition to the renewable fuel standards contained in the Energy Independence and Security Act of 2007 (EISA),(19) which requires 36 billion gallons of renewable fuel to be blended into the nation’s gasoline and diesel fuel supply by 2022. To a large degree, the goal of EISA was to address GHGs from mobile sources. Small businesses are concerned that regulating GHGs from mobile sources under the Clean Air Act would have serious adverse impacts on small companies that must rely on vehicles and equipment. On-board GHG control measures such as speed limiters would have a major impact on small entities that operate trucks or other vehicle fleets. Other requirements designed to limit the use of vehicles will similarly impact small businesses that depend on being able to pick up and deliver goods, or to travel to and from their clients. These requirements could be a particular hardship for trucking companies, and the numerous small communities that depend entirely on long-haul trucks for delivery of their food supplies and other goods.

Small entities should not be subject to costly and complex GHG regulations if they are not significant contributors to climate change. EPA needs to be aware of the concerns of small entities and ensure that any GHG regulations promulgated under the CAA are carefully tailored to exempt small entities that have insignificant GHG emissions. This is the best way to minimize the potential economic impact on small entities.

Advocacy’s Recommendations

Advocacy recommends that EPA consider taking the following steps with respect to GHG regulations under the Clean Air Act. We believe that EPA has the discretion in the wake of the Massachusetts v. EPA to defer specific action on regulation where such deferral is appropriate.

  • EPA should defer to ongoing congressional efforts to enact climate change legislation. EPA is best served by waiting for Congress to create the statutory authority for a cap and trade or similar program. Congress is the appropriate architect of a national strategy for climate change.

  • EPA should defer any decision to regulate CO2 until the agency (and regulated entities) gain experience with regulating other GHGs such as methane and nitrous oxide. EPA can choose to move forward and regulate methane, nitrous oxide, HCFCs, PFCs, and sulfur hexafluoride under the CAA. Those gases have greater warming potential than CO2, and HCFCs and PFCs are already regulated under Title VI of the CAA.(20) By deferring the decision to regulate CO2, EPA could benefit from designing GHG regulations for the other gases and gaining experience in regulating these gases. This experience would also help EPA to better understand how to address CO2 emissions.

  • EPA should establish applicability thresholds for GHG regulations that exempt small entities. Advocacy recommends that EPA look to its recent Greenhouse Gas Reporting Rule, which proposed a reporting threshold of 25,000 metric tons per year of CO2 equivalent.(21) Advocacy supported this reporting threshold as a good way to achieve EPA’s objective of accounting for GHG emissions without imposing pointless reporting burdens on small business. The same would be true for any GHG regulations promulgated under the CAA. Administrator Jackson seems to be sensitive to this concern, having stated before Congress “[w]ith respect to EPA’s regulatory authority, it is true that if the endangerment finding is finalized EPA would have authority to regulate greenhouse gas emissions and what I've said in that regard is that we would be judicious, we would be deliberative, we would follow science, we would follow the law, and I would call your attention to our greenhouse gas registry rule where we particularly didn't look for small businesses to register . . . or have to report emissions."(22)

  • EPA should conduct Small Business Advocacy Review Panels pursuant to section 609 of the RFA for each sector of the economy where small entities are heavily affected by GHG regulations. If EPA ultimately determines that GHGs can and should be regulated under the Clean Air Act, the agency must thoroughly and carefully evaluate how small entities will be affected. At a minimum, EPA should be prepared to convene a separate Small Business Advocacy Review (SBAR) Panel for each primary industry sector likely to be affected (e.g., transportation, agriculture, public institutions, manufacturing, etc.). To avoid creating severe unintended consequences from “one-size-fits-all” GHG regulations, EPA must adequately consider the probable impacts on small entities. SBAR Panels provide EPA with on-the-ground, real world, experienced views from small business representatives. Poorly designed approaches and unintended consequences are filtered out of proposed regulations with the help of small entities and government officials. These changes are accomplished without compromising valuable protections for human health and the environment.(23)

We look forward to working with you to ensure that the impact on small entities is seriously considered prior to EPA moving ahead on regulating greenhouse gas emissions.

Please do not hesitate to call me or Assistant Chief Counsel Keith Holman (keith.holman@sba.gov or (202) 205-6936) if we can be of further assistance.

Sincerely,

/s/

Shawne C. McGibbon
Acting Chief Counsel for Advocacy

Keith W. Holman
Assistant Chief Counsel for Environmental Policy

Enclosure/Attachment

cc: Kevin Neyland, Acting Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget

FOOTNOTES

1. 15 U.S.C. § 634a, et. seq.

