Amicus Curiae Brief — Massachusetts v. EPA

\o5

No. 05-1120

IN THE

Supreme Court of the United States

COMMONWEALTH OF MASSACHUSETTS, ET AL.,

Petitioners,

v.

U.S. ENVIRONMENTAL PROTECTION AGENCY,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT

BRIEF OF AMICUS CURIAE CALPINE

CORPORATION IN SUPPORT OF PETITIONERS

RICHARD E. AYRES

Of counsel Counsel of Record

GREGORY L. DooDy AYRES LAW GROUP

General Counsel 1615 L Street, N.W., Suite 1350

Washington, D.C. 20036

SARAH G. NOVOSEL (202) 452-9200

Managing Counsel

Attorneys for Amicus Curiae

Calpine Corporation Calpine Corporation

TABLE OF CONTENTS

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bi IIE cndesusesccineuiduscnscnseevensecseveneneiesnnmaning 2

Se AT tenn dbiicuisinnientititdncdnmsncnentioidieiptntatnade 3

1. The CAA Provides EPA with Authority to

6.

Regulate Air Pollutants Associated with Climate

Change, and EPA Has Arbitrarily Refused to

I See PIII osc ccsiceniccibscescesassnnnentes 3

A Significant Portion of the Electric Generating

Industry Supports a Mandatory National Program

to Reduce Emissions of the Air Pollutants

Associated with Climate Change.................06 5

Regulation of the Air Pollutants Associated with

Climate Change Is Not a Threat to the

PE iccrduidsdsenscnssdeccebenneiteiibasabnmineinn 7

Environmental Regulation Has Stimulated

Innovation and Lowered the Cost of New

I ics tuisintesh onuntd-sicdildasncimedtabainnaeunbies 12

National Regulation Is Needed Now to Cive the

Marketplace Clear Signals for How to Provide

I Ns dis tintenaccdaccustitbersievcesaven 14

Patchwork Regulations Will Increase Costs .....16

ere SAG di uicidentiebeedieieesuntdlak ceuaagibinide 18

IIE Ui iletisiebtivdcundetenultitiaacehspadiincontincunaeeesni l

TABLE OF AUTHORITIES

Page(s)

CASES

Alabama Power v. Costle,

ae UE ea a HP incce cascccosdenccsectian 12

Coke Oven Environmental Task Force v. EPA,

i ne re Cars iho cies sbcccknndnesssxicimncsemelD

Husqvarna v. EPA,

254 F.3d 195 (D.C. Cir. 2001)............ccccescccceees 12

International Harvester Co. v. Ruckelshcus,

opr fo a Be 7

Natural Resources Defense Council v. EPA,

if § he 2 Se Epeeeremnre 12

Natural Resources Defense Council v. Thomas,

805 F.2d 410 (D.C. Cir. 1986)...........cccceseeeeeeees 12

Portland Cement Ass'n v. Ruckelshaus,

te FF ee Ge Fei id vi ctevcsecccvesdeseseds 12

State of New York, et al., v. United States Environmental

Protection Agency,

443 F.3d 880 (D.C. Cir. 2006)............cccscceccccceees 14

Union Electric v. Environmental Protection Agency,

Se a HEIL ninseabnibiacndntsitindteiennnscnees cee 12

Whitman v. American Trucking Ass'n, et al.,

PE Ses GPF Ce iccncversivecosueieserscossssuvesed 4,12

Wisconsin Electric Power Co. v. Reilly,

Be GUE OF Ce, CII onic ssn cesisiccccceccccicces 12

ll

STATUTES

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is te ida ccdnnsctuisadinccsuideaspasaapeennoned 11

Oe iis Oe POD inccvcesoncoscsnescnssdsoscneeéensccnme 2

ee AE PIED cccnesecocecsespecssnsancpnessssvsennn 2

ee I concrsendccasssecsndspeunbsidersepoeenese ll

es ae PR sicker dcincccosseccsenpecgascsnsasoncntes 11

ee a IN icc octnescpdeccsscndenpennesaiessens 11

ae Fe cas cdainivdtatarvosniendcneieereunsses 1, 2,3

ee te I eds inscviins dn boiisdcnubbucéniaestedanestonondes 3

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ee IN cs dcsveninchbavssdupesisonsisaunespidaenseuel 11

