In our view, the Clean Air Act is a blunt instrument for greenhouse gas regulation.

We believe any legislative proposals on climate policy should take into account the interdependent nature of energy and climate issues. For example, reducing greenhouse gas emissions will require the development and deployment of lower-emission energy sources and technologies. Consequently, climate policy should align emissions reductions schedules with the necessary commercial deployment of such sources and technologies.

Congress should also enact policies that expand access to domestic supplies of natural gas, given that natural gas is one of the few lower-emission energy sources available today. Without an effective national policy, demand for natural gas will skyrocket under emission reduction requirements. This would hinder emission reduction goals while causing natural gas prices to rise, pricing U.S. manufacturers out of global markets and causing substantial U.S. job losses.

The business of chemistry relies on large amounts of energy as feedstocks, converting natural gas and petroleum into high-value products that go into 96% of manufactured goods. This process does not result in greenhouse gas emissions and should be exempt from mandatory controls. In fact, our sector's energy feedstock use is a net benefit for U.S. energy efficiency and greenhouse gas emission reduction. That's because the energy feedstock we use for chemistry goes into energy-saving products used throughout the United States, such as building insulation, solar panels, wind turbines, lightweight vehicles, compact fluorescent light bulbs, energy-efficient appliances, "low rolling resistance" tires, automotive and industrial lubricants, and many more. U.S. climate policy must provide for appropriate treatment of feedstock uses of energy.

Updated Dec. 19 at 9:31 a.m.

The Obama Administration absolutely must pursue immediate action on global warming. From both an environmental and an economic perspective, we simply cannot afford to wait any longer; over the last eight years, we have squandered too much of our very limited time. As each successive report emerges from the scientific community, we find ourselves ever closer to irreversible and extremely costly global damages. To take just one example, this last year witnessed the lowest annual Arctic sea ice levels on record. For the first time in recorded history, it is possible to sail around the entire polar ice cap in open ocean---and the entire Arctic may have ice free summers by 2030---with incalculable consequences for global weather patterns.

The cornerstone of action on global warming---as President-elect Obama reaffirmed Tuesday---should be an economy-wide cap-and-trade system, with a long-term target to reduce emissions 80% below 1990 levels over the next four decades. Cap-and-trade will create the price signal that allows markets to respond, and creates critical incentives for clean energy investment, job creation, and entrepreneurship throughout the economy.

However, cap-and-trade alone will probably not be sufficient. We will also need explicit government support for R&D on critical technology and infrastructure, such as carbon capture & sequestration as well as renewable energy. Carbon capture technology in particular faces a daunting array of technical, financial, and regulatory hurdles, putting it decades away from commercial-scale use. But we need solutions to the coal dilemma today. The United States should immediately fund large-scale demonstration projects to accelerate the deployment of carbon capture technology, as well as next-generation renewables such as advanced solar power.

Using the Clean Air Act(CAA) to help control CO2 pollution is also a sound approach that can work alongside---or in the absence of, should Congress be slow in adopting legislation---a strong cap-and-trade regime. The CAA has a proven record of success (including the SO2 emissions trading program, which pioneered cap-and-trade) and is already familiar to industry. But it would be only a partial substitute for economy-wide policies, which would create incentives for greater efficiency, and provide R&D funding to lower new technology costs.

Some have suggested that advancing global warming policy under both the Clean Air Act and as separate cap-and-trade legislation will create a so-called regulatory “patchwork,” with multiple policies working at cross-purposes. It is indeed important that policymakers work to harmonize new and existing policies, and streamline requirements where possible. However, this concern can---and often is---managed in both environmental and other arenas. Agriculture, transportation, workplace safety and health policies, to name a few examples, are often subject to the regulations of multiple regulatory agencies at the state and federal levels. In fact, the Clean Air Act itself may contribute to harmonization---in the current system, federal and state partnerships work in tandem to address criteria pollutants, reducing conflicts. While an economy-wide program may result in some degree of regulatory overlap, it need not be problematic, and a new Administration, committed to effective and streamlined climate policy, will be in a position to minimize any such conflicts and take advantage of synergies in multiple policy arenas.

