As Sen. Barack Obama (D-Ill.) assumes the presidency, he will face tough choices in a world in which forces beyond his control could shape the agenda on energy and the environment.

Obama has proposed bold initiatives on climate change and development of renewable energy sources, pledging billions of dollars to promote greener technology.

And there certainly will be pressure to act quickly and decisively on climate change as his administration joins in the final phase of international negotiations designed to draft a successor treaty to the Kyoto Protocol.

But other factors may slow the momentum. The need to restore investor and consumer confidence in the faltering economy, perhaps through yet another stimulus package, is expected to command much of Obama's attention early in 2009.

The economy “will overwhelm the domestic agenda” of the new administration, according to Mark Greenwood, a partner with Ropes & Gray and a senior Environmental Protection Agency official in the early 1990s. The initial focus will be on economic recovery, much as homeland security issues were the concern following the Sept. 11, 2001, terrorist attacks, he told BNA.

External factors also could affect other areas of environmental policy, such as air pollution regulation, where the Obama administration and Congress will have to deal with a federal appeals court decision that struck down EPA's Clean Air Interstate Rule, which was designed to reduce nitrogen oxide and sulfur dioxide emissions through an emissions trading scheme. The decision has created chaos for utilities that bought emissions allowances for which there is no longer a market.

And in chemicals policy, Greenwood and other analysts see an impact from significant developments in Europe, through implementation of the REACH legislation, and from states that are enacting their own rules. Leadership on chemicals policy may not come from EPA, Greenwood said, and Congress and the next administration may ultimately have to determine whether the Toxic Substances Control Act is adequate for chemicals management or needs to be revised.

There also will be pressure to clarify the scope of federal regulatory authority over U.S. waters, as EPA and the U.S. Army Corps of Engineers try to figure out when Clean Water Act permits are needed for actions such as the filling of wetlands in the wake of what many consider a confusing U.S. Supreme Court opinion in 2006 in Rapanos v. United States, 547 U.S. 715, 62 ERC 1481 (2006); (37 ER 1329, 6/23/06).

It became clear during the election campaign that unforeseen events can force the agenda: Witness Obama and Democratic leaders in Congress agreeing to measures that could open up more offshore oil drilling as gasoline prices soared during the summer.

Economy Seen as Impediment.

Regardless of the positions put forward during the campaign--and Obama had an extensive environmental agenda--industry representatives see the stalled economy as a major impediment to environmental initiatives.

William Kovacs, the U.S. Chamber of Commerce's vice president for environment, technology and regulatory affairs, said there may be little enthusiasm among voters for acting on climate change and other environmental challenges early in the new administration.

“This is the time to slow the ball down and see what is going on, and maybe adjust things on a president's agenda to see what the economic output will be in 2009,” Kovacs said. In focus groups held by the chamber this year, voters have repeatedly cited the economy and rising energy costs -- and not climate change or the environment -- as top issues in the 2008 election, he said.

The new president will have little support for pushing aggressive action on climate change in 2009, particularly if voters fear it will drive up energy costs, he said.

“In our focus groups, climate change does not rate anything near a top-tier issue,” Kovacs said. “It's a top issue for 2 percent, 4 percent, maybe 5 percent [of voters] at most,” he said.

Possible Opening Exists.

The ongoing economic crisis has dampened optimism even among environmental advocates for getting comprehensive climate legislation enacted in 2009.

Ned Helme, president of the Center for Clean Air Policy, predicted that the measure can be passed through various House and Senate committees next year, but added that he “would be amazed” to see a proposal signed into law.

Yet, Helme and other environmental advocates still see a possible opening for new climate policy.

They say the early focus by the White House is likely to be on preparing an energy proposal or another economic stimulus package, although there is discussion that Congress could tackle a stimulus bill this year during a post-election lame-duck session. Either energy legislation or a stimulus bill could be seen as a vehicle for attaching a climate package, they say.

A cap-and-trade plan to curb emissions by selling off allowances “could be a centerpiece of a stimulus package, for example, because it is a nice way to generate money by reducing something we don't want”--emissions linked to global warming, Helme told BNA.

In the view of a former Senate aide, because of the vast sums that could be raised in an emissions trading scheme -- as much as several trillion dollars through 2050 under some estimates--the climate proposal could be touted as one of the few available revenue sources for a broader economic-energy package.

