London, 24 March 2011: Reuters

The U.S. Environmental Protection Agency's aggressive moves to regulate greenhouse emissions under the Clean Air Act have sparked widespread anger in Congress, where lawmakers are examining a range of bills to rein in the agency.

Furious pushback by the Natural Resources Defense Council and other environmental groups is a sign they fear one or more bills could muster the votes to pass, supported by Republicans opposed to the agency's increasing role as an economic regulator as well as by Democrats representing coal-producing and industrial states.

While the president's veto can probably sustain the agency's authority in this area, a fight with legislators over greenhouse gas regulation will come as an unwelcome distraction to an administration trying to build bridges with big business and anxious to focus on jobs and growth.

The EPA's expansive interpretation of its power has left it with few friends outside the environmental movement and looking dangerously isolated. The agency will come under pressure to scale back or slow rulemaking under pressure from the White House and Congress as both turn their attention to the 2012 election, when jobs and competitiveness rather than climate change are likely to head the agenda.

The EPA is locked on a collision course with Congress and business groups, a confrontation it must eventually lose. The agency needs to find ways to de-escalate -- or risk seeing its wings clipped.

EPA BOLDLY GOES WHERE CONGRESS FEARS TO TREAD

Efforts to craft a legislative approach to regulate carbon dioxide emissions and other gases contributing to the greenhouse effect failed in Congress last year amid solid opposition from the Republican caucus and Democrats representing conservative states and districts or with significant coal and industrial interests.

In the absence of congressional action, efforts to cut emissions have switched to a mix of state initiatives such as California's Global Warming Solutions Act and the Western Climate Initiative, and executive regulation by the EPA.

The agency has reached a finding that carbon dioxide and five other gases from new motor vehicles "cause and contribute" to greenhouse gas pollution, "threatening public health and welfare," allowing it to issue emission standards for motor vehicles and other moving sources under Title II of the Clean Air Act.

So far it has not issued similar findings under Title I, which would trigger powers allowing it to implement controls on emissions from stationary sources such as power plants, refineries and industrial plants.

But activating Title II on moving sources has already triggered some powers under Title I. The agency is now proceeding piecemeal -- issuing regulations under provisions that allow it to prescribe performance standards and prevent significant deterioration from any new or modified source of emissions from a stationary source

The EPA has begun to enforce rules requiring large emitters of greenhouse gases to apply for a permit when they expand or modify facilities under the Prevention of Significant Deterioration (PSD) programme. It will issue draft rules for power generators and refineries under the New

Source Performance Standards (NSPS) later this year. EPA and the White House have so far backed off from threats to enact broad-based controls or even a cap and trade programme if Congress does not act. But the extensive reach of regulations already being issued has given the impression the EPA is intent on introducing comprehensive regulation through the backdoor, enraging legislators as well as groups that lobbied hard to prevent passage of climate change laws in 2010.

CONGRESS FIGHTS TO CURB AGENCY RULEMAKING

In 2010, Congress considered measures designed to delay or prevent the EPA from regulating emissions. The most notable was a joint resolution submitted by Senator Lisa Murkowski (R, Alaska) that would have vacated the endangerment and cause-and-contribute findings of the EPA, eliminating the legal basis for action under both Title I and Title II. It attracted 40 co-sponsors, including almost all the Senate Republican caucus and two Democrats, but was defeated on a procedural vote 47-53, largely along party lines.

Separately, Senator John Rockefeller (D, West Virginia) introduced a bill to suspend implementation of EPA emissions regulations on stationary sources for two years. Congress has now taken up the issue again. Rockefeller has reintroduced his bill requiring a two-year suspension on stationary source regulations (S 231) with six Democratic co-sponsors in the Senate.

In a much more threatening move for the agency, Senator James Inhofe (R, Oklahoma) and House Energy and Commerce Committee Chairman Fred Upton (R, Michigan) have introduced identical bills in the Senate and House that go much further.

The Energy Tax Prevention Act (S 482, HR 910) has 43 Republican co-sponsors in the Senate, while Upton's bill has 71 in the House.

It would exclude greenhouse gases from the definition of pollutants under the Clean Air Act; prevent the EPA from introducing rules on greenhouse gas emissions other than fuel economy standards for motor vehicles; and repeal most of the agency's existing findings and rulemaking relating to greenhouse gases.

Taking sponsors of Rockefeller's suspension bill (7) and Inhofe's repeal bill (44) together, there is a majority in the Senate for slowing EPA regulation or halting it altogether. There is also probably a majority in the House, given congressional Republican hostility to what the caucus sees as regulatory over-reach.

CLIMATE FOR AMBITIOUS REGULATION COOLS

It is not clear that supporters of suspension and repeal can reach a compromise among themselves, let alone force a bill to a vote on the Senate floor and find the two-thirds majorities in both houses needed to overcome a virtually certain presidential veto.

Obstacles to enacting legislation to curb EPA rulemaking are formidable; the odds are stacked against it at every stage. But momentum is mounting to bring EPA's emissions policy under congressional control, and there are reasons to think the agency's current course is not politically sustainable in the medium term.

Republican control of the House has already delivered one chamber into the hands of legislators who are no friends of the EPA's approach. While the president's party retains control in the Senate, it will probably lose more seats in 2012, when the party will be defending more seats (23) than Republicans (10).

Congressional Democrats from swing states, coal states and the industrial heartland are unenthusiastic about EPA regulations. In an election cycle when jobs, competitiveness and the burden of regulation on business are likely to dominate the agenda, emissions regulation is unlikely to be a vote winner.

Even if a law curbing EPA rulemaking is vetoed, evidence that there is a majority of legislators opposed to the agency's approach would damage its efforts to build political legitimacy and defend the rules against challenges in court.

EPA is fighting on other fronts as well, including a battle with business and energy groups about mountain top mining. In a political environment highly sensitised to the burden of regulation on households and the loss of business to low-cost competitors overseas, the EPA risks picking too many battles.

More generally, the EPA is vulnerable to criticism that it has strayed far from its original mandate as a pollution regulator to take on the mantle of primary economic regulator for large swathes of U.S. industry including the entire power sector, oil, gas, coal, refining, petrochemicals, cement and glass.

Opponents wonder whether it is temperamentally suited to perform the complex balancing acts required on this grand scale -- measuring regulatory benefits against compliance costs for decisions involving tens of billions of dollars of investment -- a function that arguably belongs to Congress.

Just because Congress has declined to act does not mean an executive agency must step into the gap. It might be wiser to leave the issue to the states or consideration by a future Congress after 2012.

Ends --

By John Kemp, Reuters market analyst – for Commodities Now.

The views expressed here are his own.