Given the urgency of acting, and the overall scale of the effort required, it seems foolish to waste any policy tool---within the remit of current executive authority or through new legislation---that could usefully contribute to the larger solution we seek.

As important as it is to address the climate challenge, it is even more important that we do it right—not just do something. The Clean Air Act is simply not suited to the task of effectively and efficiently addressing climate change. This is a congressional responsibility, and we have pledged to work with Congress and the new administration to find solutions to climate concerns.

The Clean Air Act precludes the necessary integration of other priorities that have been embraced by President-elect Obama and the American people, including the public/private partnerships necessary to research and develop the needed “green” technologies and the regulatory framework required for their commercial deployment --in our case Carbon Capture and Storage (CCS). Nor does the Act contemplate any strategy for greater energy independence, which is both an economic and national security imperative.

Further, the predicate for regulating greenhouse gas emissions under the Act in its present form will trigger regulation of millions of businesses and emissions sources throughout the American economy. This sudden burden would impose staggering unproductive costs throughout our economy and damage our international competitiveness without any perceptible environmental return.

All parties understand the real-world difficulties and consequences of using the Clean Air Act for this purpose. More likely, some are using the threat of regulation as a stalking horse to spur congressional action. But that’s a poor horse to ride at a time when businesses and consumers need greater confidence in the economy—not a threat to throw the system into chaos.

Declining Energy Supplies

As previously asserted, if the Gang of 31’s proposals are adopted by the Obama administration, the negative impact on the nation will be four-fold: 1) Regulatory chaos; 2) Declining supplies of energy; 3) A decades-long moratorium on major construction and infrastructure; and 4) Disincentives to develop new technologies. Having already delineated the regulatory chaos that would result from regulating greenhouse gases simultaneously with both climate change legislation as well as climate regulations under the CAA, next at issue is declining energy supplies until new technologies are developed.

According to the best and brightest scientists studying the development of new energy technologies (from biomass, non-biomass, efficiency, nuclear, batteries for storage, carbon capture and sequestration), estimates indicate we will not reap the results from widespread implementation of these technologies until around 2050 and until then oil, gas and coal will be the fuels that the world relies on to power our economies. Under the Gang of 31’s proposal, a hard cap on greenhouse gases would immediately occur if regulated under the current structure of the CAA. Such a cap would immediately limit the amount of fossil fuel that could be used so the nation could comply with the CAA.

So what does this mean? First and foremost it means that as the country reduces its use of fossil fuel, it would not have sufficient replacement fuels to meet energy demand for nearly half a century. The country would have to adjust to having less energy—just as developing nations adjust to having less energy than is necessary to productively run their societies. The end result would be nothing short of complete economic turmoil.

To the degree that economy wide cap and trade with auctioned permits is a default policy solution, the execution issues need to be carefully examined. An initial annual auction of 6 billion permits at $21 (the prevailing European co2 price) would be for $126 billion. Such an amount is both very big and very small.

It is very big in the annual funding requirement it creates for emitters – even in robust capital markets. And allowances will need to be marked on emitters’ books at cost rather than fair value to avoid significant earnings volatility. It is also very big relative to Government revenues. Just to pick a number, if this amount was thought of as a corporate tax it would represent a 30% increase over last years corporate tax revenue. If that money is not passed through in other tax cuts – or spent very wisely – the cost of climate policy rises appreciably. Yet it is only 2% of the emitters’ abatement obligation over the next 40 years. Making a vibrant carbon market out of such a small “float” will make derivatives the dominant trading vehicle for quite some time. All of this is threading a needle – at a time when the needle seems to be swaying due to the financial crisis.

It is right to task the EPA with considering alternatives that might be easier to execute. One might be to simply mandate (pro-rata) 2% annual abatement from large source electric power and industrial plants – and then allow emitters to debit or credit their abatement account by trading with other emitters. In other words, don’t create the permits in the first place. But even conventional permit trading for large sources, combined with a gradual phase-in of auctions, might make execution more realistic. And petroleum taxes and vehicle standards are, arguably, more powerful environmental tools for the transportation sector in any case.