2. 5 U.S.C. § 601, et seq.

3. Pub. L. 104-121, Title II, 110 Stat. 857 (1996)(codified in various sections of 5 U.S.C. § 601, et. seq.).

4. See 5 U.S.C. § 609(a),(b).

5. Under the RFA, small entities are defined as (1) a “small business” under section 3 of the Small Business Act and under size standards issued by the SBA in 13 C.F.R. § 121.201, or (2) a “small organization” that is a not-for-profit enterprise which is independently owned and operated and is not dominant in its field, or (3) a “small governmental jurisdiction” that is the government of a city, county, town, township, village, school district or special district with a population of less than 50,000 persons. 5 U.S.C. § 601.

6. 549 U.S. 497 (2007).

7. 42 U.S.C. § 7602.

8. 73 Fed. Reg. 44,476-44,520 (stationary sources), 44,432-44476 (mobile sources) (July 30, 2008). These programs include National Ambient Air Quality Standards (NAAQS) for CO2  and possibly other GHGs, New Source Review/Prevention of Significant Deterioration (NSR/PSD)(preconstruction/pre-modification permits), New Source Performance Standards (NSPS)(emission control requirements for certain industrial categories), section 112 (hazardous air pollutant requirements), Title V (federal operating permits), and Title II (mobile source requirements).

9. The six gases are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

10. 74 Fed. Reg. 18,886 (April 24, 2009).

11. See Advocacy comment letter on draft ANPR (November 28, 2008).

12. Reductions in GHG emissions are primarily accomplished through (1) improved energy/fuel efficiency or (2) switching from carbon-intensive fuel such as coal to a lower intensity fuel such as natural gas.

13. Comments of EPA Administrator Lisa P. Jackson before the Senate Committee on Environment and Public Works, Hearing on EPA’s Budget, May 12, 2009. Administrator Jackson reiterated the need for congressional action two days later on national television. Appearing on The Daily Show, she was asked by host Jon Stewart “you feel that you can do that [regulate climate change] without hurting small business? Because that is . . . these companies are hurting and any more onerous regulation . . . and some of that could be an issue . . . .” Administrator Jackson responded that “I do think we need to be sensitive to it . . . I do think Congress is looking at that issue. I do think there are ways within a market-based system to do that. We need legislation to do it the best.” Remarks of EPA Administrator Lisa P. Jackson, The Daily Show with Jon Stewart (May 14, 2009).

14. National energy policy and efficiency standards, for example, have been within the regulatory purview of the Department of Energy for decades. Regulations relating to vehicle design (and crashworthiness) have been the responsibility of the Department of Transportation and the National Highway Safety Administration. Other areas potentially affected by GHG regulations overlap with the traditional authority of other agencies (e.g., airplane design and the Federal Aviation Administration, boat design and the Coast Guard).

15. Obtaining major source construction and operating permits typically requires many months, extensive preparation, and can easily cost applicants from $50,000 to more than $100,000.

16. See 42 U.S.C. § 7407(d).

17. “[T]he practice of treating all regulated businesses, organizations, and governmental jurisdictions as equivalent may lead to inefficient use of regulatory agency resources, enforcement problems and, in some cases, to actions inconsistent with the legislative intent of health, safety, environmental and economic welfare legislation” RFA, Congressional Findings and Declaration of Purpose, section (a)(6).

18. An Advocacy-funded report that details the $1.1 trillion cumulative regulatory burden on the U.S. economy shows how the smallest businesses bear a 45 percent greater burden than their larger competitors. W. Mark Crain, The Impact of Federal Regulations on Small Firms, funded by the U.S. Small Business Administration, Office of Advocacy (2005). The annual cost per employee for firms with fewer than 20 employees is $7,747 to comply with all federal regulations. Id. When it comes to compliance with environmental requirements, small firms with fewer than 20 employees spend four times more, on a per-employee basis, than businesses with more than 500 employees.

19. Pub. L. No. 110-140 (2007).

20.. If EPA decides to regulate GHGs under the CAA, Title VI, the Protection of Stratospheric Ozone, may provide a useful conceptual framework. Like climate change, stratospheric ozone depletion is a global problem that was addressed through new authorities added to the CAA in Title VI. Titles I and II of the CAA were ill-suited to address the stratospheric ozone problem.

21. 74 Fed. Reg. 16,448 (April 10, 2009).

22. Comments of EPA Administrator Lisa P. Jackson before the Senate Committee on Environment and Public Works, Hearing on EPA’s Budget, May 12, 2009 (emphasis added).