The auto industry is sure to remain a major factor in one of the most contentious issues of our time: whether and how to regulate the greenhouse gases that contribute to global climate change. The issues are all the more important given that 2008 is a presidential election year in America, when the general public makes a greater effort to stay abreast of the major issues. To this point, none of the leading candidates have made climate change a centerpiece of their campaign, but that could change if the issues continue to make headlines throughout the early months of the year.

The auto industry is well-placed to take a lead role in shaping the debate, given its prominence in nearly all of the major court cases dealing with climate change, and the need for regulatory certainty in developing future product lines. Regardless of the outcomes, 2008 is bound to be a critical year for the future of the auto industry. Decisions will be made during the year that will have lasting effects on the way the industry does business, and on the types of cars we will see on the road in the coming decades.

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2007 was an up-and-down year for the auto industry, with regards to court decisions and agency actions affecting auto makers and dealers. A recap of the year’s activities, beginning in March with Massachusetts v. EPA and concluding with EPA’s denial of California’s Clean Air Act waiver request, follows.

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This is the second post in a multi-part series focusing on the proposals by the U.S. presidential candidates on climate change.

Candidates for the Republican nomination vary widely in their positions on climate change and regulation, some expressing support for a cap-and-trade regime, others expressing skepticism about such a plan, worrying about its effect on the economy and jobs. Like the Democrats, the Republican candidates frequently cite national security concerns in discussing oil imports and measures to facilitate U.S. energy independence.

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This is the first post in a multi-part series focusing on the proposals by the U.S. presidential candidates on climate change.

Regardless of who wins the primary, if a Democrat wins the White House in 2008 there will be increased attention on climate change and greenhouse gas emissions. Each candidates formulation is generally the same, with some combination of support for a cap-and-trade system, reducing dependence on oil, creating new technology jobs in the U.S., and otherwise protecting the environment and being a leader for the world.

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In an interesting provision in the new Energy Independence and Security Act of 2007, the U.S. pledged to fund cooperative research and development efforts with Israel to develop alternative sources of renewable energy. Israel is a recognized leader in alternative energy technology, and the home of more than 200 companies that research and develop environmental and energy-related technologies.

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Although China has enacted progressive laws designed to promote the development of renewable energy, existing regulatory hurdles continue to present significant barriers to financing clean energy projects. In a report entitled Financing Energy Efficiency in China, William Chandler of the Carnegie Endowment for International Peace concludes that restrictions on debt financing and foreign equity investments in China, a heavy-handed tax policy, and onerous regulations for investing in emissions reductions projects under the Kyoto Protocol’s Clean Development Mechanism make foreign investment in renewable energy projects risky and burdensome.

Chandler recommends that China take action at the national and local level to exempt renewable energy projects from foreign exchange and foreign-invested enterprise policy controls, provide tax holidays or exemptions for companies investing in clean energy, provide loan guarantees for energy-efficiency projects, and streamline the country’s Clean Development Mechanism regulations.

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The U.S. Environmental Protection Agency announced this evening that it has rejected California’s application for a waiver under Section 209(b) of the Clean Air Act.

On a media teleconference, EPA Administrator Stephen L. Johnson indicated that California “does not meet the compelling and extraordinary conditions needed to grant a waiver of pre-emption for motor vehicle emissions standards.”  Administrator Johnson cited the national standard of 35 miles per gallon by 2020 signed into law today as part of the Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007 as a major reason for denying the waiver application.  In addition, Johnson indicated that the problem of global warming is not exclusive to California, and that it is better to have a “clear national solution to a clear global problem.”

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Today, President Bush signed into law the much-followed Energy Bill (H.R. 6). Key provisions in the bill are an increase in fuel economy (CAFE) standards to a 35 mpg fleet-wide standard by 2020, and an increase to 36 billion gallons by 2022 of the Renewable Fuels Standard, utilizing a combination of corn-based ethanol and advanced biofuels. The bill also contains lesser-emphasized energy efficiency and conservation provisions, such as increased lighting and building efficiency requirements. But what is perhaps most interesting about H.R. 6 are the items Congress left out of the bill.

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The United Kingdom (UK) is developing a bold new measure to regulate greenhouse gas (GHG) emissions from supermarket chains, hotel chains, banks, large offices, government departments, and other large commercial and public entities by 2010. As one of the first nationwide efforts to regulate greenhouse gas emissions from entities not captured in the EU emissions trading scheme, this program is one to watch for policymakers, analysts, and investors looking for the next stage of climate change regulation and opportunity.

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Leveraging the decision in Massachusetts v. EPA, public interest groups are using the National Environmental Policy Act (NEPA) to challenge approvals of coal-fired power plants on global warming grounds. Montana Environmental Information Center v. USDA, No. 07-1311 (D. D.C. July 23, 2007).

The groups sued to enjoin Rural Utilities Service (RUS), an agency of the U.S. Department of Agriculture, from providing federal loans for construction of a coal-fired power plant. The plaintiffs asserted that the agency failed to assess adequately the proposed plant’s environmental impacts, including the impact of CO₂ emissions on global warming. The plaintiffs claimed further that the proposed plant, along with other coal-fired power plants seeking funding from RUS, “could account for a significant share of U.S. greenhouse gas emissions.” RUS’s failure to consider these cumulative impacts on global warming in its Environmental Impact Statement, according to plaintiffs, violates its obligations under NEPA to take a “hard look” at actions that could impact the environment.

The Supreme Court’s decision in Massachusetts v. EPA did not involve NEPA and did not address whether federal agencies must consider global warming potential when undertaking such actions as permit approvals or funding decisions. The Ninth Circuit’s recent decision in Center for Biological Diversity v. NHTSA, however, concluded that regardless of whether climate change is outside the control of the agency whose action is at issue, NEPA obligates the agency to assess the effects of its own actions on greenhouse gas emissions. Courts’ willingness to require agencies to consider global warming in regulatory decisionmaking will complicate previously routine actions such as funding coal-fired power plants.

Briefing in the case is slated to begin March 7, 2008 and conclude May 30, 2008.

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