View / Trump’s climate policy experiment

The Trump administration’s latest policy moves set up an interesting test of the power of different styles of government intervention to actually drive decarbonization.

Many environmentalists were aghast last week when the Environmental Protection Agency moved to toss out the so-called “endangerment finding,” a legal precedent that essentially required the EPA to regulate greenhouse gases the way they would more traditional toxic air pollutants. Interestingly, the agency was careful to avoid arguing that climate-warming gases are not in fact dangerous. Instead, it advanced a more nuanced argument about the limits of the Clean Air Act, essentially challenging Congress to intervene more specifically if it’s so worried about CO2 and methane.

Is this policy shift a catastrophe for the US contribution to climate change? That depends. In the electricity sector, EPA regulations have never been a particularly important driver of decarbonization, because the iterations rolled out by Presidents Barack Obama and Joe Biden were perennially tied up in court or scrapped by Trump.

Biden’s Inflation Reduction Act, by contrast, was built on the theory that regulations seeking to restrict legacy activities are a far less powerful tool than tax incentives that proactively drive new investment. To that end, a bigger threat to clean power than the endangerment finding repeal could be new rules issued by the Treasury Department late last week that will restrict access to tax credits for projects that source parts from China and other adversaries.

The rules are less onerous than some analysts feared, but still, Ted Brandt, CEO of energy investment bank Marathon Capital told me, “the practical result will be a pull back from US developers buying any product or components that are even remotely perceived to have any content [from those countries],” which in the case of clean energy hardware is sure to be both difficult and expensive.

For other sources of air pollution — oil and gas operations, vehicles, landfills — the endangerment finding change could be more meaningful, because the options for incentivizing change, rather than penalizing the status quo, are more limited, said Meghan Greenfield, a former EPA senior attorney and a partner at the law firm Jenner & Block.

The EPA shift could also trigger a third form of government control, one that oil and gas companies in particular are unlikely to be happy with: Orders from a judge. Up to now, many climate-related lawsuits against fossil fuel companies have actually been stymied by the endangerment finding, because industry lawyers have successfully argued that as long as they are in compliance with existing regulations, they can’t be responsible for the public harms of climate change. Without regulation, that argument could face real challenges, Greenfield said. And that could make tort lawsuits a new key driver of decarbonization.