Fe I BPR inccccscncensconessndiseimanenieninoncinatninneeniaias 14

CALIFORNIA HEALTH SAFETY CODE § 43018.5 (2006)....... 16

LEGISLATIVE MATERIALS

Climate Change: Conference Before the Senate Comm. on

Energy and Natural Resources, 109" Cong. 420 (2006) ......5

S. Rep. No. 95-127 (1977), reprinted in 1977 CRS

NS BOT Binds ciscccsccctcssccenstscossccusescesenes lI

H.R. Rep. No. 95-294 (1977), reprinted in 1977 CRS

EN CPD in ssiicn doncsincsonasccvensudddbenhessiesies 11

California A.B. 32, “Global Warming

SR INNO SITE ctulicidawadnnsssess csmmicosasconess 16

ADMINISTRATIVE MATERIALS

TE, CORI cic avecdresesoiupasindsdaacopeseens 13

ET TE itaiidsdciinaidknenddeiabadgtninbaniainatiiinebedls 13

ET UN dnisshinisceumeedsiasnenas andslelaemestaciin ied 13

ETI AS CMRP re ReOe Nae Roe Rom eR Re 13

71 Fed. Reg. 9866 (Feb. 27, 2006)...........scscsccccsccessceses 3

tii

MEMORANDA

Memorandum of Robert E. Fabricant, EPA General Counsel

CURE, is Sis 000s sn ccccenssesnsndwinscscmeniamiaiennaenaae 7

BOOKS

STEPHEN ANDERSON AND M’.DHAVA SARMA, PROTECTING

THE OZONE LAYER: THE UNITED NATIONS HISTORY (United

Nations Environmenta! Programme 2002)...............0.006 13

R. BENEDICK, OZONE DIPLOMACY: NEW DIRECTIONS IN

SAFEGUARDING THE PLANET (enlarged ed., Harvard

SOI POND To esis idncssstinsavcputeseiiusscmensseal 14

D. ELLERMAN, P. JoSkKow, R. SCHMALENSEE, J-P. MONTERO,

E. BAILEY, MARKETS FOR CLEAN AIR: THE U.S. ACID RAIN

PROGRAM (Cambridge U. Press 2000)..................... 000 14

JAMES K. HAMMITT, CHOOSING ENVIRONMENTAL POLICY:

COMPARING INSTRUMENTS AND OUTCOMES IN THE UNITED

STATES AND Europe (R. Harrington, R. Morgenstern, T.

Sterner, eds., Resources for the Future Press

RENE KEMP, ENVIRONMENTAL POLICY AND TECHNICAL

CHANGE (UNU-MERIT 1997).............ccecceceseeeeeeees 13, 15

R. MORGENSTERN, ED., ECONOMIC ANALYSIS AT EPA

(Resources for the Future Press 1997).................cc0eeeee cree

INSTITUTIONAL PUBLICATIONS

CERES, INVESTOR RESPONSIBILITY RESEARCH CENTER, INC.,

CORPORATE GOVERNANCE AND CLIMATE CHANGE: MAKING

FOR CC TUE Cis cc cnt bo ccccconsccscesescntiessusanie 6, 15

ENERGY INFORMATION ADMINISTRATION, U.S. DOE,

IMPACTS OF MODELED RECOMMENDATIONS OF THE

NATIONAL COMMISSION ON ENERGY POLICY (2005)............9

iv

NATIONAL COMMISSION ON ENERGY POLICY, ENDING THE

- ENERGY STALEMATE: A BI-PARTISAN STRATEGY TO MEET

AMERICA’S ENERGY CHALLENGES (2004).............:0008-7, 11

NATIONAL COMMISSION ON ENERGY POLICY, ENDING THE

ENERGY STALEMATE, ECONOMIC ANALYSIS (2004)........8,16

NATIONAL ENERGY TECHNOLOGY LABORATORY, DOE,

TRACKING NEW COAL-FIRED POWER PLANTS: COAL’S

RESURGENCE IN ELECTRIC POWER GENERATION (2006)......15

NATIONAL RESEARCH COUNCIL OF THE NATIONAL

ACADEMIES, INTERIM REPORT OF THE COMMITTEE ON

CHANGES IN NEW SOURCE REVIEW PROGRAMS FOR

STATIONARY SOURCES OF AIR POLLUTANTS

U.K. SECRETARY OF STATE FOR TRADE AND INDUSTRY, OUR

ENERGY FUTURE — CREATING THE Low CARBON ECONOMY

U.S. NATIONAL ENERGY POLICY: REPORT OF THE NATIONAL

ENERGY POLICY DEVELOPMENT GROUP TO PRESIDENT

ITE ARE ae Teo 10

MEDIA SOURCES

Zachary Coile, /ndustry Starts to Back Rules on Greenhouse

Gas, SAN FRANCISCO CHRONICLE, Aug. 24, 2006............. 6

PRESENTATIONS

Arthur Rosenfeld, Commissioner, California Energy

Commission, Presentation to the Energy Symposium (April

J

7 seo gs oh 2, caer

SOR SAAS ae eo

*

I. CALPINE’S INTEREST

Calpine Corporation! (“Calpine”) is a U.S. company

that owns, leases and operates power generation facilities and

sells electricity to wholesale and industrial customers in the

United States and Canada. Calpine is one of the preeminent

power producers in the United States, with more than 26,500

megawatts of generating capacity. Over the last decade,

Calpine completed one of the largest development and

construction programs in recent United States history,

investing billions of dollars to construct highly efficient, low-

emitting power facilities. Today, the company operates one

of the cleanest, most efficient fleets of power generation in

the United States. Calpine’s economic interests will be

directly affected by the ruling of the Court in this case.

Amicus Calpine submits this brief for two purposes.