Under that system, power plants, manufacturers, and other emitters would have to hold allowances for the greenhouse gases they emit, and industries could buy, sell, or trade those allowances. A portion, or even all of the allowances, could be auctioned to offset impacts such as rising energy costs or to help energy producers adapt to a lower-carbon footprint. Obama has proposed auctioning all allowances.

Ron Shapiro, head of the globalization initiative for NDN, formerly the New Democrat Network political advocacy group, said “current economic realities provide both opportunities and problems for any environmental agenda” in 2009.

Green Jobs, Renewable Energy.

“There are two opportunities: One is that some environmental goals can be advanced without any new spending, such as regulatory changes, and two, that these economic conditions will enhance the attractiveness of raising energy efficiency standards across the board” for new appliances and new buildings, Shapiro said. “The next administration could start by enforcing those standards in all federal buildings,” something the president could do by executive order, he said.

Shapiro said the new president should consider another economic stimulus package, perhaps in the $200 billion to $300 billion range, but should ensure that some of that funding is targeted for expanding so-called green jobs and renewable energy sources.

Speaking to BNA prior to the election on the possibility of an Obama victory, Shapiro said, “If it is Obama, he should do what I think his instincts tell him, which is to use an economic stimulus to advance the public investments” in clean energy he has called for.

“That's the opportunity the next president will have initially,” he added. “The challenge is that once we get past that, there's not going to be much money and certainly not much public appetite for changes that raise energy prices.”

Prospects for a White House Climate Bill.

On climate change, the White House will have to decide early on whether to weigh in with legislation, or at least a set of broad principles, to enact curbs on emissions through 2050, according to the former Senate aide.

“The first major decision is whether to write a bill or not on climate, and part of that decision is whether to do an energy and climate proposal together or do them separately,” the former aide said.

Any legislative proposal from the administration would probably compete with a new round of proposals being readied by Democratic-led committees in the House and Senate, he said. Regardless of how they pursue those policies, the support for mandatory cuts in U.S. emissions from both McCain and Obama stands in stark contrast to the approach of the Bush administration, which for eight years has consistently opposed such policies as too costly for the nation's economy.

Of course, much will also depend on Congress and an agenda that will be driven by House and Senate Democrats, who increased their margins in both chambers on Nov. 4. With several Senate races still undecided Nov. 5, Democrats had added five seats, giving them a total of 54, with the possibility of picking up even more. That, along with the addition of Independents Bernie Sanders of Vermont and Joseph Lieberman of Connecticut, could bring the Democratic majority closer to the 60 votes needed to break a Republican filibuster on bills brought to the floor.

Sen. Jeff Bingaman (D-N.M.), chairman of the Energy and Natural Resources Committee and a key Democrat in the Senate, recently signaled his intention to pursue an aggressive agenda on climate and energy, although he stressed the importance of working with Republicans.

In an op-ed sent to national newspapers Oct. 27, Bingaman said he will “push early and hard in the next Congress to return us to an effective, bipartisan and comprehensive approach” on energy and climate that would curb global greenhouse gas emissions, hasten deployment of carbon capture and storage at coal-fired power plants, and add more renewable energy sources, including nuclear power plants.

A New Direction at EPA?

Even without new congressional authority, Obama could take action administratively by directing EPA to regulate carbon dioxide and other greenhouse gas emissions. The U.S. Supreme Court in 2007 rejected the Bush administration's contention that EPA lacked such authority under the Clean Air Act (Massachusetts v. EPA, 127 S. Ct. 1438, 63 ERC 2057 (2007)).

“Dealing with the Massachusetts v. EPA remand. That is absolutely the top issue,” Kevin Gaynor, an attorney at Vinson & Elkins, told BNA. Gaynor acknowledged, however, that “it's a hard sell in light of our economic meltdown.”

Environmental organizations say they expect Obama will direct EPA to move forward with an “endangerment” finding that would set such a regulatory approach in motion.

For EPA to regulate carbon emissions under the Clean Air Act, it must first issue a formal agency finding that carbon dioxide endangers public health, which industry and environmental organizations agreed could trigger future regulation not only of greenhouse gas emissions from cars and other mobile sources but also coverage of power plants and other stationary sources.