Today President-elect Obama made it clear that climate change will be a top issue for his administration.

Specifically, he said: "Few challenges facing America -- and the world -- are more urgent than combating climate change. Many of you are working to confront this challenge....but too often, Washington has failed to show the same kind of leadership. That will change when I take office."

But our experts seem to disagree over whether Obama should proceed under the Clean Air Act and/or push Congress to write a new climate law. If climate is a top priority and Obama can take action faster under the Clean Air Act, why not do both?

Roughly 73 percent of energy-related CO2 emissions come from the power generation and transportation sectors. If the Administration plans to take immediate steps to make significant reductions in CO2 emissions, it must expect to make significant changes to those two sectors. Let’s examine each one.

The transportation sector represents about 33 percent of the country’s energy-related CO2 emissions. But finding a substitute for gasoline made from oil is a challenge. Ethanol is growing quickly already, but having that accelerate even more is problematic for reasons we all understand. Natural gas is another good substitute, but the retooling necessary for existing cars is expensive, and the process of designing new natural-gas-powered cars is lengthy. It does not look as though the transportation sector is a good candidate for immediate action.

That leaves the power generation sector. Roughly half of the nation’s electricity is coal-fired. Again, natural gas is a logical substitute on short notice, primarily because natural gas plants can be sited in 1 to 3 years and the NIMBY issues can be solved by working with landowners and local officials. But there are ramifications to increasing the demand of natural gas, or any fuel, quickly. First, doing so puts upward pressure on prices. Second, to keep price pressure down, it will be necessary to fend off attempts to reimpose the offshore moratorium either congressionally or administratively. Third, new supplies require new infrastructure, which also comes with a monetary and time cost, to support the new demand.

Finally, while there may be a political will to get something done about climate-change in the near-term, our primary concern should be that we do no harm. Any climate-change action should be coordinated with the world community, and that is a process prone to being a time sink. Rushing something through administratively ahead of Congress may only cause that deliberative body unnecessary delay in undoing early mistakes produced by a rushed process. A successful program requires a broad base of support, and getting ahead of Congress discourages that support from materializing.

Immediate action is necessary for one reason we can all agree on: Unless the USA leads in greenhouse gas control technology, we will be forced to import machinery from those countries that do.

China's 300 megawatt coal gasification electric power plant with carbon dioxide capture and sequestration is now under construction on the coast north of Beijing. The process was to be based on one developed by Shell (a Dutch firm), but China's Tsinghua University has improved on Shell's design and the Tsinghua device is the one being built. Full operation is planned by 2012. The plant is called GreenGen.

Australia's ZeroGen coal gasification generator for electricity is also planned to go into operation in 2012, with a 200 mile CO2 pipeline to a site where the liquid carbon dioxide will be injected into the same sort of formations that have trapped oil and gas for eons.

In Europe, RWE's coal gasification plant near Cologne will be generating 450 megawatts of electricity from lignite by the end of 2014.

US exports of electric apparatus, generators, and accessories totaled $41 billion last year. That sector was the fifth largest component of our capital goods exports, and about the same size as the computer and computer accessories export sector. If we don't want to lose a big chunk of trade, we must start now to give our companies effective incentives to develop and deploy technologies to produce low carbon power.

The United States is responsible for 27 percent of all carbon dioxide from fossil fuels currently in the atmosphere. Europe is responsible for 20 percent, China for 8 percent and India for 3 percent. The European Union has set out to reduce its emissions to 8 percent below 1990 levels by 2012. Today EU emissions are the same as they were in 1990. Since 1990, U.S. emissions have increased by 20 percent.

If we could paint all the CO2 molecules in the atmosphere that came from China red and all those from the United States blue, even with China's continued rapid growth, the number of red molecules would not match the count of blue ones until roughly the middle of this century.

