EPA announced today that it proposes to make a finding that greenhouse gas (“GHG”) emissions endanger the public health and welfare. If, as widely expected, EPA finalizes that finding later this year, EPA will become legally obligated to regulate GHGs from a variety of stationary and mobile sources under the existing federal Clean Air Act (“CAA”).

EPA’s proposed finding comes a little over two years after the Supreme Court’s decision in the Massachusetts v. EPA case. In Massachusetts, the Court ruled that GHGs are “air pollutants” within the meaning of the CAA which EPA must regulate if it finds that emission of such gases endangers public health or safety.

EPA divided its finding into two parts. EPA made an endangerment finding that current and projected levels of six GHGs – carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6) – endanger the public health and welfare by contributing to climate change. It also made what it called a “cause or contribute finding.” According to EPA, the combined emission of four the of these GHGs – CO2, CH4, N2O, and HFCs – emitted from new motor vehicles and motor vehicle engines “contribute to the atmospheric concentrations of these gases and hence to the threat of climate change.” The “cause or contribute finding” was limited to new motor vehicles and motor vehicle engines because the Massachusetts case concerned a petition seeking regulation of GHG emissions from those sources. It is widely understood, however, that EPA, once it finalizes its “cause or contribute finding” for motor vehicles, will have to make a similar finding for the multiplicity of other sources that are regulated under the CAA.

Significantly, EPA’s proposed findings were not accompanied by proposed regulations. Indeed, EPA explicitly announced that “[t]he action, if finalized, would not itself impose any requirements on industry or other entities.” It is uncertain whether EPA will wait until it finalizes the endangerment finding before proposing regulations or whether it will propose regulations more quickly. In the past, in regulations involving other pollutants, the agency issued a proposed endangerment finding and proposed regulations – and subsequently a final endangerment finding and final regulations – in the same document. The agency did not explain why it undertook a different course of action here.

The proposed endangerment finding states that greenhouse gas emissions pose a danger to both the public health and public welfare. According to EPA’s announcement today, “[t]he effects of climate change observed to date and projected to occur in the future include, but are not limited to, more frequent and intense heat waves, more severe wildfires, degraded air quality, more heavy downpours and flooding, increased drought, greater sea level rise, more intense storms, harm to water resources, harm to agriculture, and harm to wildlife and ecosystems. The Administrator considers these impacts to be effects on public health and welfare within the meaning of the Clean Air Act.” The health-based finding could be important depending on the type of regulation EPA eventually proposes. For instance, under the National Ambient Air Quality Standards program, EPA has very limited discretion to provide sources with time to comply with the standards if the standards are based on health concerns.

Industry groups have been very critical of potential CAA regulation of GHGs because of a concern that any such regulation could trigger a regulatory cascade that would not be limited to large sources such as power plants and refineries but would also sweep in potentially more than a million small sources such as hospitals and office buildings. Industry is also concerned that the CAA is inefficient and inflexible and does not allow for market-based programs. In particular, industry has cited concern that CAA regulation of CO2 could make a multitude of small GHG-emitting sources quickly and automatically subject to EPA regulation under EPA’s Prevention of Significant Deterioration (PSD) pre-construction air quality permit program. That program applies to any stationary sources emitting more than a threshold of 250 tons per year of any pollutant regulated under the CAA. One study estimated that there are about 1.2 million buildings and facilities that emit more than 250 tons per year of CO2, principally because they are heated with natural gas or oil. Industry has argued that once EPA regulates CO2 emissions from any source – even just motor vehicles or large CO2-emitting sources – CO2 will become a regulated CAA pollutant and EPA will have no choice but to apply the PSD program to the smaller sources as well as the larger sources.

New EPA Administrator Lisa Jackson has stated on several occasions that EPA can limit the scope of CAA regulations to larger sources, although at this time she has not yet provided specific legal rationales for that position. Some environmental groups are on record as disputing EPA’s ability to confine CAA regulation to large sources.

The debate on potential CAA regulation of GHGs is directly tied to the debate on pending congressional climate change legislative efforts. Administration officials and leading congressional democrats have stated that they consider a federal legislative program to be superior to regulating GHGs under the existing CAA. Nevertheless, these officials have been clear that the existing CAA will be used as the mechanism to regulate GHG emissions if a legislative approach fails. For instance, Rep. Edward J. Markey (D-Mass.), Chair of the House Select Committee on Energy Independence and Climate Change and Chair of the Subcommittee on Energy and Environment of the House Committee on Energy and Commerce, stated earlier this week at a conference at the Massachusetts Institute of Technology that industry should either support a legislative approach or determine “how lucky they feel” if EPA were to proceed with CAA regulation.

Following the Massachusetts case, the Bush Administration had issued an Advance Notice of Proposed Rulemaking (“ANPR”) in which it solicited comments on whether EPA should make an endangerment finding and on a wide array of potential CAA programs that might be used to regulate GHG emissions. A very large number of comments were filed in response to the ANPR last November. The Bush Administration was severely criticized by the environmental community and by leading congressional democrats for failing to make an endangerment finding and proceeding with regulation.

EPA has asked for comments on the 133-page proposed endangerment finding within 60 days from the date it is published in the Federal Register. EPA states that it will hold two public hearings, one on May 18, 2009 in Arlington, VA, and one on May 21, 2009 in Seattle, WA. The exact time when EPA will finalize the endangerment finding is uncertain, as is the time when EPA will propose and finalize regulations. In addition to new motor vehicle and motor vehicle engine regulation, EPA’s highest priority targets for prospective CAA regulation are coal-fueled electric generation stations and other large industrial sources.