Trading Unmoored: The Uncertain Legal Foundation for Emissions Trading Under §111 of the Clean Air Act

The EPA has proposed and is set to soon finalize its “Clean Power Plan,” which for the first time will impose greenhouse gas emissions limits on existing fossil fuel power plants. The Plan envisions trading among regulated emitters, and such trading appears crucial to the Plan’s cost-effectiveness. The Plan’s projected emissions reductions are significant, making it a core element of President Obama’s climate policy and crucial to fulfillment of the country’s international commitments. But the Plan is controversial and is based on a rarely-used provision of the Clean Air Act, §111(d). Litigation has already begun and will undoubtedly intensify. In earlier work, I argued that §111(d) does not allow use of some flexible regulatory tools, including many forms of offsets, but that it appears to allow emissions trading among regulated sources. This paper looks more deeply at the legal authority to allow emissions trading under §111(d). Most legal arguments to date over trading have focused on past EPA practice or the statutory definition of performance standards. But neither source of authority is sufficient to answer the question — in fact, there is little or no statutory guidance on whether trading is legally available when emitters must actually comply. Judicial deference to agency interpretation means trading may be legal, but uncertainty remains. It is even possible that courts could resort to new legal doctrines or a revival of the nondelegation doctrine to resolve the question. Even if not, legal uncertainty over this crucial aspect of climate policy is underappreciated.