The USA will eventually control its greenhouse gas emissions. Billions of dollars of equipment to do it can be imported, or we can develop and deploy the technology to sell to others. It is almost too late – China, Europe, and Australia have a big lead. If we want to capture that market, we can unleash our industries by giving the green light for building low carbon plants, or we can sit on our hands and buy later from others.

The sooner we address the greenhouse gas emission problem, the better chance we have of saving the planet. There is no longer any serious scientific doubt about the fact that our carbon emissions are contributing to global warming and climate change. Now we have to decide how to best meet the challenge-quickly, and using all tools at hand. As the most readily deployable source of carbon-free electricity generation, wind power is uniquely well-positioned to provide a critical contribution to the global warming solution, both in the early years of the climate protection effort, when few other options are available for large-scale, cost-effective emissions reductions, and in the long term.

The American Wind Energy Association is urging President-elect Obama and the new Congress to to start work on a climate change bill as soon as possible. We are also recommending a national renewable electricity standard of 10% by 2012 and a long-term extension of the renewable production tax credit. The climate legislation, to be effective, has to provide an early emissions reductions target and economic incentives to switch to carbon-free sources of energy. According to the Department of Energy, wind can provide 20% of U.S. electricity needs by 2030 if the right policies are adopted. Achieving that goal would reduce emissions equal to removing 140 million vehicles off the road. Wind energy is already clearing the air and protecting the planet: This year, about 21,000 megawatts of clean generation provided by U.S. wind power will prevent the emission of approximately 34 million tons of CO2. For a fuller explanation of the wind industry's climate change views, go to: www.newwindagenda.org.

Since President-Elect Obama has urged Americans to come together jointly to solve our national crisis, let me begin by agreeing with Jack Gerard of the American Petroleum Institute. Indeed, "to be workable, a combined energy and climate policy should identify the most affordable ways to reduce emissions, take a balanced approach to energy, avoid government selection of market "winners" and "losers," and perhaps most importantly, be environmentally effective."

Let me also agree with Thomas Gibson of the American Iron and Steel; we need to "1) lower global CO2 emissions, and 2) include global emitters so our already fragile economy is not further damaged."

But let me disagree with the assertions made that the recommendations the Sierra Club and other environmental groups have made to the incoming Administration are incompatible with these common objectives.

Let begin with a simple fact. The world has has a limited supply of carbon sinks -- natural systems which can absorb CO2 or sequester it. And the world is now dumping far more CO2 than those sinks can handle -- whether you believe in climate change or not, ocean acidification is an extremely simple and easily measured phenomenon. We currently emit more CO2 wastes than natural systems know how to detoxify.

I don't believe that economics, as understood either by the Sierra Club or by the Chamber of Commerce, teaches us that the most economically efficient way to manage a limited common resource for which demand has exceeded supply is to continue to allow unlimited access without charging an appropriate price. That's not a free market -- if I go into the Safeway and pick up a gallon of milk without paying for it, that's shoplifting. If I dump my garbage in your backyard without your permission, it's a tort.

So charging an appropriate price for the use of the world's carbon sinks, whether through a carbon tax or auctioning off carbon permits, is going to make our economy, and the world's, more efficient -- and hence more productive, not less.

Nor should we be afraid of using the Clean Air Act to regulate CO2 simply because it is a global pollutant. So, we now understand, are particulate matter, sulfur and nitrogen oxides, and air toxics. But the Clean Air Act has been remarkable effective in cleaning up the US contribution to these global problems, and every serious economic study done has shown that the net economic gains from the Clean Air Act and its regulations exceed the cfosts.

After all, General Motors doesn't pay the gasoline bills of the owner of an inefficient GM pick-up truck. And that owner cannot buy and inefficient truck -- no one makes one, because the auto makers don't pay the bill. So we need regulation to fix places where markets have internal barriers and don't work very well.

The Obama Administration should use a careful and judicious combination of regulation and prices to get our economy going again, by substituting low carbon, high performance innovations for the carbon wasting energy technologies of the last century.

