Timing and form of federal regulation: the case of climate change.

• Author: DeShazo, J.R.

INTRODUCTION I. STATES AS INCREMENTAL CATALYSTS A. Federal Floors B. Defensive Preemption and Federal Ceilings II. CLIMATE CHANGE A. The "Puzzle" of State Initiatives B. Overview of State Initiatives 1. State Renewable Portfolio Standards 2. Emissions Caps for New Power Plants 3. Caps and Offsets for Existing Power Plants 4. State and Regional Cap-and-Trade Programs 5. Fuel and Tailpipe Emissions for Automobiles 6. State/Regional Registry Programs C. An Increasingly Concerned Industry Lobby D. A Disappointed Environmental Lobby E. Hitting the Regulatory Sweet Spot III. THE FORM OF FEDERAL REGULATION A. Three Influential Factors B. Interest Group Preferences for Policy Instruments in Context 1. Environmentalists 2. Industry C. Matching Regulatory Tools to Regulatory Targets D. Empirical Evidence CONCLUSION INTRODUCTION

In this Article, we use a case study of climate regulation as a window into the process by which federal regulation takes shape. Regulation in response to climate change is a good example--perhaps the best in recent years--of states assuming a leadership role to address a social problem while the federal government remains inert. What are the likely effects of such state activity on the prospects for a federal response? Can states, by regulating, affect the likelihood that Congress will pass a federal statute to address a problem it has been ignoring? If so, by what mechanism does this occur? Can states affect not only the likelihood but the form of federal regulation--that is, the particular policy tools that Congress will adopt to address the regulatory problem? To date, these questions have been addressed only indirectly, if at all, in the relevant legal scholarship.

We argue here that states can be important catalysts of a federal policy response by stimulating both pro-regulatory and anti-regulatory forces to appeal to the federal government for relief sooner rather than later. To explain this phenomenon we piece together and build on insights from two literatures: the environmental federalism scholarship, which predicts when environmentalists and state and local governments will appeal for federal regulatory floors to prevent a race to the bottom, and when states will do so to overcome interstate externalities (ISEs); and what we have labeled "defensive preemption theory" (DPT), which predicts when industry will seek federal regulatory ceilings. We show how, consistent with DPT, state regulation addressing climate change has prompted industry to seek uniform and preemptive federal regulation. In addition, we show that although the traditional assumptions of race-to-the-bottom theory (RBT) and ISE theory do not apply to climate change (and thus do not generate demand for federal regulation), state regulatory measures nevertheless leave pro-regulation forces unsatisfied and drive them to Congress for relief. Thus, state regulation aimed at climate change has produced a convergence of interest group support for federal intervention--what we call "hitting the regulatory sweet spot."

Yet this analysis only takes us so far: although it helps to explain the timing of climate change regulation, it says nothing about its form. To shed light on this related question, we identify and explore the impact of three influential factors: the end goals of the dominant interest groups, the properties of the specific regulatory problem, and the compatibility of the available regulatory tools with potential targets of regulation. (1) Our goal is not to develop a formal predictive model of all forms of federal legislation. More modestly, we carefully explain the role these three factors have played in shaping interest group demand for federal climate change policy. In particular, we explain why U.S. climate legislation is likely to soon contain a cap-and-trade regime. More generally, however, these three factors are likely to be influential in determining the form of regulation in other contexts, even if they are not perfectly predictive.

The climate change example is particularly instructive on the questions of both timing and form for three reasons. First, it offers a contemporary illustration of state regulatory liveliness in the face of federal malaise--a dynamic that has been noted by many scholars, but has not yet been fully explored for what it can teach us more generally about the determinants of federal regulation. (2) Regulatory responses to climate change have occurred in an especially complex and rich interest group setting. The regulatory burden of addressing climate change will fall most heavily on the transportation and electric power sectors, since they are responsible for most domestic greenhouse gas (GHG) pollution, but will also encompass many other sectors, including manufacturing. Thus, regulation in response to climate change will deeply affect the American economy. In regulatory terms, this is a major event.

