Can EPA Allow States to Implement a Carbon Tax Instead of Federal Standards?

A recent proposal by Adele Morris of the Brookings Institution suggests that under the forthcoming Obama Administration Clean Air Act rules for existing power plants, the Environmental Protection Agency could, instead of making states implement those rules, allow them to adopt a state carbon tax instead. I think that would be too adventurous an interpretation of this part of the Clean Air Act.

The Obama Administration's rules will be issued under section 111(d) of the Clean Air Act, which is titled "standards of performance for existing sources; remaining useful life of source." In Clean Air Act-speak, "standards of performance" would probably mean an emissions rate, like the one that the Obama Administration has proposed for new fossil fuel power plants. A performance rate standard is generally an emissions limit couched in terms of a maximum amount of air pollution per unit of production. For example, the Obama Administration's new power plant rule dictates that no gas-fired power plant may emit more than 1,000 lbs of CO2 per megawatt-hour produced (which should be easy), and that no coal-fired power plant emit more than 1,1000 lbs of CO2 per megawatt-hour produced (which will be impossible with current technology). But in section 111(a), "standards of performance" is defined as

a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.

Does "best system" allow for a carbon tax? I wish it were so (given my book) but I doubt it. For one thing, if a carbon tax were proposed, there would be no guarantee of any specific quantity of emissions reductions at all, since emitters could pay a carbon tax instead of complying with a standard. One could be agnostic about whether this is a good thing, and still realize that legally, this flies in the face of the history of the Clean Air Act. The Clean Air Act was passed in 1970, when Congress was barely aware of even things like emissions trading, let alone emissions taxes. Everything else about Title II of the Clean Air Act has been about rate emissions standards as "performance standards," and only marginally have market-oriented concepts seeped in, like EPA's early (and generally unsuccessful) experiments with "bubbling" or "offsets." For forty some-odd years, EPA and the states have worked with emissions rate standards, and it seems unlikely that it all of a sudden, "performance standards" could mean something completely outside of the Clean Air Act box.

You could argue that once the rules for existing sources get issued, they will be so onerous that states will all of a sudden find themselves embracing a carbon tax. Even the carbon tax knaves would wake up and say, "yes, this is a common sense approach, and an alternative to Obama-Air." Well, that could be, but there will always be someone who doesn't like a carbon tax, some group that will object to it on the grounds that it is regressive, or some emitter that is even more put out by a carbon tax than regulations, and decides to sue. It is my guess at that point, that they would win, and that even a moderately textualist court will strike it down.