Climate change is an extraordinarily complex and challenging issue that impacts energy, the environment and the economy in profound ways. The incoming administration and the new Congress must consider what's in the best interest of the country. How do we continue to compete globally? What can we do to bring down the cost to consumers, to create new jobs and protect existing ones, to create economic livelihood, and to get our economy back on the track? Energy is key to this discussion, and we plan to engage actively in the climate debate.

It is also important to use the right tools to tackle the climate challenge. This is a global problem and it requires a global answer. Acting unilaterally will not do much beyond jeopardizing our nation's economy. Unfortunately, some people think the Clean Air Act--a program carefully designed to address local air quality problems--is the right tool to address the global issue of climate change. We are convinced this would not be an efficient or productive approach.

Some of API's members believe cap and trade might be the right approach, and some believe a carbon tax might be the right approach. We think, at this point in the discussion, it's important for us to step back and look at that broader picture and to intertwine energy and climate policy. To be workable, a combined energy and climate policy should identify the most affordable ways to reduce emissions, take a balanced approach to energy, avoid government selection of market "winners" and "losers," and perhaps most importantly, be environmentally effective.

President-elect Obama has indicated that the first priority of the new Administration will be to get the economy moving. In light of that priority, it will be important to develop a rational and thoughtful approach to climate policy that should focus on two objectives: 1) lower global CO2 emissions, and 2) incldue global emitters so our already fragile economy is not further damaged. We agree with the concerns of Rep. John Dingell (D-MI), Chairman of the House Energy and Commerce Committee, who has stated that we would have a truly "glorious mess" if EPA were directed to use the Clean Air Act authorities to address global warming. The steel industry has a longstanding commitment to CO2 reduction. We believe it must be technology-focused, intensity-based and global in scope.

In the past three months, the U.S. has cut its imports of petroleum by $380 billion dollars at annual rates. This is due to an $80 drop in oil prices. The drop in oil prices is an echo of a bad economy caused in significant part by the high oil prices earlier in the year. All in all, it’s bad news.

However, this gives us a preview of coming attractions. Imposing severe cuts in CO2 emissions via either the Clean Air Act or a cap-and-trade bill will knock trillions of dollars off our income over the next two decades. There just aren’t ready and viable substitutes for the targeted reduction in fossil fuel use. So, CO2 cuts will raise the cost of energy which, in turn, will cause income and employment reductions.

The EPA estimates a cap-and-trade program will drop CO2 levels by only 26 parts per million and that drop is 90 years away. Even using the Intergovernmental Panel on Climate Change’s sensitivity factor, this will reduce world temperatures by less than 0.2 degrees C at the end of this century.

Millions of lost manufacturing jobs and trillions of dollars of lost income for a fraction of a degree change in temperature a century from now is a bad tradeoff.

The recommendations of the 31 environmental groups (Gang of 31) to President-elect Obama that he simultaneously move forward to reduce greenhouse gases with both climate change legislation as well as climate regulations under the Clean Air Act (CAA) is the first true statement of what they view as “change.” To say their proposal is radical and harmful to the economy of the U.S. would be an understatement. What is being proposed is an ominous central plan for our economy filled with inconsistent policies, littered with mandates and wrapped in the sunshine of “all gain, no pain” delusion.

If the proposals of the Gang of 31 are adopted this nation will be faced with:

1. Regulatory chaos;
2. Declining supplies of energy for decades until the technologies are developed;
3. A decades-long moratorium on major construction and infrastructure; and
4. Disincentives to develop new technologies.

To keep this discussion short enough to read let me just focus on the Regulatory Chaos that will occur. Future blogs will address the other impacts of the proposals made by the Gang of 31.

Regulatory Chaos

By advocating to both legislate new controls on greenhouse emissions while simultaneously triggering greenhouse gas regulation under the CAA, the Gang of 31 would be creating complete and total regulatory chaos caused by conflicting requirements. So what would this chaotic regulatory world look like?

