standards. The second is that the EPA could sanction state and regional trading programs as
adequate substitutes for federal CAA rules. These will be crucial decisions to watch for.
Summary and Conclusions
While there are open legal questions and significant political uncertainty, EPA action under
the CAA appears capable of generating domestic emissions reductions comparable to
those that would have been achieved with a legislated carbon price. The economic implications
of a regulatory pathway are less clear, but if the EPA adopts policies featuring compliance
flexibility, the efficiency of the policy at least in the short-term may be comparable to a carbon
price.
However, any EPA action under the CAA would not be equivalent to new legislation
from Congress, especially over the long term. A carbon price (either cap and trade or a carbon
tax) created by legislation would allow the market to make decisions that, under the CAA,
the agency would have to make. Over the next decade, the agency may be able to target
many of the same measures as would be identified in a market, but over time the agency
would be less able to identify the most efficient opportunities for emissions reductions.
Comprehensive climate legislation could also provide long-term regulatory certainty
that would facilitate investment, establish a uniform carbon price across sectors, provide
for international offsets, create greater opportunities for innovation, and include other
cost-saving mechanisms that the CAA cannot provide. Congress also has the ability to make
political trade-offs between various interest groups that stand to lose or gain from carbon
regulation, can take measures to protect trade-exposed industries, and can be bold without
inviting litigation. It will be difficult to accomplish these outcomes under the CAA. Nevertheless,
the CAA has the potential to be a useful and effective vehicle for short-term GHG
regulation.