A State Tax Approach to Regulating Greenhouse Gases Under the Clean Air Act
18 Pages Posted: 24 May 2014
Date Written: May 22, 2014
The economic literature supports the case that an emissions excise tax is one of the most cost- effective approaches to reducing greenhouse gas (GHG) emissions. The United States Environmental Protection Agency (EPA) has begun the process of regulating GHG emissions under section 111(d) of the Clean Air Act. Under this provision, EPA issues an emission guideline for states based on the agency’s assessment of the best system of emission reduction (BSER) for a particular type of stationary air pollution source. States then develop compliance plans that include standards of performance for pollution sources that reflect the BSER and are consistent with the emission guideline. The states submit these compliance plans to EPA for approval. This paper walks through the legal framework to show that EPA can allow states to adopt a tax on carbon dioxide (CO2) or other GHGs as a standard of performance. We also show that EPA can encourage this approach by providing the states with model tax levels and compliance schedules in its emission guideline. We conclude that a state-level carbon tax is a viable legal mechanism for cutting greenhouse gas emissions from power plants and other stationary sources under the Clean Air Act.
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