Under the CAA a finding that greenhouse gases endanger public health and welfare will, as a matter of law, result in the mandatory imposition of National Ambient Air Quality Standards (NAAQS), New Source Performance Standards (NSPS), and Title V permitting, as well as widespread exposure to the Prevention of Significant Deterioration (PSD) permit program. The practical effect of these programs is an inescapable and unreasonable economic burden on U.S. businesses charged with compliance and the federal and state governments tasked with implementation. Such regulation would devastate the already-fragile economy and cost federal and state governments more money and personnel than either can handle.

For the sake of argument, let’s assume the CAA is triggered for greenhouse gases and then legislation similar to S. 3036 is enacted. The result will be 350 more legislatively imposed regulations that will be super-imposed on top of all of the CAA programs described above. In addition, there would be a cap and trade system that would allegedly be enacted to provide some relief for those needing to purchase emission credits. What relief? Under the NAAQS provisions of the CAA there would be a hard limit, or cap, on greenhouse gases. Since concentrations of greenhouse gases will continue to increase in the atmosphere due the massive increase in emissions from the developing world, it will be impossible to ever reduce greenhouse gas emissions below the emission levels established by NAAQS regulations so purchasing credits is futile. The U.S. would be in permanent non-attainment for NAAQS which makes economic expansion almost impossible. Specifically, existing sources would have to be offset by 1:1 or greater if new economic activity is to occur, yet new economic activity would be impossible since it would be impossible to reduce concentrations of greenhouse gases in the atmosphere due to the huge increases of such gases from the developing world.

The CAA programs are so burdensome, and so far-reaching, that there would be no market for emission credit. Under such a scenario, a cap and trade system such as Lieberman-Warner would be worthless because it would be impossible to comply with the NAAQS regulations established by the CAA. Yet, S. 3036 anticipated raising $3.3 Trillion from auctions to pay for the many programs it creates and for other federal expenditures and provides $3.4 Trillion in free credits to favored industries as a means of reliving severe economic burdens or to provide windfall amounts if the recipient sells the free credits. If the credits cannot be sold because there is little possibility of economic development; the two conflicting programs both become worthless as the U.S. economy gradually declines as economic activity is prohibited.

Moving forward on both fronts illustrates how the environmental groups truly view the climate change debate – it is not about developing new technologies that can produce non-fossil fuel energy sources; rather it is about de-industrializing the U.S. Hopefully, this is not the change that will come to the U.S. because if it is many of today’s existing jobs will find new homes in the developing world.

I have no doubt that President-elect Barack Obama and Congress can achieve what has been missing in Washington for too long – a working partnership to pass serious and effective legislation to cap greenhouse gas emissions and revitalize the U.S. economy.

That partnership can begin with the President-elect outlining a comprehensive approach to economic renewal and energy security that reduces our foreign oil dependence, invests in clean energy sources, and creates jobs by rebuilding American infrastructure. A cap on global warming pollution should be a centerpiece of that strategy.

With that cap, we can instantly create new markets and new customers for U.S. manufacturers in the supply chain for clean energy technologies. We can stem the flow of petrodollars overseas, by as much as $500 billion over the next two decades by MIT estimates. And we can generate new revenue for investment in America by auctioning emissions permits – all while fighting climate change.

It’s precisely the leadership the American people are looking for from the new President and the next Congress. According to post-election polling conducted for EDF, a majority of Americans say that given the economic crisis, now is the time to invest in clean energy because it will create quality jobs here at home. Two-thirds of voters say those investments should be paid for by the revenue generated from large companies that pay for the global warming pollution they create – instead of increasing taxes, or borrowing more money and increasing our debt.

There are two opportunities for the incoming President to show immediate leadership on climate change and begin reducing America’s global warming pollution through existing law. The first is granting California the Clean Air Act waiver necessary to implement its clean cars program. The second is to issue an “endangerment” finding under the act for greenhouse gas emissions, a prerequisite for future administrative action.

Both steps would demonstrate quick and tangible progress on climate change and send a signal that the U.S. will act even if Congress delays.