INSIGHT: US high court ruling could hit chemicals

05 April 2007 15:01  [Source: ICIS news]

US ruling means more headwinds for chemicalsBy Joe Kamalick


WASHINGTON (ICIS news)--The US Supreme Court issued a key ruling this week that has the potential for broad and costly impact on the country’s chemical producers and other industries - perhaps to further accelerate the flight of US manufacturing offshore.


In Massachusetts v. The Environmental Protection Agency, the high court found in favour of the state government and a phalanx of environmental groups who argued that the agency has both the authority and an obligation to regulate automotive engine emissions of carbon dioxide (CO2) and other greenhouse gases.


On its face, the case would appear to have no bearing on the chemicals industry, but the broad implications of the ruling could well pose dire consequences for the sector all the same.


The Environmental Protection Agency (EPA) under the Bush administration has held that the Clean Air Act does not authorise it to regulate CO2 or other greenhouse gases, in tailpipe exhaust or elsewhere.


In addition, said EPA, even if the statute did authorise it to regulate greenhouse gases, it would be inappropriate for the agency to act in an area -global warming - where Congress has yet to give clear direction.


However, as summarised by Washington, DC, law firm Akin Gump, the Supreme Court on Monday told EPA in no uncertain terms that it has precisely that authority.


“The Clean Air Act’s sweeping definition of air pollutant includes ‘any air pollution agent or combination of such agents, including any physical, chemical … substance or matter which is emitted into or otherwise enters the ambient air’,” the court ruled, quoting the statute.


The high court said the Clean Air Act’s definition of air pollutant “on its face embraces all airborne compounds of whatever stripe, and underscores that intent through the repeated use of the word ‘any’. 


"Carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons are without a doubt ‘physical [and] chemical … substances which are emitted into the ambient air’,” the court added.


Moreover, the Supreme Court strongly suggested that, in addition to existing and adequate authority to regulate CO2, the agency also has an obligation to do so.


“Under the clear terms of the Clean Air Act,” said the court, “EPA can avoid taking further action [to regulate CO2 and other greenhouse gases] only if it determines that greenhouse gases do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.”


With this broad ruling, the high court is saying that not only does EPA have the authority to regulate CO2 and other greenhouse gases - from any sources and under any circumstances - it must regulate those substances, unless the EPA can clearly cite a very compelling reason to not do so.


This means that EPA may and probably should exercise regulatory authority over any source of CO2 and other greenhouse gases, including automotive engines but, more broadly, coal-fired power plants, chemicals production and other manufacturing facilities as well.


The most immediate impact of this ruling likely will be in power generation.  Even without any court-inspired action by EPA or Congress, electric utilities that have been contemplating additional coal-fired power plants almost certainly will rethink those plans, and when power companies turn away from coal they almost always turn on the gas.


The major US chemical industry trade associations have been reluctant to comment on this Supreme Court ruling, perhaps because some of their member companies advocate government controls on greenhouse gases while others remain opposed.


However, in earlier comments on this and related CO2 control issues, chemical industry leaders have warned that a federal mandate to limit CO2 emissions could over time increase electricity costs by as much as 50%.


In addition, when utilities turn to natural gas instead of coal to fuel their turbines, that heavy increase in demand cannot help but send gas prices sharply upward.


Despite Monday’s ruling, the Bush EPA still may be reluctant to rush into CO2 regulation, but Democrats in control in Congress are certain to seize on the court’s decision as further support for new greenhouse gases legislation.


As Akin Gump said, “The court’s decision likely will add considerable momentum to congressional consideration of proposed legislation to accelerate the United States’ joining the international community in taking affirmative action to address climate change”.


That means Congress is all the more likely to enact a CO2 cap-and-trade programme.


If a Democrat wins the White House in 2008, the EPA under a new administration could suddenly become very proactive in emissions regulation.


Equally portentous, the Supreme Court ruling in this case means that Massachusetts and all other states, along with any number of private interest groups, can now run into federal court to force EPA action on greenhouse gas emissions.


So this ruling may pose a triple threat to US chemicals producers. 


First, it may serve to increase the cost of electricity.  Second, it will in time put further upward pressure on the prices chemical manufacturers will have to pay for their basic feedstock, natural gas.  Third, Congress may now move more surely to impose limits on greenhouse gas emissions by those producers and other manufacturing sectors.


In combination, this three-pronged impact could force much higher operating and environmental costs on chemical producers and other manufacturers - or it may just force more of them offshore.

By: Joe Kamalick
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