April 6, 2011, Testimony: Regulatory Impediments to Job Creation: Assessing the Impact of GHG Regulations on Small Business

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Testimony of

Claudia R. Rodgers
Deputy Chief Counsel for Advocacy
Office of Advocacy
U.S. Small Business Administration

 

Subcommittee on Regulatory Affairs, Stimulus
Oversight and Government Spending

Committee on Oversight and Government Reform
U.S. House of Representatives

April 6, 2011, 1:30 PM, Room 2154,Rayburn House Office Building,Washington, D.C.

Regulatory Impediments to Job Creation: Assessing the Impact of GHG Regulations on Small Business

Mr. Chairman, Ranking Member, Members of the Subcommittee, my name is Claudia Rodgers and I am Deputy Chief Counsel for the Office of Advocacy at the U. S. Small Business Administration (SBA). I am pleased to have the opportunity to appear before this Committee on behalf of Chief Counsel Dr. Winslow Sargeant on the subject of greenhouse gas (GHG) regulations and their impact on small business.

The Office of Advocacy

Congress established the Office of Advocacy under Pub. L. No. 94-305 to represent the views of small entities before federal agencies and Congress. Because Advocacy is an independent body within the SBA, the views expressed by Advocacy do not necessarily reflect the position of the Administration or the SBA.(1) Accordingly, this testimony has not been circulated through the Office of Management and Budget (OMB). The Office of Advocacy is charged with oversight of agency compliance with the Regulatory Flexibility Act (RFA).(2) The RFA, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),(3) gives small entities a voice in the federal rulemaking process. For all rules that are expected to have a “significant economic impact on a substantial number of small entities,”(4) the Environmental Protection Agency (EPA) is required by the RFA to conduct a Small Business Advocacy Review (SBAR) Panel to assess the impact of the proposed rule on small entities,(5)and to consider less burdensome alternatives. Moreover, federal agencies must give every appropriate consideration to any comments on a proposed or final rule submitted by Advocacy and must include, in any explanation or discussion accompanying publication in the Federal Register of a final rule, the agency’s response to any written comments submitted by Advocacy on the proposed rule.(6)

Office of Advocacy’s Work with EPA on Behalf of Small Business

The Office of Advocacy and EPA have a long working relationship as a result of the rulemaking process and the requirements of the Regulatory Flexibility Act (RFA). Since SBREFA was signed into law in 1996, EPA has conducted about 40 SBAR Panels to assess the impact of proposed rules on small entities and to consider less burdensome alternatives. These panels allow small businesses to give direct feedback on the potential costs and burdens of the proposed rules and to suggest and develop less burdensome alternatives. Final panel reports must be signed by the Chief Counsel for Advocacy, the Administrator of the Office of Information and Regulatory Affairs (OIRA), and the Administrator of the EPA. In 15 years of SBAR panels, Advocacy has found that the panel process is a useful way for small businesses to provide valuable input into the rulemaking process. In short, the panel process works.

SBAR panels have saved billions of dollars for small businesses due to changes and improvements that were made to proposed rules while allowing EPA to achieve their statutory objective. In anticipation of such panels and throughout the panel process, the Office of Advocacy works extremely closely with EPA to ensure that the process is working as intended and that appropriate costs are being considered. While Advocacy does occasionally have disagreements with EPA on procedure and policy, we are also very proud of the work we have done with the agency to improve regulations and reduce the burdens on small businesses. We currently have five SBAR panels underway on EPA rules, and we will continue to work with EPA in a constructive way to make sure the RFA is being followed and the impacts of regulations on small businesses are being taken into account.

Advocacy’s Position on GHG SBAR Panel

However, Advocacy disagrees with EPA on whether the impacts on small businesses are being properly considered in its GHG regulations. Advocacy has been clear and consistent in its public comment letters and other communications with EPA about our positions on these issues (see Appendices). Advocacy believes EPA should have held SBAR panels and conducted thorough RFA analyses to explore potential impacts of GHG regulations on small entities. In four years of regulatory activity, EPA has not evaluated the economic effects that its initial endangerment finding and mobile source emissions standards have had on small businesses. Advocacy does not challenge EPA’s authority to implement the Clean Air Act (CAA). However, we do believe a more thorough analysis was needed, including SBAR panels, to fully consider the impacts GHG regulation would have on small businesses.

