President Barack Obama today ordered the EPA to reconsider California’s petition to set strict automobile emission and fuel efficiency standards.

Under Section 209 the Clean Air Act, California has special authority to enact stricter air-pollution standards for motor vehicles than the federal government’s standards. However, California must file a petition with the EPA and meet certain criteria. Other states may adopt California’s standards, but those states’ emissions standards only become effective when California’s petition is granted by EPA.

California Governor Arnold Schwarzenegger last week sent a letter to President Obama urging him to reverse the Bush administration’s decision in 2007 which denied California’s request. President Obama’s action today does just that.

Automakers in the past have opposed California’s waiver petition arguing that granting the waiver will force them to build two separate types of automobiles - those for California and states adopting its regulations, and automobiles for states that have not adopted California’s emissions standards.

In addition to granting California’s waiver request, President Obama ordered the Department of Transportation to issue guidelines to ensure that the nation’s auto fleet reaches an average fuel efficiency of 35 miles per gallon by 2020, if not earlier.

A new study by the Pew Research Center for the People and the Press found that the economy and jobs top all other policy issues. Even more noteworthy was the study’s finding that global warming ranked last.  

Further illustrating that climate change regulation will likely come in some form at the federal level, the U.S. Senate Committee on Environment and Public Works released a majority staff report this month outlining ways for the EPA to regulate greenhouse gas (GHG) emissions under the Clean Air Act (CAA).

The report states that, as a result of the U.S. Supreme Court’s decision in Massachusetts v. EPA, the EPA is now free to enact regulations addressing GHG emissions. Specifically, the report suggests that the EPA take the following actions:

• Grant the California waiver to allow California and other states the authority to regulate GHG emissions from motor vehicles (CAA section 209);
• Issue national GHG emissions standards for vehicles (CAA section 202(a)(1));
• Lower the carbon content of fuels (CAA section 211); and
• Set performance-based GHG emissions standards for new and existing stationary sources (CAA section 111).

As recently reported, it remains to be seen whether Congress will enact a federal cap-and-trade policy. However, it appears that the Obama administration, with Congress’s support,  will take some sort of steps to reduce CO2.

The Midwestern Greenhouse Gas Reduction Accord (Accord) held meetings this week in Indianapolis to  continue its quest toward adopting a Midwest cap-and-trade policy, along with other climate change regulations. 

In November 2007, nine Midwestern governors and two Canadian premiers signed on to either participate or observe in the Accord. The states that have officially signed on as members include: Wisconsin, Iowa, Illinois, Michigan, Minnesota, and Kansas. The Midwestern states that are observers include: Indiana, Ohio, and South Dakota.  Nebraska, North Dakota, and Missouri have not signed on to the Accord as either a member or an observer.

The Accord is largely being staffed by environmental groups, such as the Center for Climate Strategies, the Great Plains Institute, and the Pew Center on Global Climate Change.

Since its first meeting over a year ago, the Accord has drafted a set of preliminary recommendations that include a cap-and-trade program that would apply to the Midwest. In addition, the Accord is drafting a set of “complementary” climate change policies, such as a Low Carbon Fuel Standard. The Accord plans to finish the final model rule by the end of the summer or autumn of 2009 and submit the rule to the various state legislatures and governors for their consideration.

Up to this point the Accord has moved quickly in adopting a set of draft policies. However, the meeting in Indianapolis exposed some differences among the various stakeholders on the Advisory Group, the entity that will submit the final model rule with the respective Midwest governors. 

The sticking point is around the modeling, which analyzes how much environmental policies will actually cost. Proponents of a cap-and-trade program want an analysis of all of the climate change regulations, but not a separate analysis of the cap-and-trade program. Other groups, however, want to model the cap-and-trade policy separately to gain a clear understanding of how much that policy alone will cost.  Proponents on the other hand claim that certain groups will use the high costs of the cap-and-trade program as an argument against adopting the policy, and therefore are pushing to exclude a separate analysis. 

The next set of meetings is tentatively planned for March, with plans to finalize the model rule by the end of the year.

The other issue affecting the Accord is whether the new Obama administration and Democratically controlled Congress will adopt a national cap-and-trade policy. The conventional wisdom is that some sort of climate change regulations will be adopted by Congress over the next couple of years, making a Midwest cap-and-trade policy unnecessary.

The Hamilton Blog will provide continuous updates of the Accord.

President-elect Barack Obama’s nominee to head the Energy Department, Steven Chu, has previously said that coal is his “worst nightmare” and that the U.S. needs to find ways to “boost the cost of gasoline to the levels in Europe.” 

However, during his confirmation hearing in the U.S. Senate yesterday, Dr. Chu backtracked a little from those statements. While not completely embracing coal, Dr. Chu agreed that a few coal-fired plants should be allowed to be built, but the key is to ensure that coal is converted cleanly into electricity. In addition, he said he would agree to some off-shore drilling, but only as part of an entire energy package.

In addition, even though Congress has said they are unsure when they will address climate change, it appears that major corporations are betting on it taking place some time in the future. In a joint announcement with environmental groups, a number of major U.S. corporations are outlining what they would like to see in a cap-and-trade or comparable piece of legislation.

House Speaker Nancy Pelosi (D-California) told reporters this week that while Congress has the votes to pass climate change legislation, it may have to wait.

Pelosi said she has sufficient backing in the Democratic-controlled House to move a cap-and-trade bill, but will not force the issue:

“I’m not sure this year, because I don’t know if we’ll be ready,” Pelosi said. “We won’t go before we’re ready.”

Pelosi added, “There’s so many ways we can go. We’re seeing, studying what the Europeans did. They had to have some trial and error in what they did. And I think we have to be very careful, because we have to do it right, with cap and trade. We have to do it right. I don’t think we can take any chances. So this is going to take some very thorough scrutiny as to how we go forward.”