First, Calpine agrees with the petitioners that the clear and

straightforward language of the Clean Air Act (“CAA”)

provides the U.S. Environmental Protection Agency (“EPA”)

with the necessary authority to adopt regulations to curtail

emissions of air pollutants associated with climate change,

and that the reasons EPA gave for refusing to make an

endangerment finding were arbitrary and capricious. Second,

Calpine wishes to bring to the Court’s attention that a

significant portion of the electric generating industry

supports a mandatory, national program to reduce emissions

of air pollutants associated with climate change, and that

such a-program does not have to be harmful to the economy.

We also believe that such a program initiative should be

| Letters of consent from the parties are being filed in conjunction with

this brief. Pursuant to this Court’s Rule 37.6, counsel] states that this brief

was not authored in whole or in part by counsel for a party and that no

one other than amicus and its counsel made a monetary contribution to

the preparation or submission of this brief.

adopted now, while there remains time for an economically

efficient transition to a lower-emitting future.

Il. STATEMENT

On its face, this case is about authority under Section

202(a1) of the CAA, 42 U.S.C. § 7521 (a)(1), which

regulates motor vehicle emissions. But the Court’s ruling

will also effectively determine the EPA’s authority to

regulate air pollution associated with climate change from all

sources, whether from motor vehicles or industrial facilities.

There are two reasons for this.

First, the language of § 202(a)(1), 42 US.C. §

7521(a)(1), that triggers the process of regulating motor

vehicle emissions is identical to language elsewhere in the

CAA that initiates various processes for regulating emissions

from industrial sources. Section 202(a)(1) instructs EPA to

regulate each air pollutant that may “cause, or contribute to

air pollution which may reasonably be anticipated to

endanger public health or welfare.” Similarly, the processes

of adopting regulations to control emissions from categories

of new industrial sources, including electric generation, and

that for developing regulations to control emissions of

hazardous pollutants, are triggered by virtually identical

statutory language. CAA § 111(b)(1)(A), 42 USC. §

7411(b)(1)(A); and CAA §112(b)(3)(B), 42 USC. §

7412(b)(3)(B).

Second, the Court’s ruling will determine the

outcome of a case challenging EPA’s recent New Source

Performance Standards (“NSPS”’) regulations for small steam

generating boilers. 71 Fed. Reg. 9866 (Feb. 27, 2006). In

explaining its decision not to regulate the -air pollutants

associated with climate change from such boilers, EPA took

the position that “it does not presently have the authority to

set NSPS to regulate CO, or other greenhouse gases that

contribute to global climate change.” 71 Fed. Reg. 9866,

9869 (Feb. 27, 2006). Thus the EPA has put in issue its

authority to regulate industrial sources of the air pollutants

associated with climate change in the review of its small

boiler regulation. This case is currently suspended pending a

decision on joint motions of the parties to hold the case in

abeyance while awaiting this Court’s definitive ruling on the

issue of EPA’s authority to regulate air pollutants associated

with climate change. Coke Oven Environmental Task Force

v. EPA, No. 06-1131 and consolidated cases (D.C. Cir.,

2006) .

iil. ARGUMENT

1. The CAA Provides EPA with Authority to Regulate

Air Pollutants Associated with Climate Change, and EPA

Has Arbitrarily Refused to Exercise Its Authority.

The petitioners in this case present a straightforward

question of statutory interpretation: Does the plain language

of the CAA provide the EPA with the authority to regulate

air pollutants associated with climate change? Calpine

agrees with petitioners that the language of the CAA clearly

authorizes such regulation.

This authority is apparent in the language of CAA §

202(a)(1), 42 U.S.C. § 7521(a)(1), which directs the EPA

Administrator to determine whether “any air pollutant” from

new motor vehicles or engines “cause[s], or contribute[s] to

air pollution which may reasonably be anticipated to

endanger human health or welfare.” In turn, the “air

pollutants” subject to regulation are defined in the broadest

terms. CAA § 302(g), 42 U.S.C. § 7602(g). The statute also

defines “welfare” in very broad terms, specifically listing

impacts on climate, as well as a host of other climate-related

consequences, as welfare effects. CAA § 302(h), 42 U.S.C.

§ 7602(h). This language, like that in Whitman v. American

Trucking Ass'n, et al. (“Whitman”), 531 U.S. 457 (2001) is

clear and “absolute,” id. at 465, an “elephant” that cannot be

hidden in a “mousehole[].” Id. at 468.

EPA’s attempt to justify its refusal to find the

pollutants associated with climate change “endanger public

health and welfare” is entirely arbitrary, invoking

considerations that have nothing to do with the statutory

standard, and ignoring (or misusing) those that do. Had the

EPA applied the statutory endangerment test, and engaged

the relevant questions under that test, it could not have

rationally avoided a determination that regulation is

necessary under § 202(a)(1) of the CAA.