The Advance Notice of Proposed Rulemaking

In 2008, when EPA issued an Advance Notice of Proposed Rulemaking indicating it might regulate GHG, Advocacy filed public comments in which we identified a number of possible issues with GHG regulation, including the high thresholds for emissions permitting that would be required by the Prevention of Significant Deterioration/New Source Review (PSD/NSR) provisions of the CAA.(7) We also asked EPA to hold SBAR panels on any GHG regulation to ensure that any disproportionate effects on small entities could be considered. Advocacy further suggested that EPA conduct “a separate [SBAR] panel for each primary industry sector likely to be affected (e.g., transportation, agriculture, public institutions, manufacturing, etc.).”(8)

The Proposed Endangerment Finding

When EPA issued its Endangerment Finding in 2009, Advocacy again filed public comments advising EPA to conduct SBAR panels to explore potential impacts of GHG regulation on small entities. We also recommended, should EPA move forward, that it establish regulatory exemptions to small GHG emitters that might mitigate the economic impacts on small entities, an approach similar to what EPA would propose later that year.

The Proposed Motor Vehicle GHG Emission Standards

In September 2009, EPA proposed regulation of motor vehicle GHG emission standards (i.e., fuel economy standards).(9) EPA certified under the RFA that such standards would have no significant impact on a substantial number of small entities because small automobile manufacturers were excluded from the rule.(10) EPA asserted that it was exercising 609(c) authority under the RFA to reach out to small entities. Such outreach by itself is not legally or functionally equivalent to conducting an SBAR panel. In addition, such outreach does not typically result in the identification of significant regulatory alternatives, which is one of the primary objectives of the panel process. Similarly, consultation between EPA, OMB, and Advocacy does not take the place of the deliberative process that occurs between the agencies as panel members. Finally, and perhaps most importantly, informal consultation and public outreach do not result in a written panel report with formal recommendations to the EPA Administrator.

Advocacy disagreed with EPA’s certification and stated that any regulation of GHGs under the CAA would, by operation of law, automatically and immediately trigger the regulation of GHGs from stationary sources under the PSD/NSR program.(11) No additional regulatory action would be needed before permits would be required by law.
EPA’s own estimates indicated that the number of facilities that would have to obtain GHG PSD permits because of construction or modifications could increase from about 280 a year to almost 41,000 per year.(12) For Title V operating permits, EPA estimated that “more than six million facilities . . . would become newly subject to Title V requirements because they exceed the 100 ton per year threshold for GHG but did not for previously regulated pollutants.”(13) A large number of facilities facing these new GHG permitting requirements are small businesses, along with small communities and small nonprofit associations. Thus, it was clear that the GHG emissions standards rule for light-duty vehicles would directly and immediately trigger regulatory impacts on small entities. And, for this reason, Advocacy believes that EPA should have convened SBAR panels in advance of this rulemaking.

The Proposed Tailoring Rule

Acknowledging the economically significant impact that finalizing the motor vehicle standards would impose on the economy, EPA proposed the Tailoring rule to temporarily raise the PSD/NSR and CAA permitting thresholds for GHG emitters so that smaller sources would not have to apply for permits immediately.(14) Advocacy was pleased that EPA acknowledged some of the potential burdens on small businesses and established a phase-in compliance program. This action led to significant cost savings for small businesses, and EPA deserves credit for its implementation. However, EPA again certified that the rule would have no significant impact on a substantial number of small entities.(15)Here, the certification asserted that the Tailoring rule was strictly regulatory relief, and thus could not trigger a significant impact.

Advocacy filed public comments on the proposed Tailoring rule on December 23, 2009.(16) The comments stated that EPA did not comply with the RFA in the GHG rulemakings. First, the Tailoring rule would not have been necessary if the endangerment finding and motor vehicle GHG standards imposed no significant economic harm on a substantial number of small entities. Second, even if taken as a whole, the proposed Tailoring rule would not have mitigated the full economic impact on small entities because the relief in the proposed Tailoring rule was only temporary and because the proposed Tailoring rule did not exempt all small entities. Had EPA thoroughly analyzed the potential reach of the GHG permitting requirements on small entities, it would have learned that a substantial number of small entities (over 1,200) would have remained subject to the GHG permitting requirements.(17)
In our letter, Advocacy again advised EPA that it had not met its obligations under the RFA and that it should revisit its ongoing rulemakings to ensure sufficient time to conduct SBAR panels and adequately consider the impacts of GHG regulations on small entities. Nonetheless, EPA finalized its endangerment finding,(18) and the GHG emission standards for light-duty vehicles,(19) and the Tailoring rule(20) without engaging in SBAR panels or conducting RFA analyses of impacts of GHG regulations on small business.

EPA now has completed a regulatory process which has or will soon subject small businesses to the burden of Clean Air Act permitting, a burden that the Tailoring rule has failed to address for some and has only delayed by a few years for others. Throughout the rulemaking process, our office has informed EPA that it should adequately consider the impacts of this program on small businesses.

Conclusion

While EPA has expressed its desire to comply with the RFA, reach out to small entities and provide temporary relief to some small businesses, Advocacy remains concerned that EPA did not comply with the RFA by holding SBREFA panels on the three GHG regulations, and therefore did not adequately take into account the potential impact of these regulations on small entities. Advocacy does not challenge EPA’s authority to implement the Clean Air Act; to the contrary, we believe EPA has significant authority and discretion in this area. Rather, Advocacy, through the RFA analysis process, has sought a full consideration of the impacts GHG regulation might have on small entities. We look forward to continuing to work with EPA on these and other important regulations.

Thank you for the opportunity to address such an important issue for small business. I appreciate your interest in the work of the Office of Advocacy.

APPENDICIES

A. Letter dated 01/19/11 – Environmental Protection Agency
Proposed Settlement Agreements for Petroleum Refineries and Electric Utility Generating Units

B. Letter dated 12/23/09 – Environmental Protection Agency
Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rules

C. Letter Dated 06/23/09 – Environmental Protection Agency
Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act
D. Letter dated 11/28/08 – Environmental Protection Agency
Regulating Greenhouse Gas Emissions Under the Clean Air Act

E. Letter dated 07/08/08 Environmental Protection Agency
EPA’s draft Advanced Notice of Proposed Rulemaking “Regulating Greenhouse Gas Emissions under the Clean Air Act”.

ENDNOTES

1. 15 U.S.C. § 634a, et. seq.
2. 5 U.S.C. § 601, et. seq.
3. Pub. L. 104-121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C. § 601, et. seq.).
4. See 5 U.S.C. § 609(a), (b).
5. Under the RFA, small entities are defined as (1) a “small business” under section 3 of the Small Business Act and under size standards issued by the SBA in 13 C.F.R. § 121.201, or (2) a “small organization” that is a not-for-profit enterprise which is independently owned and operated and is not dominant in its field, or (3) a “small governmental jurisdiction” that is the government of a city, county, town, township, village, school district or special district with a population of less than 50,000 persons. 5 U.S.C. § 601.
6. 5 U.S.C. § 604, as amended by the Small Business Jobs Act of 2010, Pub. Law No. 111-240, Sec. 1601.
7. 73 Fed. Reg. 44,354, 44,390 (July 30, 2008).
8. Letter to EPA Administrator Stephen L. Johnson from Acting Chief Counsel for Advocacy Shawne C. McGibbon, November 28, 2008, available
9. 74 Fed. Reg. 49,454 (September 28, 2009).
10. Id. at 49,629.
11. See 74 Fed. Reg. 55, 292, 55,294 (October 27, 2009).
12. Id. at 55,301.
13. Id. at 55,302.
14. 74 Fed. Reg. 55, 292 (October 27, 2009).
15. Id. at 55,349.
16. Letter to EPA Administrator Lisa P. Jackson from Acting Chief Counsel for Advocacy Susan M. Walthall, December 23, 2009, available at http://www.sba.gov/sites/default/files/reg%201223%20EPA.pdf.
17. Id. at 7.
18. 74 Fed. Reg. 66,496 (December 15, 2009).
19. 75 Fed. Reg. 25,324 (May 7, 2010).
20. 75 Fed. Reg. 31,514 (June 3, 2010).