Pressure on Agency to Act.

Kovacs, the Chamber of Commerce official, predicted that there will be enormous pressure on EPA to act on its own next year given that Congress is likely to be focused on economic challenges. The chamber argues that an EPA endangerment finding would set in motion a series of regulatory entanglements that would extend Clean Air Act permitting requirements to more than 1 million work sites that emit greenhouse gases and impose monitoring and reporting requirements under EPA prevention of significant deterioration, or PSD, rules.

“It is the law of unintended consequences. The last thing you would want is to have an [economic] recovery moving forward and then an endangerment finding from EPA bringing us to our knees economically,” Kovacs said. Applying the PSD requirements alone to sources of greenhouse gas emissions could cost various industries $6 billion a year, he said.

“If you want a construction moratorium in this country, that is what you are going to get” if EPA moves forward with a positive endangerment finding, the chamber official said.

S. William Becker, executive director of the National Assocation of Clean Air Agencies, said that because it is uncertain whether Congress will act, the case for EPA regulation under the Clean Air Act becomes stronger.

“The extent to which they follow through on greenhouse gas regulations under the Clean Air Act sends a very important signal to this country and to rest of world regarding the seriousness of the next administration in taking on climate change,” Becker said.

California Waiver at Stake.

Another campaign pledge that may be put to the test is a commitment to grant California a waiver under the Clean Air Act enabling the state to enforce greenhouse gas emissions rules for motor vehicles. The industry opposes the waiver, which was denied by the Bush administration earlier this year, with automakers saying that it would force them to comply with two sets of fuel efficiency requirements, federal and state (39 ER 433, 3/7/08).

Obama has said he would grant the waiver.

However, Andrew Wheeler, the Republican staff director for the Senate Environment and Public Works Committee, told BNA that granting the waiver may be difficult with General Motors and Chrysler seeking federal bailout money and speculation rampant that one or both could fail.

“Any administration concerned about the automobile industry needs to take a hard look at those issues,” Wheeler said. “Both campaigns, when they were talking about the issue, were not thinking about GM and Chrysler going bankrupt.”

Wheeler said he expected the new administration to consider reversing course to prevent job losses across the country from the potential failure of GM and Chrysler.

Pressures for Global Climate Deal.

Obama also will face significant challenges in addressing climate change on the international front. The administration will be under pressure to fulfill a U.S. commitment toward a new climate deal to be agreed to in Copenhagen in December 2009.

Environmental and industry organizations agree that one of the top challenges will include balancing any U.S. pledge to curb emissions against commitments from fast-developing nations such as China and India.

Obama supports re-engagement of the United States in those negotiations toward a new agreement to essentially succeed the Kyoto Protocol, the existing international deal abandoned by the Bush administration in 2001.

The success of the negotiations may depend on the commitments the United States can extract from fast-growing China and India, given that any U.S. pledge to cuts emissions will ultimately have to be ratified by two-thirds of the U.S. Senate.

An environmental adviser to the Obama campaign said the new administration will be under pressure to get its international climate team in place early, including key officials at the U.S. State Department and the Council on Environmental Quality, which coordinates environmental policy for the White House.

“Certainly in [the Bush] administration, CEQ has been a major player” in environmental policies including the climate negotiations, the adviser said. The new president “can reshape that arrangement any way they want to--but nobody has really sat down and thought hard about how it will work. But that will happen soon,” according to the adviser.

CAIR on Congressional Agenda.

The Obama administration also may see Congress take the lead on another major Clean Air Act issue--reinstating the Clean Air Interstate Rule.

Rep. Rick Boucher (D-Va.), chairman of the House Energy and Commerce Subcommittee on Air Quality, said that passing legislation to reinstate CAIR will be a top priority in the next Congress. CAIR would reduce power plant emissions in 28 states and the District of Columbia through an emissions trading system.

A three-judge panel from the U.S. Court of Appeals for the District of Columbia Circuit unanimously overturned CAIR (40 C.F.R. Parts 51-52) in July, saying the agency's method for allocating emissions allowances for upwind states and its interpretation of protections for downwind states violated the Clean Air Act (North Carolina v. EPA,D.C. Cir., No. 05-1244, 7/11/08).

The CAIR decision has created major uncertainty on the future of emissions reductions in the power industry, with many companies unsure of how much they should continue to invest in emissions controls.