Second, climate change differs in important ways from other, more traditional, environmental harms; its uniqueness helps to explain why we see a surprising convergence of interest group support for a particular form of federal regulation. Specifically, since climate change involves a "stock" pollutant without significant localized effects, environmentalists are more supportive than usual of using market-based regulatory instruments like emissions trading to address it. This support, combined with industry's traditional preference for cost-minimizing regulatory mechanisms, goes a long way toward explaining the nature of the federal policy response.

Third, the type of regulatory challenge presented by climate change, while momentarily unique, may also be a sign of things to come--we may increasingly confront environmental harms with serious, but less localized, effects. (3) If so, environmental regulation may be necessary to address such harms. Explaining the form such regulation is likely to take requires a deeper understanding of interest group politics regarding stock pollutants.

Such an inquiry is the project of this Article. Part I describes and adds to the current understanding of how states motivate federal environmental legislation, focusing on the most common explanations of this phenomenon: RBT, ISEs, and DPT. Part II provides a case study of climate change legislation, discussing in detail the actions states have taken, and how these actions might affect the timing and form of a federal response. Part III focuses on the factors that will affect the form of federal legislation, which are mostly independent of state regulatory activity. Taken together, the Article thus adds to our understanding of both the timing and the form of federal environmental legislation.

1. STATES AS INCREMENTAL CATALYSTS

   1. Federal Floors

      One of the longest-standing and most important debates in environmental law concerns the desirability of federal minimum standards. Scholars have offered a number of justifications for establishing federal floors: states do a relatively poor job compared to Congress of protecting the environment; there are economies of scale to be gained from addressing problems at the national level; federal minimum standards are necessary to address interstate spillovers; and, left to their own devices, states will compete to attract industry by cutting their environmental standards, creating a race to the bottom. (4) Each of these hypotheses has been challenged in recent years, triggering a renewed effort to explain and justify the federal government's lead role in environmental regulation. Perhaps the most vociferous debate has been over whether the race-to-the-bottom hypothesis is accurate and, if it is, whether the consequences of such competition are undesirable. (5)

      Although the environmental federalism literature is primarily concerned with the normative question of the optimal level of regulation (state or federal), it also offers an implicit positive account of at least two conditions under which we would expect to see states driving interest group demand for federal minimum standards. First, the threat of an interstate deregulatory competition--the so-called race to the bottom--could motivate environmentalists and state and local officials to seek federal minimums. Second, the migration of pollution from one state to another--that is, ISEs--might move state and local officials to seek a federal solution to a problem they cannot overcome on their own. In both cases, state activity helps to create a demand for federal minimum standards in order to pull laggard states up.

      These two rationales for federal minimums help to explain the genesis of early federal environmental regulation. For example, state and local governments in highly polluted states led the charge for federal minimum air quality standards because they felt pressure to respond to voter demand for air pollution regulation, yet feared a race to the bottom. (6) Although neither the RBT nor the ISE rationale can fully account for why environmental regulation emerged at the federal level in the early 1970s, (7) they shed some light on how state behavior can influence the demand for federal standards.

   2. Defensive Preemption and Federal Ceilings

      States can also induce industry demand for federal regulation. Over twenty years ago, Elliott, Ackerman, and Millian noted that inconsistent state regulation could prompt industry to lobby for uniform federal regulation. (8) To support this claim, the authors cited the first significant federal air pollution laws, which, they argued, were partly the result of the automobile and soft coal industries seeking uniform preemptive federal standards when faced with the threat of inconsistent and increasingly rigorous state laws. (9)

      Elliott and his coauthors made this point in the context of a larger argument that sought to debunk prevailing myths about the origins of federal statutes, namely that they are either the product of a well-intentioned Congress seeking to...