Like petitioners in this case, Calpine does not ask the

Court to decide either the content or timing of a program to

reduce emissions of these air pollutants. As with other CAA

programs, the initial judgment that a pollutant causes or

contributes to adverse effects on public health or welfare is

separate from subsequent policy decisions about what sort of

program will be efficacious, and when such a program should

go into effect. Whitman, 531 U.S. at 470. We have no doubt

that crafting such a program will be a complex task, but not

beyond the capability of the EPA, which has had notable

success at stimulating technological innovation and reducing

costs as a result of intelligent program design. See, e.g., R.

MORGENSTERN, ED., ECONOMIC ANALYSIS AT EPA

(RESOURCES FOR THE FUTURE PRESS 1997). In any case,

these complex issues are not before the Court, which need

only interpret the plain language of the statute. =

2. A Significant Portion of the Electric Generating

Industry Supports a Mandatory National Program to

Reduce Emissions of the Air Pollutants Associated with

Climate Change.

A significant portion of the electric generating

industry believes that mandatory national regulation of the air

pollutants associated with climate change is inevitable and

desirable, and finds the current stasis in federal policymaking

counterproductive and potentially economically wasteful. To

date, companies operating 20 percent of all U.S. generating

capacity have publicly endorsed mandatory, national

regulation to reduce emissions of air pollutants associated

with climate change.

In recent testimony before the U.S. Senate, many

investor-owned electric generating companies endorsed, in

unequivocal language, mandatory, economy-wide policies to

regulate emissions of the air pollutants associated with

climate change. Climate Change: Conference Before the

Senate Comm. on Energy and Natural Resources, 109"

Cong. 420 (2006) (“Climate Change Hearings”). Companies

endorsing mandatory national emission regulations include

Duke Energy Corporation,2 Exelon Corporation,’ General

2 Statement of Ruth Shaw, Group Executive for Public Policy and

President for Duke Nuclear, Duke Energy Corporation: “Duke Energy

favors U.S. policy on climate change that, first, is mandatory, not

voluntary; second, is economy-wide in its scope, sending consistent

signals to all sectors in all regions. . . .” Climate Change Hearings at 4.

3 Statement of Elizabeth Moler, Executive Vice President, Government

and Environmental Affairs and Public Policy, Exelon Corporation. “I

want to stress the need for a mandatory, comprehensive, and balanced

national greenhouse gas program.” Id.

Electric Energy,4 PNM Resources,> Sempra Energy, Entergy

Corporation, FPL Group (parent company of Florida Power

& Light), Pacific Gas and Electric Company, Public Service

Enterprise Group, and Calpine Corporation.®

“{I]t is only a matter of time before Congress enacts

federal carbon constraints,” says Ceres, a _ national

organization that speaks for a group of more than 50

institutional investors from the U.S. and Europe managing

nearly $3 trillion in assets. CERES, INVESTOR

RESPONSIBILITY RESEARCH CENTER, INC., CORPORATE

GOVERNANCE AND CLIMATE CHANGE: MAKING THE

CONNECTION 12 (2006) available at www.ceres.org.

The association representing publicly-owned electric

generation, whose members supply 15 percent of the nation’s

power, also recognizes that there is "an emerging public

consensus and a building political directive that inaction is

not a viable strategy." Zachary Coile, /ndustry Starts to

Back Rules on Greenhouse Gas, SAN FRANCISCO

CHRONICLE, Aug. 24, 2006, at Al (quoting Alan Richardson,

4 Statement of David Slump, General Manager, Global Marketing, GE

Energy, General Electric Company: “GE supports congressional action

now to start reducing greenhouse gas emissions.” Id. at 5.

5 Statement of Jeff Sterba, Chairman, President, and CEO, PNM

Resources (an energy holding company that provides electric and gas

service throughout the western United States): “[W]e . . . support the

move to a mandatory program . . . that is economy-wide.” Id. at 6.

6 Statement of Michael Bradley, Executive Director, Clean Energy

Group, representing Calpine, Entergy, Exelon, Florida Power & Light

Company, Pacific Gas and Electric, and Public Service Enterprise Group:

“Our members support the adoption of a mandatory greenhouse gas

regulatory program. ...“ Id. at 40.

President and CEO of the American Public Power

Association).

3. Regulation of the Air Pollutants Associated with

Climate Change Is Not a Threat to the Economy.

With intelligent policy design, the effect on the

American economy of regulating the air pollutants associated

with climate change will be modest. While a transition to

less-emitting technologies in the energy and other sectors of

the economy will not be without cost, the impact on

economic growth will most likely be measured in fractions of

one percent of Gross Domestic Product. This reality stands

in stark contrast to the alarmist view expressed by EPA.

Memorandum of Robert E. Fabricant, EPA General Counsel

(Aug. 28, 2003), at 10.

The National Commission on Energy Policy

(“National Commission”), a private, bi-partisan organization

(see List of Members in Appendix A), analyzed the economic

effects of a program to reduce emissions of air pollutants

associated with climate change that would slow and then

effectively halt increases in emissions growth from U.S.

sources by 2025. NATIONAL COMMISSION ON ENERGY

POLICY, ENDING THE ENERGY STALEMATE: A BI-PARTISAN

STRATEGY TO MEET AMERICA’S ENERGY CHALLENGES

(2004) (“NCEP Report”).

The National Commission developed an extremely

comprehensive program to reduce emissions of the air

pollutants associated with climate change that includes major

changes in important segments of the economy, including

energy and motor vehicles. Its proposal includes an emission

trading program for industrial sources of the air pollutants

associated with climate change, accelerated development and

deployment of advanced energy technologies, and

strengthened fuel economy standards for cars, small trucks,

and heavy duty tractor-trailer trucks.’ In order to understand

the effects of such a comprehensive emission reduction

program on the American economy, the National

Commission conducted economy-wide modeling of its

proposals. The National Commission concluded that, despite

the sweeping measures included in its proposal, the impact

on the American economy would be small. “The

accumulated loss in GDP relative to the Reference Case,” the

Commission said, -——— -

increases from 0.08 percent in 2010 to 0.18 percent in

2020. That is, total growth from 2005 to 2020 is 63.2

percent rather than 63.5 percent . . . a real dollar loss

of $13 billion out of a total GDP of $16.5 trillion in

2010. . . and $42 billion out of a total GDP of $22.6

trillion in 2020. . .

NCEP Report Economic Analysis at 15-16.

The Energy Information Administration (“EIA”), the

independent statistical and analytical agency of the

Department of Energy (“DOE”), analyzed the energy supply,

7? More specifically, the National Commission’s strategy included an

emissions cap-and-trade mechanism for energy-related CO, methane

from coal mines, nitrous oxide emissions from nitric and adipic acid

production, and emissions of global warming gases such as

hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride; a 36

percent increase in the Corporate Average Fuel Economy (“CAFE”)

standards for cars and light trucks; federal assistance to encourage

accelerated development and deployment of advanced energy

technologies; new building codes and appliance efficiency standards; and

federally-subsidized programs to stimulate deployment of Integrated

Gasification Combined Cycle, carbon capture and sequestration

technologies, and tax credits for power generations that do not emit air

pollutants associated with climate change.

demand, and fuel import impacts of the National

Commission’s recommended pollution control program. The

findings of EIA’s report show similarly small effects on the

national economy:

By 2025, potential and actual real GDP are,

respectively, about 0.26 percent and 0.4 percent

below their reference case levels. These changes do

not materially affect average economic growth rates

for the 2003 to 2025 period.

ENERGY INFORMATION ADMINISTRATION, U.S. DOE,

IMPACTS OF MODELED RECOMMENDATIONS OF THE

NATIONAL COMMISSION ON ENERGY POLICY xi (2005).

The findings of the U.S. EIA are entirely consistent

with those of other governments. In the United Kingdom,

the government has committed itself to a 60 percent

reduction in carbon dioxide emissions by 2050. Its plan to

achieve such steep reductions in emissions estimates that the

cost would be “very small — equivalent in 2050 to just a

small fraction (0.5 to 2 percent) of the nation’s wealth, as

measured by GDP, which by then will have tripled as

compared to now.” U.K. SECRETARY OF STATE FOR TRADE

AND INDUSTRY, OUR ENERGY FUTURE — CREATING THE LOW

CARBON ECONOMY 9 (2003).

The findings presented above are a function of the

many options available for reducing emissions of air

pollutants associated with climate change. For those in the

electric generation sector and its customers, there are a wide

variety of options available to reduce emissions.

a. Build new plants to meet future demand using

fuels with lower emissions. An electric generating company

has many options with regard to fuel when it invests in a new

10

unit. Units powered by renewable sources such as wind,

water, solar or geothermal heat, and nuclear units, produce no

emissions of the air pollutants associated with climate

change. §Biomass-powered facilities produce no net

emissions. Among fossil fuels, a new natural gas-fired plant

produces approximately 60 percent less carbon dioxide

emissions than a typical coal-fired plant per unit of energy

generated. Choices among these options will be critical,

given that the DOE has estimated that to meet future demand

for electricity, “the United States will have to build . . . more

than 60 to 90 plants a year, or more than one a week.” U.S.

NATIONAL ENERGY POLICY: REPORT OF THE NATIONAL

ENERGY POLICY DEVELOPMENT GROUP TO PRESIDENT

GEORGE W. BUSH 5-10 (2001).

b. Replace old, high emitting capacity with new

cleaner units. Currently 74 percent of U.S. coal-fired

generating capacity is more than 26 years old. NATIONAL

RESEARCH COUNCIL OF THE NATIONAL ACADEMIES, INTERIM

REPORT OF THE COMMITTEE ON CHANGES IN NEW SOURCE

REVIEW PROGRAMS FOR STATIONARY SOURCES OF AIR

POLLUTANTS 54, tbl.3-3 (2005). In many cases generating

companies face the question whether to continue investing in

these outdated coal-fired units or invest in new, cleaner

technologies. A variety of technologies are available that

offer the opportunity to generate electricity, even when using

coal as a fuel, whiie limiting, or even eliminating, emissions

of the air pollutants associated with climate change.

Advanced, less polluting technologies for using coal include

integrated gasification combined cycle (“IGCC”) which

reduces emissions of the air pollutants associated with

climate change by about seven to ten percent compared with

traditional coal technologies. IGCC also offers a lower cost

potential to capture and sequester carbon rather than emitting

it into the atmosphere.

11

c. Improve operational efficiency of existing

plants. Significant reductions in emissions can be

accomplished by simply improving the efficiency of

operations. Calpine has committed to EPA that it will reduce

emissions of carbon dioxide from its generating plants by

four percent per unit of electricity generated over a five year

period. Calpine’s program includes more than a dozen

initiatives targeted to improve the thermal performance of the

company’s already efficient combined cycle gas-fired turbine

units. The company is making physical modifications and

optimizing operating practices as well as improving the

management of its fleet’s recoverable performance

degradation.

d. Increase energy efficiency in the economy.

Increasing the energy efficiency of industrial processes,

consumer products, and motor vehicles reduces emissions of

the air pollutants associated with climate change and costs

simultaneously. The potential for increased efficiency has

been demonstrated over the past 30 years in California,

where peak demand for electricity has been reduced by 54

percent by aggressive energy efficiency measures. Arthur

Rosenfeld, Commissioner, California Energy Commission,

Presentation to the Energy Symposium 12 (April 28, 2006).8

As a result of this program, California electricity

consumpticn per person, which was the same in 1960 as the

U.S. average, is now more than one-third lower than the U.S.

average. Id. at 13. For the future, the National Commission

concluded that “it is possible to cost-effectively reduce the

nation’s annual energy consumption by at least 16 quads per

year in 2025 in these three sectors [industrial, commercial,

8 Available at http://www.energy.ca.gov/commission/commis-

sioners/rosenfeld/html.

12

transportation] using known efficiency technologies.”” NCEP

Report at 32.

4. Environmental Regulation Has Stimulated Innovation

and Lowered the Cost of New Technology.

Stimulating technological innovation to provide

higher levels of environmental quality and economic

productivity is a fundamental objective of the CAA, evident

throughout the statute. See 4? U.S.C. §§ 7408(h),

7411(a)(1), 7412(d)(2), 7475(a)(4), 7491(b)(2)(A), 7651(b);

see also, Whitman, 531 U.S. at 490-492; Union Electric v.

Environmental Protection Agency, 427 U.S. 246, 257 (1976).

Congress first adopted the policy of “technology forcing” in

the Clean Air Amendments of 1970, Alabama Power v.

Costle, 636 F.2d 323, 372 (D.C. Cir. 1979).9 In 1977

amendments to the CAA, Congress explicitly stated its intent

that the law would provide “incentives for improved

technology,” that those improvements would “become

widespread far more rapidly,” and that vendors of cleaner

9 The federal courts have consistently upheld the CAA’s goal of

stimulating technological innovation as a way to achieve ambitious

environmental standards. In 1973, the U.S. Court of Appeals for the

District of Columbia Circuit rejected the argument that EPA was limited

to standards requiring “technology in being as of the time of the

application.” /nternational Harvester Co. v. Ruckelshaus, 478 F.2d 615,

629 (D.C. Cir. 1973); see also Natural Resources Defense Council v.

Thomas, 805 F.2d 410, 429 (D.C. Cir. 1986); Portland Cement Ass'n v.

Ruckelshaus, 486 F.2d 375, 391 (D.C. Cir. 1973); Natural Resources

Defense Council v. EPA, 655 F.2d 318, 328 (D.C. Cir. 1981) (“EPA was

‘expected to press for the development and application of improved

technology rather than be limited by that which exists today.’” [citations

omitted]); Wisconsin Electric Power Co. v. Reilly, 893 F.2d 901, 909-10

(7" Cir. 1990) (“{Ijn passing the Clean Air Act Amendments, Congress

intended to stimulate the advancement of pollution control technology.”);

Husqvarna v. EPA, 254 F.3d 195 (D.C. Cir. 2001) (“Congress intended

the agency to project future advances in pollution control capability.)

(citing NRDC, 805 F.2d at 410).

13

technologies would have a “guaranteed market.” See S. Rep.

No. 95-127, at 31 (1977), reprinted in 1977 CRS Legislative

History 1371, 1405; See also H.R. Rep. No. 95-294, at 186

(1977), reprinted in 1977 CRS Legislative History 2465,

2653.

Regulation under the CAA has provided powerful and

effective market signals that have stimulated new emission

control technologies, product substitution, and alternative

manufacturing methods. Section 202(a), the subject of this

litigation, is responsible for the development of motor

vehicle catalytic contro! and electronic engine management

technologies that have reduced new vehicle emissions of the

regulated pollutants by well over 95 percent, while allowing

higher fuel economy and performance. 40 CFR Part 86.