In September, EPA and most of the other parties involved in the lawsuit petitioned the court for a rehearing of the case.

In response, the D.C. Circuit asked the petitioners Oct. 21 to tell the court whether they had sought a complete revocation of CAIR, or whether they wanted it remanded to EPA for revision. The court also asked whether it should stay the mandate putting the decision into force and instead allow EPA to revise it (39 ER 2110, 10/24/08).

If the court decides to stay its ruling and remand CAIR back to EPA, the agency would face a range of options on how to respond, a Senate Republican aide said. However, the aide said, the situation is unclear.

Many Factors Drive Chemicals Policy.

While not as high profile an issue as climate change, several policy watchers told BNA that EPA is likely to continue to emphasize its work to collect information on and address questions arising about industrial chemicals.

Emerging technologies that allow measurements of ever-smaller quantities of chemicals and ease the process of measuring them in human bodies, and the increased stringency of chemicals policies in U.S. states and in other parts of the world, will make chemicals policies a priority for the new administration, said Daryl Ditz, a senior analyst at the Center for International Environmental Law, and Joel Tickner, director of the Chemicals Science and Policy Program at the University of Massachusetts Lowell's Center for Sustainable Production.

Factors they pointed to as driving the need to address chemicals include state legislative, regulatory, and policy actions on chemicals; the European Union's registration, evaluation, and authorization of chemicals (REACH) regulation; and Canada's work to set priorities for action on the “legacy” or existing chemicals sold in the country.

Michael Walls, managing director of government and regulatory affairs at the American Chemistry Council, agreed. Speaking to BNA prior to the election, Walls said, “Regardless of who wins the presidential election, the American Chemistry Council anticipates a very active chemicals policy agenda at the federal, state, and global levels.”

EPA has committed important resources to the Chemical Assessment and Management Program (ChAMP), Walls said, and the chemistry council believes that “an essential screening and prioritization program has considerable merit as part of EPA's chemical management policies.” Walls was referring to an EPA effort to quickly screen high- and moderate-production volume chemicals to determine which warrant additional scrutiny.

Tickner and Ditz said that while they are confident the administration will focus on chemical issues, they are not convinced it would adopt ChAMP.

States will continue to pass chemicals legislation and develop policies to manage and obtain information about chemicals, and they will continue to press EPA to provide them data, Tickner said, adding it is unclear whether ChAMP will satisfy that demand.

Leadership May Not Come From EPA.

Greenwood, the partner with Ropes & Gray who ran EPA's Office of Pollution Prevention and Toxics from 1990 to 1994, said the chemicals policy debate is taking place during a period of extensive movement in the state and international arenas. The leadership on chemicals policy may not come from EPA, he said.

“The world could be guided by policies coming out of Europe and Canada,” Greenwood said, adding that multinational chemical companies will be complying with regulations and policies from those areas, along with ones California and other states are setting, so other governments could become the drivers of national chemicals policy.

The question is not whether ChAMP is the right approach, but what policies make sense beyond ChAMP, Greenwood said.

Both Congress and the new administration will need to decide whether they think TSCA is adequate for chemicals management or needs to be revised or replaced, he said.

Review of Regulatory Process Urged.

Beyond specific environmental policies, Obama also will have to make decisions on how he will manage and oversee the federal regulatory process at the White House Office of Management and Budget, which acts as a gatekeeper in determining which environmental rules see the light of day.

One of the top priorities early on will be to review the various executive branch procedures currently in place for rulemaking and deciding which to keep and which to revise or reverse, according to Rick Melberth, director of regulatory policy at OMB Watch.

They include Executive Order 13422, issued by President Bush in January 2007 to require that federal agencies identify a “specific market failure” before proceeding with regulations. The order also gave OMB authority over agency guidance documents, which had traditionally been the purview of individual agencies, Melberth told BNA.

According to Scott Schlesinger, vice president for government affairs at the Environmental Technology Council, the Obama administration should reform the regulatory process to make it speedier. It should seek to repeal some of the regulatory process requirements enacted by Congress in the 1990s, he said, as well as rewriting some of the executive orders related to the process.

By Dean Scott, Pat Rizzuto, and Steven D. Cook

Copyright 2008, The Bureau of National Affairs, Inc.