Details about the forthcoming Kerry-Graham-Lieberman climate bill are still as hazy as the smog over the San Fernando Valley. But one tidbit has already trickled out: The Senate proposal would, in all likelihood, eliminate the EPA's authority to regulate greenhouse gases under existing law. This is something industry groups have demanded in exchange for the creation of a CO2 cap-and-trade program set by Congress. Environmentalists, by contrast, see the EPA's Clean Air Act authority as sacrosanct. It's possible, however, to find a compromise here.

Industry groups fear the EPA for much the same reason environmentalists like it: The agency can't be lobbied and is less subject to political pressure, yet it has a huge amount of legal authority over carbon pollution. Some of the industry fears are reasonable. If both the EPA and Congress end up regulating greenhouse gases, that could lead to overlapping rules that could hinder rather than help a smoothly functioning cap-and-trade system. Many of the regulations that EPA would impose under existing law—such as requiring that every large polluter adopt "best available control technology"—would be inefficient in the presence of a cap-and-trade system, which is set up to allow emitters to work out among themselves how best to meet overall targets.

At the same time, many green groups want to preserve the EPA's broad powers so that there's a fallback option in case whatever cap-and-trade system comes out of Congress is imperfect or loophole-ridden. That's also understandable. But the best approach here may be somewhere in the middle. There are certain EPA regulations that would interfere with any cap-and-trade system that is set up by Congress, such as setting mandatory concentration levels for greenhouse gases. But other EPA rules could well complement congressional action—for instance, rules to encourage a switch to renewable fuels and reduce dependence on foreign oil. A scalpel is needed, not a sledgehammer.

The same concept should apply for states: If Congress passes a federal climate bill, it may need to preempt certain state initiatives to ensure that businesses are not being unnecessarily burdened. But there will be many instances where states should be free to experiment and rush ahead of what Congress is doing-for instance, on rules that help spur local energy research, or for spurring energy-efficiency policies at the local level. Finding the right balance here will depend on how robust the Senate bill is: The flimsier it is, the weaker the case for paring back EPA and state authority.

There is also a question of timing. The EPA has basically been ordered by the Supreme Court to regulate greenhouse gases, and the agency has already started regulating—a final rule on vehicle fuel efficiency is expected later this month. Given how long it often takes Congress to act, the agency may well do more before legislation passes. In that case, the best thing EPA can do to avoid colliding with Congress is to begin with regulations that will mesh well with an eventual economy-wide cap-and-trade program. For instance, the agency could start by setting up a cap-and-trade system for motor vehicles (the existing Clean Air Act gives the EPA all the authority it needs to do this). This way, the EPA can complement an eventual bill from Congress, rather than working at cross purposes.

Michael A. Livermore is the executive director of the Institute for Policy Integrity at New York University School of Law. He is the author, along with Richard L. Revesz, of Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health.

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