Sulfur oxide “scrubbers” and selective catalytic reduction

technologies to cut emissions of sulfur oxides and nitrogen

oxides, now being deployed on electric generating facilities

across the U.S., were developed in response to CAA

regulations. 40 CFR Part 60, Subpart Da; and 40 CFR Part

73 (scrubbers); 40 CFR Part 76 (nitrogen oxides).

Regulations adopted under Title VI of the CAA, §§ 767lc .

and 767id, implementing the Montreal Protocol, were

responsible for the development of entirely new substitute

chemicals for widely-used compounds that were associated

with reductions in the earth’s protective stratospheric ozone

layer. 40 CFR Part 82. Without the ban on future use of

ozone-depleting CFCs, “users would not have switched to

substitutes - even when they were more cost-efficient.”

RENE KEMP, ENVIRONMENTAL POLICY AND TECHNICAL

CHANGE 316 (UNU-MERIT 1997).!°

10 Regarding the success of the program in reducing emissions of

pollutants associated with depletion of the stratospheric ozone layer, see

also Stephen Anderson and Madhava Sarma, PROTECTING THE OZONE

LAYER: THE UNITED NATIONS HISTORY, United Nations Environmental

14

Finally, CAA regulation has stimulated development

of increasingly efficient gas turbine electric generating

technology. The efficiency of new state-of-the-art generating

facilities today is approximately 33-40 percent higher than

was standard in the 1970’s. Declaration of Donald P.

Walters, Vice President, Calpine Corporation, before the

United States Court of Appeals for the District of Columbia

Circuit (Nov. 11, 2004) in State of New York, et al., v. United

States Environmental Protection Agency, 443 F.3d 880 (D.C.

Cir. 2006).

Studies of the influence of regulation — particularly

market-based regulation such as the acid rain program -

show that market-based programs will reduce the cost of

meeting environmental standards. The acid rain program,

CAA Subchapter [V-A, 42 U.S.C. §§ 7642-765lo, has

produced large reductions in emissions of sulfur oxides for a

cost about one-half that of a traditional command and control

program.!!

5. National Regulation Is Needed Now to Give the

Marketplace Clear Signals for How to Provide Value in

the Future.

If electric generating companies are to choose the

options that minimize emissions of the pollutants associated

Programme (2002) at 345 ef seg.; See also, R. BENEDICK, OZONE

DIPLOMACY: NEW DIRECTIONS IN SAFEGUARDING THE PLANET, (enlarged

ed., Harvard University Press 1998), and JAMES K. HAMMITT, CHOOSING

ENVIRONMENTAL POLICY: COMPARING INSTRUMENTS AND OUTCOMES IN

THE UNITED STATES AND Europe 158-174 (R. Harrington, R.

Morgenstern, T. Sterner, eds., Resources for the Future Press 2004).

'! PD. ELLERMAN, P. JoskKow, R. SCHMALENSEE, J-P MONTERO, E.

BAILEY, MARKETS FOR CLEAN AIR: THE U.S. ACID RAIN PROGRAM 293-

296 (Cambridge U. Press 2000).

15

with climate change, they must receive market signals that

can only be provided by national regulation. Fundamental

economic principles tell us that when a price is attached to a

good that has been considered free, or the supply limited by

regulation, there will be innovation to reduce the use of the

good.

Because low- and non-emitting technologies are

generally more expensive than traditional pulverized coal

boilers, they will not be broadly deployed by the market until

regulations are adopted that limit emissions of pollutants

associated with climate change, raise the cost of emitting

such pollutants, or both. So long as emissions of these

pollutants remain an unregulated economic externality, the

market will not value technologies that emit less of them.

Market demand seems to be the crucial factor for the

successful exploitation of technological opportunities.

In the case of cleaner technologies, market demand

depends strongly on government policy.

Kemp, supra at 240.

Currently, 153 new coal-fired power plants are under

development or construction, according to the DOE.

NATIONAL ENERGY TECHNOLOGY LABORATORY, DOE,

TRACKING NEW COAL-FIRED POWER PLANTS: COAL’S

RESURGENCE IN ELECTRIC POWER GENERATION (2006).

Nearly all of the companies developing these units are

planning to use the same basic technology that has been used

since the early Twentieth Century — burning pulverized coal

in a boiler and exhausting the waste products into the

atmosphere.

Investments in such outdated facilities will preclude

investments in advanced, less polluting technologies. As in

16

any sector, financial capital is limited within the power

industry. If built, these boilers will represent a massive

investment of capital that commits our nation to 50-75 years

of high emissions of air pollutants associated with climate

change. To prevent such misallocations of capital, a market

signal from federal regulators is needed.

Market signals are also needed to increase the

development of renewable energy sources, such as wind,

tides, geothermal heat, solar and biomass. Although some of

these sources are already making inroads in the market,

regulation of emissions will allow renewables to compete

more effectively with fossil fuels. The National Commission

estimates that, under the strategy it analyzed, wind and

biomass capacity would be nearly four times as great as

under the status quo. NCEP Report Economic Analysis at

14.

6. Patchwork Regulations Will Increase Costs.

In the absence of national regulation, states and

localities are adopting a variety of control programs of their

own. Companies that operate nationally, such as Calpine,

face a serious risk of having to comply with a patchwork of

multiple overlapping regulatory programs. A proliferation of

such programs could have significant negative effects on the

cost and effectiveness of Calpine’s actions to reduce

emissions.

California has adopted legislation and regulations to

limit emissions of air pollutants associated with climate

change from motor vehicles. CAL. HEALTH & SAFETY CODE

17

§ 43018.5 (2006). Ten other states!? are moving to adopt the

same program, which would affect at least a third of all new

cars and light trucks sold in the United States. Four states?

already regulate emissions from electric generating facilities,

and others are considering such regulations.'4 Seven

northeastern states!5 recently agreed to a “Regional

Greenhouse Gas Initiative” establishing a “cap and trade”

system to reduce emissions of air pollutants associated with

climate change from industrial sources, including electric

generation. The participating states have agreed to adopt

regulations to implement the program by December 31, 2008.

In the absence of federal regulation, state and even

local regulatory programs can be expected to proliferate.

Based on its erroneous reading of the clear language of the

CAA, EPA has refused to advance a unifying national

program. We urge this Court to declare the law clearly so

that EPA may move forward with the regulatory process.

12 Connecticut, Maine, Massachusetts, New York, New Jersey,

Pennsylvania, Rhode Island, Oregon, Vermont, and Washington. Ceres

Report, supra at 12.

'3 Massachusetts, New Hampshire, Oregon and Washington. Id.

14 For example, California A.B. 32, “Global Warming Solutions Act of

2006.”

'5 Connecticut, Delaware, Maine, New Hampshire, New Jersey, New

York, and Vermont. Maryland, is expected to be added to the list. The

District of Columbia, Massachusetts, Pennsylvania, Rhode Island, the

Eastern Provinces of Canada, and New Brunswick are observers in the

process. The model rule for the cap and trade system, together with

additional information on the RGGI, is available at www.rggi.org.

18

IV. CONCLUSION

For the reasons presented herein, the Court should

reverse the judgment of the Court of Appeals.

Respectfully submitted,

Richard E. Ayres

Of counsel Counsel of Record

Gregory Doody Ayres Law Group

General Counsel 1615 L Street, N.W. Suite 1350

4 Washington, D.C. 20036

Sarah Novosel (202) 452-9200

Managing Counsel

Counsel for Amicus Curiae

Calpine Corporation Calpine Corporation

Washington Office

1401 H Street, N.W.

Suite 510

Washington, D.C.

20005

AUGUST 31, 2006

APPENDIX

APPENDIX A

COMMISSIONERS OF THE

NATIONAL COMMISSION ON ENERGY POLICY

John P. Holdren, Co-Chair. Teresa and John Heinz

Professor of Environmental Policy, Harvard University;

Director of the Woods Hole Research Center.

William K. Reilly, Co-Chair. Founding Partner, Aqua

International Partners; former Administrator, U.S. -

Environmental Protection Agency.

John W. Rowe, Co-Chair. Chairman and CEO, Exelon

Corporation.

Phillip R. Sharp, Congressional Chair. President,

Resources for the Future; former U.S. Representative,

Indiana.

Marilyn Brown. Interim Director, Oak Ridge National

Laboratory’s Engineering Science and Technology

Division.

Ralph Cavanagh. Senior Attorney and Co-Director,

Natural Resources Defense Council Energy Program.

Errol B. Davis, Jr. Chancellor, University System of the

State of Georgia.

Senator Rodney Ellis. State Senator, Texas.

Leo W. Gerard. International President, United

Steelworkers of America.

Robert E. Grady. Managing Partner, Carlyle Venture

Partners, the Carlyle Group; former Executive Associate

Director, U.S. Office of Management and Budget.

F. Henry Habicht. CEO, Global Environment and 3

Technology Foundation; former Deputy Administrator of

the U.S. Environmental Protection Agency.

Frank Keating. CEO, American Council of Life Insurers;

former Governor of Oklahoma.

Richard A. Meserve. President, Carnegie Institution;

former Chairman, U.S. Nuclear Regulatory Commission.

Mario Molina. Professor, University of San Diego; co-

recipient of the 1995 Nobel Prize in Chemistry for

pioneering work in the atmospheric chemistry of

stratospheric ozone depletion.

Sharon L. Nelson. Chief,Consumer Protection Division,

Office of the Attorney General, State of Washington;

Chair, Board of Directors, Consumers Union.

Richard L. Schmalensee. Professor of Economics and

Management, Massachusetts Institute of Technology;

John C. Head III Dean, Sloane School of Management;

former member, President’s Council of Economic

Advisors.

Susan Tiemey. Managing Principal, the Analysis Group;

former Assistant Secretary, U.S. Department of Energy.

R. James Woolsey. Vice President, Booz Allen,

Hamilton; former Director, U.S. Central Intelligence

Agency. —_

Martin B. Zimmerman. Clinical Professor of Business,

Ross School of Business, University of Michigan; former

Group Vice President, Ford Motor Company.

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