Decisions on regulations affecting carbon dioxide emissions will be a big issue in 2007. This week, the U.S. Supreme Court heard arguments for whether the Environmental Protection Agency (EPA) should regulate GHG emissions under existing statutes (read Washington Post article). In response to a 1999 petition, the EPA determined that it lacks statutory authority to regulate CO2 emissions (although it concluded the opposite under previous administrations), giving rise to Massachusetts v EPA, a lawsuit by 12 states, the District of Columbia, New York City, Baltimore, and American Samoa.
The central issue in the case is whether CO2 should classified as a "pollutant" and thus treated like other criteria pollutants (e.g., carbon monoxide, ozone, sulfur dioxide) under the Clean Air Act. The case will most directly affect whether and how the EPA regulates CO2 emissions from new vehicles. But the "domino effect" on state-level global warming policy is likely to be even greater, for auto sector investors as well as state-level policy. A recent Merrill Lynch report on automobile sector regulations and implications for investors, prepared in collaboration with WRI, lays out the significance of this decision: