think about these issues, and i look forward to a very lively discussion with him. >> host: what technology are you most excited about this year? >> guest: you know, that's a difficult question because there's so many. i really think 3-d printing is going to change the world. because it will allow not only local manufacturing, it's been around for a while for prototyping, but it's becoming a consumer product. and there's things you can do and the way you can inspire kids, great things for their school projects or become innovators and entrepreneurs themselves, it's very exciting. there's 100,000 downloadable free things you can build be, but the next step is you design your own things and build them. to me, that is incredibly exciting. it allows the spirit of innovation to be tapped, and it's a killer product. and, of course, ultra 4k is just beautiful -- >> tvs. >> guest: it is fabulous. i am, in the long term, you know, robotics, driverless cars, they're going to solve real problems, they're going to save lives, make life better. and also all the different things that are changing our

educational system, customized learning, things like that. and, of course, we talk about the health care law and all the controversy, but the solution is in innovation. it's in some of the technologies. we have a huge, growing area on wireless health. people are monitoring cells. it's what they eat, it's how much they exercise, it's how much they sleep. and that information at the cautionary level could get to physicians. we could solve a lot of our health care problems by focusing on some of these things, and they will solve problems. >> host: gary shapiro is president and ceo of the consumer electronics association which sponsors ces every year in vegas, and alex byers is a technology reporter with politico. he puts out their "morning tech" newsletter. gentlemen, thank you. >> guest: thank you. >> thank you very much. >> c-span, created by america's cable companies in 1979, brought to you as a public service by your television provider. >> coming up next, supreme court

oral argument from last month on the epa's rule regulating air pollution that crosses state lines. then the outgoing chair of the federal reserve, ben bernanke, giving one of his last policy speeches as head of the u.s. central bank. after that, the senate banking committee's conty mission hearing of president obama's nominee to succeed ben bernanke, fed vice chair janet yellen. and the senate returns at 2:00 eastern to consider a bill to expend insurance benefits followed by a confirmation vote for janet yellen to be the next chair of the federal reserve. >> last hospital the supreme court heard -- month the supreme court heard oral argument on the epa's rule on air pollution that crosses state lines. it aims to brecht downwind -- protect downwind states from pollution from other states. a coalition of upwind states, mainly in the south and midwest, along with utility and mining

industry groups are challenging the rule. the d.c. circuit court of appeals said the agency exceeded its statutory authority. justice alito has recused himself from this case. this is about 90 p minutes. >> we'll hear argument in case 121182, environmental protection agency v. ema homer city generation and the consolidated case, american lung association v. eme, homer city generation. mr. stewart? >> mr. chief justice, and may it please the court, epa sought to protect the public health and strike a fair balance between the competing interests of upwind and downwind states. epa's analysis performed the screening analysis to determine which upwind states would be covered by the transport rule, and in order to do that, epa first identified the downwind

receptors that were in a state of nonattainment or had maintenance difficulties, and then it determined which upwind states were linked to those receptors. and in order to be linked to a downwind receptor, the upwind state had to contribute 1% or more of the relevant national air quality, ambient air quality standard to that downwind receptor, and any state that didn't contribute at least 1% to any of the downwind -- any of the relevant downwind receptors was determined not to contribute significantly to nonattainment at that area. second, once the states that were to be covered by the transport rule had been identified, epa set a state emissions budget for each state, and to do that, it performed computer modeling to determine in addition to whatever emission control efforts were already going on, what additional emission reductions could be achieved by implementation of control measures available at various cost thresholds. and the thresholds ultimately

selected were for knox, $500 per ton, for so2, the group i states were at a level of $2300 a ton, the group ii state were $500 per ton. and thed idea was let's see what emissions savings we can achieve if additional control measures are implemented up up to those cost thresholds. >> those savings would not be evenly distributed among the upwind states, right? so some upwind states that are able to make those efficient changes will be carrying more than their burden of reducing the emissions that affect downwind states, right? >> there were two bases for distinguishing among the states. the first the $500 per ton for the group ii versus the $2300 per ton threshold.

the way states were divided into those categories is the states that were linked to the downwind receptors that had the most severe pollution robs were treated as -- problems were treated as group i states, and they were required to make greater pollution control efforts was they had some responsibility for the most serious problems. now, i guess the point of your question would go to the fact that even among states that were operating under constant cost control thresholds, a state that had already implemented cost measures up to that limit might have to do less in a sense because it would have already taken the steps that were required, at least as compared to an air quality only threshold. >> well, i don't mind the state knowing less. i think north carolina said that you can use those cost figures to do less, and that's not challenged here.

but what the application of the cost factor means is that some states that can more efficiently make the changes will be required to do more than merely account for their proportion of the downwind harm. isn't that true? >> well -- >> yes or no. i mean, i think it's an easy yes or no answer. >> i think it is -- no, i think it is the case that if you adopted an air quality only threshold, then it would be more likely to be the case that states that had already done a lot to control air pollution would have to take additional steps even if it was done at a non, in a non-cost effective way. >> have you answered my question? does the fact that you begin what the statute says is that each upwind state has to account

for its, its effect on the downwind states. but once having identified that effect, you then say those upwind states that can make the reductions more efficiently have to make more reductions than they, than their mere proportion of the harm requires. isn't that so? >> i think it would be the case that at least as -- yes, as compared to at least some air quality only measures, the use of cost would have the effect of distributing the burden in a somewhat different way than it would have if you considered air quality factors -- >> is the idea, mr. stewart, that the states that are required to do more or the states that haven't done much already? >> that's correct. and that is what i was trying to get out earlier, that if states have to do less in order to meet the $500 -- in order to be in a position where they've implemented all the cost, all the emission control measures that are available at $500 per ton, if a particular state has to do less in order to achieve

that, it's probably because that state has already implemented most of those measures on its own. >> in what provision of the statute allows you that take that into account? >> well, the term -- >> i mean, as opposed to each state whether it's inefficient or efficient has to merely reduce its contribution to the downwind state pollution, right? that's what the statute says. >> well, the statute says that each state will adopt measures that prevent sources within its borders from contributing significantly to downwind nonattainment. and the purpose of the provision is not to allocate blame for an existing state of nonattainment or for prior pollution, it's to devise a scheme that going forward will prevent nonattainment from occurring. and the idea is if each state lives up to its obligation and if the downwind states make commensurate commitments, then the problem will be solved. and in terms of the language,

contribute significantly. i think there are various reasons to think that epa reasonably construed that term to include a component of difficulty of achievement. that is, in common parlance we might say that dunking a basketball is a more significant achievement for somebody who is 5-10 than for somebody who is 6-10. we might say that a $100 charitable contribution is more significant if it's made by a person who makes $10,000 a year than a $1,000 contribution by somebody who makes a million dollars a year. >> well, that's -- i was just going to say, that just is because in the latter case because contribution happens to be used in both an affirmative and a negative sense. the question is, for example, whether somebody who fatally stabs somebody and someone who fatally shoots them have each significantly contributed to the bad result. >> i think -- >> or not significantly contributed in -- contributed in

varying degrees. >> i would say if you cause death by alternative means, then both people would have contributed as significantly. but to conclude, to set out a hypothetical that involves contribution to a bad result, if you had a basketball team that lost a game by one point and the coach was asked to pin point the plays that contributed significantly to the defeat, the coach would be much more likely to identify a missed layup or a turnover than the missed half court shot at the buzzer. it's true that the dissed half court shot at the buzzer would contribute significantly, if the shot had been made, the outcome would have been different. but if you're talking about significant contributions to a bad result, you'd more likely focus on errors that could and should have been avoided, not simply the failure to accomplish something that's extraordinarily difficult. >> can i ask a question -- >> is part of your answer to justice kagan's question and

justice scalia's question is that it depends on the time point, the time at which you measure? that is to say, if you take a look at a state which for five years has been trying to ameliorate pollution, you can measure it from the point five years ago, and if you do that, then they're not having to contribute more? >> i -- >> or don't you like that? >> i don't -- >> answer? >> i don't quite want to go there. i think there's a kernel of truth in that, but the point at which the state's good neighbor obligation is triggered is by the promulgation of a new national air, ambient air quality standard. and the state is required within three years of the promulgation of the naaqs to promulgate a state plan that includes good neighbor -- >> how far back do you go for the relevant? 2006? >> in this case, there are two naaqs that were promulgated in

1997. >> '97. >> one of them for annual or particulate matter and one of them for ozone. and then the 2006 naaqs was for 24-hour particulate matter which is harder to achieve. and so when we are asking what are the states supposed to do as of the time that the new naaqs is promulgated, the states don't exactly get credit for what they have done in the past. that is, they can't do less than they are supposed to do in the future similarly because they have done a lot in prior years to prevent pollution. but the fact that sources within the state have in the past installed various pollution control devices or are using cleaner fuels, that may make it easier for them to prevent significant contributions to downwind nonattainment going forward. >> i ask a question? -- can i ask a question following up on justice scalia about the statutory language and how you

read it? i think, you know, most people -- everybody -- thinks that it's better to regulate with attention to cost than to regulate without attention to costs. we have this, our trucking association decision where we said, well, notwithstanding that everybody agrees that regulating with attention to cost is better. when congress says the opposite, we have to go with the opposite. and there we said congress had said the opposite because it had talked about protecting the public health with an adequate margin of safety. now, i'm wondering, what does it take in a statute to make us say, look, congress has demanded that the regulation here occur without any attention to cost. so in other words, essentially, congress has demanded that the regulation has occurred in a fundamentally silly way. >> well, i mean, in the case of the naaqs, i think it was not the case that requiring epa to establish the naaqs without

reference to cause, to cost would cause a silly result. that is, the ambient air quality standards were supposed to be set based on public health criteria, and the court in the same case, in american trucking, said that, of course, you can consider can costs in deciding what is the most efficient and appropriate way to implement those naaqs. and here i take your point that in order to conclude the congress barred consideration of costs at the implementation stage, we would have to have very clear language. and significant contribution doesn't do can it. and the other thing i would say in addition to the examples i've given of in common parlance we use significance to refer to ease or difficulty of achievement. it's worth emphasizing that this is a provision of law, and it's designed to help allocate the responsibility among different actors for more alleviating a shared problem. and be, for example --

>> the problem is that that allocation among different actors is done state by state. and simply taking costs into account as determining who will do what simply eliminates the requirement that each state not be required to do more than its share of the pollution it's causing downstream. the state-by-state requirement that makes it very difficult to think that all congress wanted was the most efficient reduction of pollution no matter where that pollution came from. that's simply not what the statute envisions. >> i guess -- >> and maybe that'd be a better statute. maybe it shouldn't be state by state. >> i mean, the first thing i would say is we can accept the premise that each state should alleviate no more than its share. and there still may be -- each

state should do no more than its share, and yet there still may be different ways of determining what a state's fair share is. that is, one way would be to determine which states had been the greatest polluters if the baas -- in the past and say that the more pollution that had previously flowed from your boarders, the greater your reduction obligation in the future. but another way would be to say in order to insure that each of the states that have shared responsibility for the problem in the past bears its fair share, we will ask each state to undertake commensurate efforts as mentioned by the korb threshold. for example, if it could be shown somehow that the generation of electric power inherently required the emission of some level of so2 and nox, that there was similarly no way to generate electricity through any technology known today without generating, without emitting that minimum amount, i think we would certainly say, well, congress didn't intend to

bury in the good neighbor provision some prohibition against particular states generating electricity. and be epa or the states could reasonably determine that the unavoidable component of the emissions, the part that couldn't be avoided even with the best possible pollution control technology, that would be regarded as legally insignificant. but the only legally significant contribution would be contribution that could have been avoided. now, clearly, epa has gone one step farther because it hasn't just focused on emissions that couldn't be avoided at all at least without forgoing the generation of electric power. it has said we will treat as legally significant only the extra increment of emissions that comes after you've taken what we regard to be equitable and cost effective pollution -- >> just one more question on cost. in your answer to justice kagan's question, there is at least a possible argument that

you, that regulators, the government, the epa, can take costs into account unless it's expressly prohibited from doing so. you don't go that far. you even stop short of that, you say that it might be difficult to apply the costs at the implementation stage. i think that's what you said -- >> i didn't want -- what the court said in american trucking is that in setting the naaqs, epa was forbidden to consider costs not because the statute said in so many words costs can't be considered, but because the criteria that were set out in the statute for what the naaqs had to achieve simply couldn't be reconciled with the consideration of cost. but the court in the same decision said although you can't consider costs in determining what air quality standards have to be achieved, of course you can and should consider costs in deciding what implementation measures should be used to determine which emissions will be reduced -- >> if congress wanted that, why

couldn't congress simply have said the epa shall prescribe minimum pollution reduction measures that have to be taken by the states? that's a quite different statute from what we have before us. but what you're saying is, you know, you reduce it this much, as much as efficiency allow. or else you're in violation of the good neighbor rule. and that's a very different statute from what congress wrote. maybe it's a good idea. maybe epa ought to control all efficiency measures for reducing pollution. but it's certainly not the statute that congress wrote. ..

>> the second thing i would say -- >> i don't understand that. please say that again. >> we are dealing here with a situation where epa was the one that promulgated federal implication plants, but that's only because the states, the relevant upwind states did not discharge their obligation to element -- promulgated state governmengovernment vision plant contain good neighbor provisions. the language contribute significantly is in the portion of the statute that deals with what a state plan is supposed to contain.

it's not dealing with -- it's not any provision that by its terms is addressed correctly to epa. so if the court said, in defining contribute significantly, we can't take into account the cost of emission control measures, that would mean not simply that epa can't consider that factor when it steps into the state shoes. it would also mean the state can consider that factor. >> when you mention the fact that the states didn't address the good neighbor requirement, of course, you hadn't come up with their budgets that they had to meet at the time that they had to promulgate their sip's. you emphasize how incredibly come get it is for states to determine how much they must reduce their emissions to take care of the fact that they significantly did the downwind pollution. and yet you would impose on those dates of the burden to issue the good neighbor program without knowing how much you expect them to meet.

>> well, it's the statute that imposes the obligation on the states. it may help to draw the courts attention to the relevant provisions. on page 18 of the appendix to the government's opening brief, the relevant provision is 32 usc 7410. and 7410 a1 begins by saying, each state shall, after reasonable notice of public hearings, adopt and submit to the administrator of epa within three years or such shorter period as the administrator may prescribe after the promulgation of a national primary and the air quality standard, the naaqs. and it goes on to say a plan which provides for implication, and so forth. if you look to the bottom -- or the top of page to a, i'm sorry, subsection two begins come each

implication plan submitted by a state under this chapter shall be adopted by the state after reasonable notice and public into each such plan shall, and then you look at the bottom of the page it says, contain adequate provisions prohibiting, consistent with the provisions of this subchapter, any source or other type of emissions activity within the state from the meeting any air pollution in amounts which will contribute significantly to nonattainment. >> if you are working for one of the upwind states and you are facing this three-year deadline and epa had not told anyone how it intended to interpret the states obligations under the good neighbor policy, what would you have told the state to do? >> certainly epa's basic methodology of using cost thresholds have been embodied in the -- the naaqs sip call in 1998, and then cair, which was promulgated in 2006.

>> but the head o of the state a comes to you and says, how much do we have to reduce our emissions to satisfy our requirements? you would tell them what? >> in all honesty we don't know yet but that's not a fatal flaw in the argument. that is, it is inherent in any legal context in which one person acts and then a second person reviews, that the first person has to act before the second person has made of his or her mind. and so a just a quart -- >> but that kind of glosses over the fact that, as you said elsewhere in your brief, this is your analogy, right, a spaghetti matrix or something? so there's no possible way for the state to know how much of the burden you expect them to address, and yet you're saying you've got to do it, you've got to get within three years or we're going to take over the responsibility. >> certainly, what epa was called upon to do with it former, given what any particular state was going to be called upon to do because, as a result of widespread

noncompliance, epa was promulgating federal implementation plans for close to 30 states and plans for different naaqs. the second thing i would say is the -- >> could i address the first thing first? i'm not sure that's right. i think bp has an easy job dealing with it as a group. here are these states, here's what you have to do. but any individual state has no idea what its particular will is going to be in your group resolution. >> and served as the data available to it that epa had available about how much did each state contribute to the overreaches at various nonattainment -- not a timid receptors in the past. certainly true that the states wouldn't necessarily know exactly what policy judgment the epa would ultimately make as to what the right cost threshold was. >> that's crucial. it would have no idea whether epa would use any or would pick $500 or would pick whatever. i don't know how it could

sensibly design a program without knowing that. >> i guess the second, the other two points i would make our, first, the states will is to devise something, in this area as in others, that it believes will carry out its own legal obligations, not necessarily to predict just that epa would do it if the task fell to epa. and so, for example, when the states are undertaking the more prosaic task of devising plans that will produce attainment of the naaqs within their own borders, they have to make a variety of policy judgment about the right mix of emission controls, what sources should be allowed to emit in what about. if a particular state just didn't do it, that task would fall to epa. it's unlikely that anything that particular state would come up with would exactly match what epa would overly devise. >> give us an example of when epa has done this in the past. where a crucial element of a

naaqs has not been defined by the agency, and yet, the agency, nonetheless, requires the states to put together their sip without knowing what their target is? that's the problem. what's your best example of another case in which the agency said, you put together a sip, and we're not going to tell you what the target is. >> the examples i would point you are in the brief filed by the respondent states that are on our side of the case who identify examples of instances where states did successfully comply with the good neighbor obligations and persuaded epa that what they had done was enough. >> that just means it's been the tail on the donkey. some states got the tail. they tended in the right place. that doesn't prove anything. i want an example of another instance in which epa has hidden the ball, has said we're not

going to tell you what the target is, it's up to you to come up with a sip and we will tell you after the fact whether that s.i.p. happened to me to target we've invented. >> i wouldn't characterize what epa is doing is hiding the ball. it didn't kind fail to divulge information that it had its it -- its disposal. i would say for better or worse congress did place this obligation with the states. it evidently thought that at least in the mine run of states, states are capable of carrying out this task. and at least to the extent that adopting a good neighbor provision requires consideration of circumstances in other states, in a sense this is just the flipside of what the downwind states have to do all the time. that is, if new york officials are trying to determine, when a

new naaqs comes out, how can we bring our own airport it into compliance? well control to be have to place on our own sources, in order to get air quality to the desired level? the new york officials have to take account of the degree of pollution that is likely to travel to their border some other states. they can analyze in missions within the own borders in a vacuum. they have to consider what the likely contributions of their neighbors -- >> that just means there's some facts they don't know. of course, there's always going to be uncertainty about certain facts. there is uncertainty about the target, not just about the facts. we don't know what target we are expected to hit. >> i guess the final thing i would say on this part of, this particular sub issue of the case is that, even if you reach that conclusion, even if he determined it was just practically infeasible for any state to adopt a compliant state

government nation plan with good neighbor provisions for these naaqs until epa acted, then the proposition of the opposing states still wouldn't follow. that is, the statute and the provisions that i've pointed to says it's up to the states in the first instance to devise a state implementation plans, including good neighbor provisions. and then on page 10 of the same provision -- same appendix, i'm sorry, the statute describes what happens if a state fails to satisfy that obligation. and this is at the beginning of subsection c.-one on page 10 that says the administration promulgated a federal government nation plan at any time within two years after the administrator finds that the state has failed to make a required submission or finds that the plan or plan revision submitted by the state does not satisfy the minimum criteria. >> mr. stewart, below, the

government conceded that there was a theoretical possibility that some states could be over controlled, that they would be implementing measures that would reduce their contributions to pollution, the 1%. i think there's a theoretical possibility of that. but your approach was basically fine. what would we do about that? for small, are there measures states can take to get out of the f.i.p., if it's inappropriate to them, because of overcontrolled? how do they do it? what's the process? if we think there's a flaw, the we vacate the rule? to believe in place? what do we do?

what's our power to do it? >> i think in the circumstance you describe if you reach the conclusion there was a theoretical possibility that this could happen and it would be a problem if it did, but that the methodology used by epa was, on the whole, rational, i think the task for the court at this stage of the case is to rule on the more big picture of objections that are properly before it, and that the court of appeals ruled on. even if we win everything that's at issue in this court, the case is not over. you are a variety of more specific challenges to the details of the rule that the d.c. circuit found it unnecessary to address. and so if we won on the issues that are before the court, the case would be remanded and it would be an opportunity for the court below to consider those. >> including the over control argument? >> to the extent that any state -- i don't know the painting as applied challenges at this level

of detail, but to the extent that any state has a properly preserve challenge to the effect that it is actually likely to be subject to overcontrolled, then that could be heard by the court of appeals. the court of appeals to determine both whether that is, in fact, likely to happen and whether, if it does happen, that would render the rule arbitrary and capricious as to that state. the real problem with the court of appeals methodology was that he said the fact that epa can't absolutely rule out the possibility that it might just happen renders the rule invalid on its face, and in other portions of the opinion the court faulted epa for failing to ensure that its regime would not lead to over control. i think that's an extraordinary standard for an administrative agency to deal with. it happens all the time that federal agencies are given authority to regulate, to address one problem. and the regulation necessarily

has spillover effects on other conduct. so for instance, if a federal agency was tasked with preventing the sale in interstate commerce of contaminated food, it might require inspections, and my require the recall of food after one item in a shipping have been shown to be contaminated. these measures might have spillover effects on food that was not, in fact, contaminated. but that wouldn't be a flaw in the rule. of course an agency could go overboard and impose a regime that was so onerous in comparison to the health benefits that it was arbitrary and capricious. nobody would ever say that it's the duty of the agency to ensure that there is no other means of achieving the same health benefits at lower cost to the public. the other thing that the states could do, i mentioned that one way in which a state that believes itself to be unfairly or inappropriately treated by the rule was to pursue any adequately preserved a legal challenge it may have an

additional -- judicial proceedings to as your question indicated, there is also a mechanism by which a state can ask to have the federal implementation plan replaced by a plant of its own devising. so the consequence of the state's failure to achieve their good neighbor obligations in time and epa's stepping into their shoes, the consequence was not that they are forever barred from devising their own plans. the consequence was simply that the federal implementation plan would remain in effect for a very limited period of time, subject replacement by a state plan. >> if we were to rule against you and affirmed the decision below, how long do you think it would take to get a new rule in place? >> i don't have an estimate on the time, but if the court affirms on the ground that epa may not consider costs -- part of the problem, i think it would be an extraordinary undertaking for epa to try to achieve.

that is, part of the difficulty here is that nobody has identified a concrete alternative. that is, a plan that would not consider costs and yet that would disperse the burdens of compliance among the states in proportion to their prior contributions and also would address the nonattainment problem at all of the downwind receptors. i don't know if they could -- >> could you explain that to me? because are you saying that the straight porsche analogy -- proportionality approach that was applied in the d.c. circuit, are you saying that's impossible? or are using its complicated and dumb? >> at least what we understand to be the straight proportionality approach is impossible. that is, it might be possible with respect to any particular downwind receptors because you could say that, if one of wind state is contributing to units and another four and another seven, the proportional solution

might be to require that any necessary reduction would be in those proportions. one state would do two thirteenths of the reduction, another would to four thirteenths and another widget seven thirteenths of the reduction. that would be theoretically possible with respect to the receptor. but with respect to another receptor the same states might be contributing an entirely different proportions. so there would be no way a devising a solution that would be proportionate as to both spent i suppose you could average them out, could you? >> you might be able to average them out spent i don't think that's any more irrational than picking a number like 500 bucks, who can do it more efficiently. that's sort of arbitrary. >> the purpose of the cost threshold was not increase or decrease the total amount of reductions that would be necessary. it would be to ensure that the reductions that had to take place were done in the most

cost-effective manner possible. >> i understand that, but my point is that is certainly a pretty arbitrary number, and i think averaging for all the receptors is serving a more arbitrary. >> i think the cost methodology is one that epa had used often in the past. indeed, even before the term contribute significantly was added to the statute in 1990, epa had interpreted the prior reading of the statute to allow relief for a downwind state, different up when state was contributing significantly to downwind pollution. and if it contributed that standard of allowing consideration of costs and compliance -- one of the ironic things is the only ill consequence of overcontrol is caused. that is, this is not a situation in which there is some distinct public health benefit, distinct public health problem, i'm

sorry, that has caused a power plants are emitting dolittle nox or as the to be the only reason that people worried about overcontrol about reducing emissions is that it costs money but if that's a problem to be boy, it seems strange that epa can't take account of cause and devising a solution. >> i don't want to finish her argument. if you have something to say on what you start out with in describing the plan. you said there are three aspects. the first aspect what you cut out any state does contribute less than 1%. you said the second aspect was that you used a metric of $500 per ton of knox reduced, and you apply that to the states still in. and then you never got to three and i want to be sure you do if you had that. >> once each state emissions budget has been going on with respect to each state, the epa

essentially divides up the emissions that are allowed among the different power plants within the states borders. the way it does that is it gives allowances to the various power plants that add up to the total number of tons of pollutants that are allowed to be emitted. it's important to emphasize that the states have not joined the industry's argument here that even the states on the other side of the gays have not joined the industry's argument here that states that costs can't be considered. those states are not quarreling with the methodology by which epa quantified their state emission budgets. those dates are simply saying that, once those have been quantified, they should've been given an opportunity determine on their own how the allowances should be allocated without epa doing it first. in some situations that might in a rational way for epa to proceed. that is, the statute says that once epa finds that a particular state has either failed to submit a good neighbor transform

or epa has disapproved the good neighbor s.i.p., once that happens the statute says that epa at any time within two years can promulgate its own federal application plan. in some circumstances it might irrational for epa to wait the full two years and give additional guidance to states, in order to give them every opportunity to devise compliance plans. there were basically two reasons for epa didn't do that. the first is that it was subject to the d.c. circuit's mandate in north carolina, which they get something in place that works as soon as possible, and epa felt constrained i've had to act as quickly as it could. and the second point worth emphasizing is that there are state sovereign interests on both sides of the case. it's true that, i devising a federal plan, in the first instance, epa has intruded to a degree on the ability of the upwind states to decide how emissions allowances could be

allocated among their own sources. at the downwind states are subject to their own obligations to comply with the naaqs within their own borders, and to the extent that they can't get relief from the upwind states, the task is made more difficult. >> i'm sure i should know this after reading all these breeds, but if we reverse the d.c. circuit, what would happen going forward? in other words, the states have had this time to go first and to do their s.i.p.'s, then they were found not to comply. so the epa does its f.i.p. but that's not the end of the game, is a? isn't the epa under continued obligation to look at, review its naaqs, to give the states for the opportunities to come back? >> yes. with respect to the particular naaqs that are at issue, it's unclear to what they been working on at the state's early could even under the terms of the transport rule proposed state application plans to replace the f.i.p.'s. it's to be contemplated that

there will be additional naaqs and plummeted, and this court's decision would affect the way in which both the states and epa went about the business of determining how good neighbor obligation should be carried out with respect to this future naaqs. >> thank you, counsel. mr. mitchell, why don't you give us 30 seconds or so?

>> [inaudible conversations] >> mr. mitchell? >> mr. chief justice, and may it please the court. epa's actions in this case have written the states out of the clean air act. epa cannot impose a good neighbor f.i.p. on the states when epa has left the states completely in the dark about the meaning of the phrase contribute significantly. epa's approach requires the states to submit s.i.p. >> can only guess about epa will quantified their good neighbor obligations under section 7410. >> it's certainly hard, but it is what the statute says. and it seems to me that, the epa had taken a different view, it would've been contrary to the statute spent epa's actions are unlawful for supper independent

reasons. the first is epa's actions in this case represent an arbitrary and capricious change in width at the agency has interpreted the statute. for 15 years, starting with the naaqs s.i.p. call in 1990, epa told the states not to submit good neighbor s.i.p.'s before epa quantified the states obligations. epa repeated that stance numerous times, including in the disapproval of nevada s.i.p. that we saw on pages nine and 59 and also in the sources of the d.c. circuit cites on page 51, 52, and 56 of the petition appendix. epa has now done a 180-degree shift and told the states they are required to submit good neighbor state, s.i.p., before epa has quantified their obligations. >> they don't know exactly how to do it. this is a tough problem. it sounds as if what you making is a procedural objection here, to which the governments point was, you're right, we had all

been talking about this. we wanted to see what the states would come up with, so we luck. the states haven't come up with enough, in our opinion. and so, now we go to the federal process and we put out our thing, and you comment on the. and then if you feel that there thing is no good, propose your own solutions again. that's what he sang. but it's supposed to advance the ball. so there is a procedure for the states to come in, if they can come up with a better plan, that's what you just heard, and so do it. what's arbitrary or capricious about such a system? >> because that's the approach epa rejected in the naaqs s.i.p. call. >> they objected to it once. now they think it works you. all the time it happens, that people change their minds about how problems are best solved on the site this problem is the result one way or better another way. if you only point is once they

did it a different way, they will say what's unreasonable about changing our way? we are trying to get the job done. >> epa is allowed to change their interpretation of the statute, but if they're going to be that they have to acknowledge in the transportranspor t rule that they're abandoning the prior construction of the statute. >> years and years, the labor board decided things in adjudication, rules. one day they said no, we think we should preside rule-making processes, like other agencies. does anything in the law prevent that? >> no. they're not prevented from making change for the arbitrary and capricious standard -- >> but you're not prevented from giving a counter s.i.p., is that what -- is what they were being told. you can counter, is what the government is saying. so it's not clear to me that they've stopped you from doing your own s.i.p. >> but we can propose and submit the s.i.p. on after the f.i.p. has already been imposed on the states. >> so what's the difference?

you duke it out with them in terms of what you think they are wrong as applied to you. let me ask you something fundamental about this. are you challenging the transport rule using cost? or are you just challenging the process in which that was achieved? because if i understand all the major grieves, the theory of this, not even you would want to take command and control regular she got is that correct? >> do not have a position on the question of what epa can consider costs spent it would be crazy if they didn't come right? >> we represent a coalition of states -- >> right. and for some of them it would really be a bad idea. we are naming -- we are remaining agnostic on that point. >> can ask him and tell you propose your s.i.p. to replace

the f.i.p., right, the f.i.p. remains in effect? >> yes. >> and you are bound by that until they approve your new s.i.p. how long do such a transaction on what they? >> it depends. it really does. we don't know exactly what our obligations are spinning do you think that's a quick process? >> no, it takes months spent and if you have to develop a new s.i.p., it will take some time and that is submitted to epa and they chew on it for as long as they want, right? and then maybe they will say your s.i.p.'s good enough, and maybe they won't spend right. we're still waiting for epa to decide on the s.i.p. that we submitted to implement the good neighbor obligations for the 2006 particulate matter standard. >> but at least if you've adopted a s.i.p. or proposed the s.i.p., you've given reasons, you have a rational plan, and the epa then must give a reasoned response to it, whereas if the eight cash to its epa is

the first one, their writing on a blank slate. it seems to me that the epa is more constrained under this process to which you object. is still an unlawful use of the f.i.p. authority for supper reasons. this gets back to justice breyer's question, why is this a lawful? several reasons. the first is that the epa has changed its interpretation of the statute and the key language from the naaqs s.i.p. coworkers on pages 57,368 through 370, what epa tells the states we don't want you to spi smit good neighbor s.i.p.'s that simply take a guess at what you think the good neighbor obligations are. >> that means the statute has a require you to do that i assume. is that your point? >> not only that, they said in the naaqs s.i.p. calls that they're adopting an interpretation of the statute that prohibits us from doing

that, but that the interpretation of the statute the epa adopted is the epa and only epa is the institution that is charged with responsibility of quantified estates good neighbor obligations. we wanted to have the prerogative to decide what the good neighbor obligations mean. epa said no. we are the sole entity with a prerogative, and you need to wait until we issue a rule that quantifies your obligations. epa has not change that approach without explaining or acknowledging in the transport rule that they were abandoning the earlier interpretation of the statute. >> that they were doing that with respect to the naaqs. i thought that was them saying they had to quantified the naaqs. >> what they said was they have to qualify the good neighbor competition forget to tell the states what it means to get you but significant to another states air pollution. that leads to the second statutory problem with this regime. the states have the prerogative under the clean air act to do with the federal minimum requirements are for clean air and to go no further.

epa's approach here requires the states when they submit or propose s.i.p. and have to take a wild guess as to what the good neighbor obligations are, it effectively compels the states to overcontrol and over regular because if they what epa to approve the s.i.p. and i don't know what they're good neighbor obligations will be, they have to overshoot and overcontrol and overregulate or risk kdpa will deny their s.i.p. and pose a f.i.p. on the state. what epa is essentially doing is telling the states if you want to do only what the federal law requires and to go no further, the price of that is the check except an epa impose f.i.p. the difference is obligations rather than giving the state the opportunity to distribute regulatory burdens in a s.i.p. as it sees fit. >> i might just not be understanding but this goes back to the chief justice's question. the statute says, look, after

the standards are originally promulgated, the state gets three years to make its best pitch, and then the administrator shall promulgate a f.i.p. at any time within two years after that. presumably there are lots of conversations that can happen between the epa and the states during those five years. and maybe sometimes more of those conversations happen, and sometimes less of those conversations happen. but i don't see that as different constructions of the statute. it seems to me as the statute sets up its framework, you go first, do it within three years. in the epa goes, it has to do within two years. the epa just has very substantial discretion under this statute as to what kind of conversations it wants to have when, within that broad structure. why am i not reading it right? >> i agree epa has the discretion to the problem is that in the naaqs s.i.p. call in 1990 of the asserted exclusive interpretation authority.

and they said that epa is the institute might quantified estates good neighbor called -- obligations. into epa fills in the blanks and also states what does contribute significantly phrase means, it's in into requirement. epa could have taken a different approach in the naaqs s.i.p. call. they could've told the state you can take the first crack at defining what contribute significant remains and we will review your summation and approve or disapprove. what they said 15 years ago was that the states need to wait for the epa to quantified obligations in the rule. once epa asserts that exclusive interpretive authority over the provision, the states have no obligation to guess at what epa might do in the future, when they submit the s.i.p. that leads to a second independent problem with epa's transport rule because epa had no authority to impose federal implementation plans for the 1997 standards on the 22 states

that already had epa approved s.i.p.'s in place for the standards. >> haven't some states already challenge that? isn't that ending? watch leader looking at that issue here, when states a challenge that? >> three of the states have challenged -- >> i don't know why the rest didn't, but three of them have. so why should we enter the fray anticipatory? isn't that an issue we should wait and see what epa says below? >> the united states is suggesting that we are somehow launching an improper collateral attack because the states could have challenged the earlier s.i.p.'s approvals or earlier findings of you to submit. >> no, no, no. this is a very discrete question, that they've already approved some s.i.p. three states have challenged the fact that they shouldn't be required to meet a new standard because they've already had an old standard approved. that seems to me a very discrete

challenge, and three states have undertaken it. >> but those judicial proceedings have been stayed, pending the outcome of this proceeding. >> i don't know why, but that's a different issue. it would be more prudent for us to wait for that administrative process to finish before we venture into this question. that's my point. >> i don't think the court should wait because the issues that we are raising our discrete from what's being challenged by those three states to the argument we're making are the first, epa has no authority to impose a f.i.p. on the states before quantifying the good and obligations. and second, epa improperly invokes the correction -- >> that's because epa did it that way, you don't get that from the statute. you get it from what epa did in the first round, is that right? >> we are not relying solely on the statute, justice ginsburg. argument is that epa has changed its interpretation of the statute from the naaqs s.i.p.

call to the transport rule without adequate knowledge or explaining how its new interpretation is consistent. we are all relying -- we are also going on the statute as well. as i mentioned earlier, it requires the states eliminate pollution that contributes significantly to another states nonattainment. >> they may not know. they may not know. there's a sick states that contribute to the seventh states pollution, and how much each state can cut back to inspect it depends on what it costs. it depends on how much they contribute. it depends on what the other states will do but it depends on where the wind blows, and that changes all the time. so they have a tough problem. they can't tell you exactly how much you should g cut back until they know what they have in mind or what others have in mind for solving the problem. and so it sounds to me as if you're asking them to do the impossible, and they had a very good reason for not doing what they did before. named, it would be impossible

here -- not actually impossible, very tough and very expensive. so that's why i gather they went the way they did. i don't know anything in the long that tells him that the statute was meant to force them to proceed in way that would either be hugely more expensive and perhaps impossible. what's your reaction? >> epa has done this before. with the cair f.i.p.'s in the first quantified estates good neighbor obligations, they give the state an opportunity to submit s.i.p.'s before the cair federal implication plans would take effect. ep agrees that the states have no ability to guess actually at that epa will quantify the good neighbor obligations. >> they have done the impossible here, haven't they? the only question is whether it should have come out sooner or later. the only question is whether it should have come out before the states were obliged to submit

their s.i.p.'s. >> it's not impossible for epa to decide what contribute significantly means. that's their job. they can choose any reason will interpretation of that phrase. >> you started to give us a second statutory reason. i was really eager to see what that was spent yes, that section 7410 issue that we mentioned in the brief. epa had previously approved good neighbor s.i.p.'s for 22 states that implement at the 1997 standards for ozone any particular map. once epa approves a state's s.i.p., its ability to impose a f.i.p. on that state expires under the statute. said epa had a problem for those 22 states. how would they be able to impose f.i.p.'s and had to previously approved s.i.p. epa says that they're going to invoke the corrections power, and it says is epa determines that a prior decision approving of s.i.p. was in error, then epa

-- >> isn't that the issue that the three states are challenging below, just that discrete issue, about whether the epa can call this a corrective action or not? isn't that entire issue being determined in those proceedings? >> it's not being determined because the proceedings have been state. but yes, three states, kansas, georgia and ohio have challenged. challenged. >> but that issue is what's at issue their. >> would you do finished describing the issue? i didn't hear it. >> epa invoked its corrections powers and set a question must be made in the same manner as the decision and corrected. epa's approval of the earlier s.i.p. with her nose and. because of that, the corrections go through comments and corrections here did not go through notice here that the disagreement between us on that

point. and the united states does get out of this bomb by saying that they can use the good cause exception to notice and comment rulemaking that's found in the administrative procedure act. that doesn't epa at all because the requirement comes not from the ministry procedure act. the requirement to use notice and comment comes from (k)(6). it doesn't epa to rely on an exception to the statute when the statute providing that exception is not the statute that imposes the requirement. >> this is of course a statute on which epa gets substantial chevron deference. why couldn't we read that language to essentially means subject to the same procedure requirements as the original? >> because that caveat does not appear in (k)(6). >> is not a caveat. it's a different understanding of what that language means. i mean, you say it has to be in the exact same, in the exact same way they previously acted, and i guess i'm saying it could mean subject to the exact same

procedure requirements. was that not clear? am i being unclear and? >> i think your argument or suggestion is that epa could rely on the normal rules that forth in the administrator procedure act -- >> whatever procedure requirements constrained epa when it approved the s.i.p., those were the same procedure requirements that constrain epa when it's disapproved the s.i.p. but we're just asking, both have to be subject to the same procedure requirements. epa can act differently, as long as they are acting within that same set of rules. >> we don't think that's a tenable construction of (k)(6). (k)(6) authorizes epa to make corrections, but it says specifically the corrections must be made in the same manner as the decision being corrected. if it went through notice and

comment, the corrections had to go through notice and, as well. if the decision being corrected when through formal adjudication, then the correction must also go through formal adjudication. epa doesn't try to make that argument. they are just trying to say that a good cause exception in the notice and comment rulemaking should carry over here. spent i think they are trying to make that argument. they are saying in the initial version, we could have done it by notice in common -- comment rulemaking, or we could have done if we had good cause. so, too, when we reverse the initial determination spent if that's what the statute means, then (k)(6) doesn't unchain the agency much at all spent i think it would follow that if he did for good cause to apply the rule, you can do for good cause to abolish it, not that you can do by rulemaking when you adopt it and then used good cause when you abolish it. it would seem to me to square with the text. >> the text says, in the same

manner as spent in the same manner? >> in the same manner. so looking back to the region decision and how it was made, and that's the second reason we've provided for why the d.c. circuit decision should be affirmed. if the court were to reach a the (k)(6) issue, there's also the question of whether the f.i.p.'s can be severed because the (k)(6) argument -- i see my time has expired spent you can finish your sentence. sentence. >> the (k)(6) argument doesn't knock out all of the steps on standing alone. it announces the severability question. thank you. >> thank you, mr. mitchell. mr. keisler spent mr. chief justice, am a place accord. court. the private party responds our focus on the statutory limitations to the epa's authority under the good neighbor provision. i would like to just be sure from i can focus on a lot and to explain not only when we see --

y. justice kagan it would neither be silly no dumb or just crazy to read the statute we suggest. we begin with the texas statute which authorize prohibition only announced interesting medically the nonattainment or interfere with downwind locations. the focus of the things we think is quite clearly on the effects of the state commission on other states and not on the cost of reducing them. what he has done here is to assert it has the power to increase estate reduction obligations beyond what a focus on the effects of the commissions would require simple because epa has decided it would be recently affordable for that state to bear a higher burden. what that means is that states your which are making only a very slight contribution to air quality problems are nonetheless required to make very substantial reduction in many cases far more than states that are making far greater contradictions for air quality

in the downwind locations but there is no relationship at all under the epa methodology between the amount of states contribute and the amount it has to reduce. because the entire driver is cause. mr. stewart said that talk was one component but it's not one component. it is the entire driver speed is why is it wrong? that is, i focus on art and here in the breeze, which is very clear and very good. the example it comes to my mind is we have an overgrazing problem in state a. all right? its cause because cows come in from state to be and she'd come in from the state see. the cal men and the sheep in are in different states. they are not friends. [laughter] it turns out, it turns out that epa which is in charge of preventing the overgrazing discovers that if the sheep men build a fence, that will cure

the problem here even though they only contribute half or maybe less. well, if we bury it, divided equally you each have to pay can each have two cause have the problem because that seems fair, it's g to end up that the people in stat in state a with , they're going are going to starve to death. so our choice is between taking two people, two states, each of whom cause have the problem and getting an overall plan where you solve the problem at minimal cost, or just dividing it 50/50, which seems fair in mathematics, but leaves to starvation, cost and death, et cetera. do you see when driving at? that's what they've done here, the second method. they're not treating each state alike, you are right. the reason that they're not treating each state alike is they know, one, although states are part responsible in more than 1%, and with this plan, we get the job done at much lower

cost. now, where in the statute doesn't say they can't do that? >> i'll try to respond to that fully, justice breyer. certainly, it is the case and we would acknowledge the are always going to be legitimate policy argument in favor of the least cost, most efficient solution to any problem. we would also say that there are countervailing policy arguments at issue here, and we do believe the statute sides with those countervailing policy argument. the countervailing policy argument here our focus on the fact that in your hypothetical where there's one state that it would cost more to reduce and another state it would cost less. the only scenario in which you get a different result under the epa's approach and our approach is where the state that would cost more to reduce is, in fact, can she be a lot more to the downwind states their problem than the other state. and personal reasons we think when the statute looks at the issue and asked the question of

whether epa should have the authority to force the state which is, in fact, contribute in less than nonetheless reduce more simply because it's costly, we think there are at least three reasons why the statute embodies the policy choice that says no, the state that contributes more, reduces more. the state that contributes less, reduce less. the first is the one that i mentioned at the outset, significant and should nonattainment or interfere with maintenance and downwind locations. the second is the whole structure -- >> amounts significantly exceeded, right? spent amounts come significantly contribute. i don't think you were genetically can bear the weight that mr. stewart places on a. it modifies the words contribute to nonattainment. so it's about the degree of causal contribution. and it doesn't modify at all the phrase interferes with maintenance. they'd use the same cost methodology to intimate that as well. the second, beyond the text, the whole structure of the clean air

act is focused on treating the states a separate entities, which are responsible for the emissions that happen within the borders and the effect that those emissions have on other states. that's why this is in a s.i.p. rather than syngenta epa regulation and that's what the language of the stack is what it is, ma amounts of emissions within the state. in this regard i think it's telling that in the reply brief of the government said was that it believes it has the kind of authority here to consider cost that would be considered by a chancellor adequate in a nuisance case. chancellor adequate in this case that private party defendants before him or her. and so of course they were allocating burdens on the basis of equity and efficiency and all kinds of things a, while chancellor can take into account. the epa has before separate states, separate responsibilities who have a long historic role and responsibility of enforcing emissions control procedures within the border. congress could rightly or recently at least have concluded

that he didn't want epa to the same authority to shift costs and efficiency and equity around among different states to require -- >> on that point, you remember, please, that my cow and sheep examples make it to go precisely the disproportion that you're talking about. and keep that in mind because i found it a helpful example. my point is, did you find in congress, and i'm interested in legislative history, did you find anything in the legislative history that suggests that, where the epa faces this kind of regional problem, and it's of regional, not just a statewide problem, that people in congress thought they had an answer or a glimmer of an answer, as opposed to taking this language, which is pretty open, and saying, we're going to leave it -- we don't know, we don't have a clue. the epa is there to figure this thing out, and we're giving them

the broad authority. is there anything that cuts on your side that you see as opposed to the other side of reading this language? >> there's one thing i can site, and that is the statutory history in this case is that the predecessor version to what we currently have before us simply said that states were required to brave the amounts which prevent attainment or maintenance, no word significantly, just prevent attainment and maintenance. looking at that language there's nothing in that it would suggest that cost be taken into account. what congress said in the committee report in 1990 when it added the word significantly intruded to nonattainment an interview with maintenance, was that he was doing the precisely because it recognize this was a provision that address causation of bad air quality effects because what it was doing was not introduce a new element of cost but relaxing the causation standard, saying it should be something like but for causation where the question doesn't prevent attainment or maintenance. maintenance. it's enough if the country did significantly to nonattainment or interfere.

>> you have a statute to the clue does not have any language about no cost allowed, that also does not have with the american trucking association statute had, which was like public health only, sufficient margin of safety, right? so none of that. which is exactly what you said. you have a statute that focuses on causal contribution, right? so this is a hard problem, right? because i mean, let me just sort of give you a numerical example, which i'm sure is as simplistic as the other numerical examples floating around this case. let's say that the standard is 100. there's a state that has 120, and there are two states, and x and y, that have each contributed 20. right? we only need 20 of those. we have 40. and the question is, how do you get from those 42 the 20?

d.c. circuit would just say, we taken from each. but if the question is only about causal contribution and that's all that the statute talks about, there have to be other ways we can make that determination of what contribution each should be legally responsible for, right? and what the epa said it was, we're going to distinguish between -- were going to distinguish between states that have put a lot of technology and a lot of money into this already and, on the other hand, states that have lots of cheap and dirty emissions. why isn't that a perfectly rational thing to do under this very statute? >> first of all, i think in the example that you're on a cave, where you have the two states and should they be each reduced to 10, the reason in favor of doing it that way from a statutory prospectus is that that then gives a consistent application to the same causal language in the statute, which

means that the same causal effect from one up wednesday on a downward state is insignificant if it comes from indiana to delaware, but insignificant if it comes from tennessee. .. >> surely, if that was what congress had intended, it wouldn't have written a statute which directs each state to include in its fip provisions -- >> you battle mr. stewart's point that congress surely

didn't intend to shut down these plants if they didn't or couldn't feasibly reduce their contributions. >> um, yes, your honor, but we think the -- >> so if they couldn't feasibly do it, doesn't the word "significantly contribute" have to take into account in some way the cost of reducing the amount? >> your honor, i'm here on behalf of industry and labor, so certainly we believe there has to be mechanisms to deal with the kinds of problems that your honor just identified. but we don't hi they come out -- think they come out of defining the amounts that specifically attribute to nonattainment. we think those kinds of considerations come into play elsewhere in the process. in the american producting case that's been referred to -- trucking case that's been rougherred to, the courts said -- referred to, by deciding to allocate among different

sources what, how the reduction will be distributed, they can take costs into account. and there are other mechanisms is the s.i.p. process is then translated into an emission reduction obligation. we do think there are occasions, and we've noted them in note 17 of our brief, where the state in then formulating its s.i.p. can say it is this is the amount we have to reduce, but costs have to be taken into account. but that is a very different matter from saying that epa in defining what amounts significantly contribute can do the same thing. and the reason it's different, the reason it's not just, oh, we're locating in some different box what epa wants to do in its box, is the box we're putting it in is something that your honor described. there are ways to soften it out at the edges. >> well, they found a way to do that with the cost trade-off with the cap and trade system. >> well, i'm -- >> because the industry itself can make that choice with the state presumably. they're not stopping a s.i.p.

that stops a state from participating. >> um, well, the trading presents unique issues under this statute. we support trading anywhere it's appropriate be, but this is a statute which is focused on providing relief to downwind states. and if, to take my earlier example, if indiana is contributing emissions into delaware that hurt its air quality, it does no good for delaware if indiana purchases allowances from tennessee which isn't contributing into delaware. >> yeah, but what you're -- i mean, you want me to write, look what i would have to write if i made it very specific. two units floats over the air from the cow state, two units from the sheep state or three. it happens that if we treat them alike, we are going to tell the cow state your unit is the same as the sheep state's unit. both make the same significant contribution, and we have to say that even if for you to remit

your unit causes death and destruction. destroys your economy. see? and i have to write those words to accept your argument. don't i? >> i'd like to resist the role your honor -- >> of course. [laughter] >> defender of death and destruction and starvation. [laughter] >> i'm trying to -- >> [inaudible] >> words i can so that then you will either have to draw a distinction or something, that's why -- >> in some ways, the distinct is one i was drawing in response to justice sotomayor's question. you can take into account whether death, destruction, starvation will be taken -- when the state is doing that as part of a s.i.p. process, but that doesn't bear on how the amount of senate contribution is defined, because when epa takes costs into account, it's not simply preventing the death and destruction and starvation, it's working the other way. it's saying each though a causation standard would require you to reduce this much, we, the epa, can shift to you an

additional burden because we think an additional state -- >> they say that's not a theoretical possibility under the numbers they've worked out. so why isn't this taken care of in the process that permits individual states to challenge this as applied? >> let me make a distinction in that regard, your honor, which is what the government has said is theoretical possibility is simply whether a state would be driven below the 1% threshold. but what i'm saying really goes back to justice scalia's very first question which is even apart from the 1% threshold, every time they are allocating on the basis of cost and displace what you would allocate on the basis of what each state actually contributes, then you are shifting burdens around even apart from the one -- >> but you're saying that significant must mean only measurable amounts. it can't mean, i'll pick your world, culpability, feasibility, responsibility, feasibility. one state finds it quite

feasible from a cost standpoint to reduce admissions by a factor of ten. the other state, justice breyer's example, finds it can't do it except for the factor of 100. can't you say that the contribution in one case is more significant than the other based on feasibility? maybe you can't. >> i don't think so, your honor. i don't think that is a proper definition of significant when it's modifying contribution to nonattainment p. mr. stewart -- >> it isn't contributions to nonattainment. it's the word "amounts." the statute prohibits activity within the state from emitting any air pollutant in amounts which will contribute significantly. >> we agree, your honor. we would emphasize -- >> amounts are amounts. >> but the word "significantly" does import a judgmental component. >> but i think -- >> that's what the government's going to say. >> it's not a limitless -- [inaudible conversations]

>> i don't think "significantly" means that any factor that might be deemed relevant this a broad policy sense can be imported in. i think when you have a statute here which talks about amounts that contribute significantly to nonattainment or interfere with maintenance. >> all right, so there's an ambiguity here. you used the word "amounts," it does help you. add "amounts" to "significantly," and justice and a scalia's point might be -- he nose better than i -- an amount's an amount. >> that's my point exactly. [laughter] >> and then the response is, well, not always, because you say an amount you're talking about a specific amount coming out of a state. and is the one, the cow one, as significant as the sheep one? all right? and that's, i think we're -- i think you hit the nail as to what the issue is. >> and i guess our position is that "significant" may have a range of meanings, but it's not limitless. i think one member of the court

once said the fact that yellow is ambiguous doesn't mean it can mean purpose -- purple. and here we don't think it accommodates the government's position. >> mr. keisler, the nature of this problem is there's an allocation issue. it's not that everybody gets down to a certain threshold level. it's there's a level, and we have to allocate. and the question is, what are we going to allocate on the basis of? and the word "amounts" doesn't tell you what you're going to allocate on the basis of. so there are lots of different choices. we can just divide, you know? and do it all proportionately. we can take into account per capita, we can take into account the state's population if we wanted to. or we can take into account as the epa did here costs on the understanding that costs reflect how much of an investment a state has already made in pollution technology. so the statute, neither the word "amount" nor anything else, says anything about those different methods of allocation, does it?

>> i disagree with that, your honor. i think -- and, you know, i don't focus exclusively on the word "amount" or "significantly," it's the entire phrase which i do think ten out of ten people who weren't in this courtroom and hadn't read the clean air act if you sat down and asked them what does it mean, they're talk about the effect on one state over another. i don't think this is any more ambiguous than the statute of issue that american trucking was in talking about safety and health as a standard. it does supply a content to what the epa has to do, and that content isn't cost, it's this air quality effect. >> what is your answer, do you have an answer to mr. stewart's basketball hypothetical? i thought that was pretty good, if you asked the coach what significantly contributed to the loss, he's going to talk about the missed layup rather tan the missed desperation -- than the missed desperation throw even though as far as amount each was going to count for two points,

assuming the one was within the -- [laughter] >> it's very hard for me to translate the amount concept into performance on the basketball court. but mr. stewart's other example was a contribution to a charity, and i certainly would accept the notion that if bill gates and i each contribute $100 to a charity, i've made the more significant contribution. but that's because we're using contribution in that context to mean something else. we're using it to mean donate or give. we're not using it to talk about concern. >> the basketball thing is to make it parallel to what's at issue here, the question you should ask the coach which, which of the -- you lost 101-100. which of the 101 points contributed most to your loss. [laughter] >> and the answer is one finish. >> it's the one that was the layup. i mean, that's -- he would not

answer the one that was a layup. he'd say, what do you mean? all of the 101. >> butthere were different teams playing -- if there were different teams playing in the league and you had an overall result -- [laughter] you could actually determine, you know, which team had contributed what to the overall result. and when we're dealing with states, we are dealing with groups that the statute conceptualizes as separate teams which are entitled to be treated separately. i'd like to make just one other point, we have raised the completely separate argument, it's the first argument in our brief, which is independent of how the court decides epa may define the amount of contributes significantly whether cost, or air quality effects or anything else, and that is however it's defined, epa cannot regulate beyond the point mess to achieve attainment -- necessary to achieve attainment and maintenance and downwind locations. and here although in the prior two rule rule makings it specifically examined the issue and avoided overkill, here it didn't do that.

apart from the cost versus air quality issue, we had comments that submit manied evidence that showed epa could achieve attainment and maintenance at virtually all the same downwind locations at lower levels of regulation. and epa's response to that on 354a was they weren't going to look at lower levels of regulation, because at lower levels of regulation some sources in some states might cease operating existing controls. and that's all they said. but if sources in some states could cease operating and existing controls and as the comments said you would still achieve attainment and maintenance in all the downwind locations they are linked to, then epa has no authority you should the good neighbor provision to require those sources to continue operating their existing control. this may be authority under other provisions, but not this one. and the epa in this particular proceeding said nothing else, gave no other reason for refusing to act on the evidence that commenters submitted that lower levels of regulation at most upwind states would still

achieve attainment and maintenance at downwind locations, and they had no authority to regulate beyond the point necessary to aattainment and maintenance. if the court has no further questions? i thank the court. >> thank you, counsel. mr. stewart, you have four minutes remaining. >> thank you, mr. chief justice. as mr. keisler indicated, in our reply brief, we cited the statement as it bears on the common law of nuisance, and as this court indicated, if the clean air act had not been enacted, the remty that downwind states would have in a situation like this one would be federal common law nuisance suit against upwind states or polluters in upwind states. i think there are three lessons to draw from that fact. the first is as the brief's argument in this case indicate, judicial resolution of such a suit would have been a herculean task. and the prospect of doing that through judicial processes should reinforce the wisdom of

congress' choice to replace that mechanism with the clean air act, and counsel's in favor of deference to the expert agency that has been placed in the position that a common law court would previously have been placed in. the second is as the reply brief to the cry sayings nuisance law indicates, the common law court in that scenario would have been able to consider the costs necessary to achieve reduction in pollution upwind in decide willing a particular remedy would be appropriate or how much of a reduction an upwind polluter should have to make. and there's no reason ab sent extraordinarily clear statutory language to deny epa the same authority. the third thing is as the analogy to the common lawsuit indicates, there are southern state interests on both sides of this case. this is not a matter of epa versus the states, it's a matter of epa trying to act as an honest broker between the upwind and the downwind states. the next thing i would say about the clean air act is that the statute as a whole is replete

with references to economic activity and harnessing the profit motive. that is, both the states and epa are specifically authorized to provide for the trading of allowances. the whole purpose be of which is to achieve emission reductions in the most cost effective manner possible. and i think it's worth note anything this regard that although we talk about the transport rule as regulating the emission of -- emissions of states, what we're really regulating is emissions of power plants within the states and the good neighbor provision itself talks about preventing significant contribution from emissions sources or emissions activity within the states. and one of the things that the epa said in the proposed rulemaking was that in some circumstances the cumulative downwind impact of a particular upwind state might be great not because any particular power plant was poorly regulated or emitting at a high level, but because there were so many power plants in the same state.

and one consequence of forbidding the epa to consider costs is that a particular power plant in an upwind state might be required to install more expensive pollution control measures and make greater reductions simply because it happened to be located in a state with a lot of other power plants. and the last thing i would say is this is, the statute, as i've said before, has a prospective focus. it's intended to be implemented by state officials. and if you ask a state official how would a state official assure herself or feel confident that her own state implementation plan was satisfying good neighbor obligations when she wasn't really sure what other states might be doing. and one way is if a state official said if everybody else did what i'm doing, i could feel confident that the problem would be solved. and that's really the approach that epa used. it examined certain cost thresholds, and it said at particular cost thresholds, we feel confident that if everyone upwind and downwind state alike

makes pollution control efforts at these levels, the problem will be solved or at least almost solved because there would still be slight residual monoattainment. and it seemed -- nonattainment. and it seems perfectly rational to say the significant contribution is the amount over and above what would occur if everyone adhered to an approach which, if applied across the board, would solve the problem. thank you. >> thank you, counsel. counsel. the case is submitted. >> well, the u.s. senate is back today from its christmas recess, and lawmakers are expected to immediately get to work on a three-month extension of unemployment benefits. those payments started running out for over a million people at the start of the year. a vote to move ahead with the bill take place at 5:30 eastern today. republican opposition centers around no budget offsets to the $6.4 billion plan. also today the senate will vote on the confirmation of janet

janet yellen to be the new federal reserve chair. that vote will also take place at about 5:30, and only a simple majority is needed. live coverage of the senate gets underway today at 2 p.m. eastern right here on c-span2. and on capitol hill, top appropriators this the house and senate will meet to work through remaining policy and funding differences in the overall budget proposal reached last month by congressman paul ryan and senator patty murray. congressional action is necessary to avoid a january 15th government shutdown. >> also today on the c-span networks, journalists discuss cybersecurity and cyber warfare issues and their impact on various areas of society including the military, business, politics and families. you'll hear from correspondents and editors from various media outlets including "the new york times," the wall street journal, the u.k.'s "guardian," npr and "foreign policy" magazine. also speaking the co-authors of a book examining how people and

governments can protect themselves from cyber attacks. the forum is hosted be by the brookings institution. you can watch it live beginning at 2 p.m. eastern over on c-span. >> outgoing federal reserve chair ben bernanke believes the u.s. economic recovery remains, quote, incomplete with unemployment continuing to hover around 7%. but he adds the negative factors of the financial crisis and housing market could now be abating. he gave those remarks last friday in philadelphia at the annual meeting of the american economic association. later today the senate is expected to confirm janet yellen to succeed him as fed chair when his term ends on january 31st. this is about 90 minutes. [inaudible conversations] >> okay, ready? good afternoon.

i'm william nordhouse, president-elect of the american economic association, and there are many people in this room who know about the american economic association, but for those of you who are or watching on feed, let me just say a word about it. these are the annual meetings of our association, the association of economists, ask can it's attended -- and it's attended by 11 or 12,000 card-carrying economists from around the country and, indeed, around the world. we gather here -- not here, but in these meetings annually. we debate high theory, we debate policy, we have discussion groups, and this is one of the sessions that we're particularly proud of and is one of the highlights of these meetings. we have the pleasure today of hearing the reflections of ben

bernanke. ben earned his ph.d., earned his ph.d. from mit in 1979 and since then has been a distinguished scholar and public servant. i'm not going to give a long introduction, because most of you know him, but i'll just give some personal reflections on his career. his scholarly writings have illuminated a wide variety of areas, some of them very helpful in his late, later career including the cref visit channel in the great depression, the potential role of inflation targeting and the favorite article of his of my students, which is the global savings glut. for those of you who are teachers, it's a wonderful way to teach open economy

macroeconomics. ben, in addition to his other activities, has written about the's is sense of economics -- the essence of economics. you might be interested, take notes on this for those of you to explain to your students also, he wrote -- he said, actually, in his talk to princeton graduates, i think last year, economics is a highly sophisticated field of thought. it is superb at explaining to policymakers exactly why the choices they made in the past were wrong. [laughter] about the future, it is not so helpful. [laughter] most people outside this room know ben from his eight years as captain of the fed. during that period the country and, indeed, the global economy suffered from a rare confluence of terrible financial and economic shocks, what you might call a category five financial

hurricane. that we're suffering here. this is a category one snowstorm. fortunately, the captain of the fed had historical and analytical knowledge, creativity and the courage to introduce policies that kept the ship afloat and steered it through the storm. one of the things that i find most impressive as i go back and look at what we thought we knew in 2005 or 2006 or 2007 is what we might do if if we got hit by this kind of storm. was there just a whole list of things in the closet, on the shelf to pull off, pull out in case of crisis? and i think the answer is, no. i think all of these were very creative and talented steps that the fed took that were not on the shelf ready to go.

so we know from similar, the wreckage around the world in storms of this kind and other countries at other times how damaging they can be, and we understand how fortunate we were to have ben at the helm. so this is a program, chairman bernanke will talk, give his presentation. it will be followed by commentators ken row rogoff and -- [inaudible] and depending on where we are in the schedule, we plan to have some questions from the floor. there are two mics. i'm afraid if the we took all the questions, we'd still be here tomorrow morning, and that's not possible. so we'll have a very few questions, but i would like to present ben bernanke. [applause] >> thank you. thank you, bill.

in less than a month, my term as fed chairman will end. needless to say, my tenure has been eventful. for the federal reserve, for the country and for me personally. i thought it'd be appropriate today to reflect on some accomplishments of the past eight years as well as some uncompleted tasks. i'll briefly cover three areas in my remarks; the federal reserve's commitment to transparency and accountability, financial stability and financial reform and monetary policy. and i'll close by discussing the prospects for the and global economies. fostering transparency and accountability at the federal reserve was one of my principal objectives when i became chairman in february 2006. i'd long advocated increased transparency and a more explicit policy framework as ways to make monetary policy more predictable and effective. our effort toss to enhance transparency and communication have, inteed, made monetary

policy more effective, but these steps have proved important in other spheres as well. when i began my term, i expected to build on the monetary policy framework that i inherited from paul volcker and alan greenspan. my predecessors had solidified the fed's commitment to low and stable inflation as foundations of broader economic stability. and they gradually increased the transparency monetary policy deliberations and plans. for example, chairman volcker introduced a money-targeting framework to help guide the ped's attack on high inflation in the early 1980s and the practice of issuing a statement after each meeting as the fomc began under chairman or greenspan. i believed that a still more transparent approach would make monetary policy even more effective and further strengthen the fed's institutional credibility. in particular as an academic, i had written favorably about the flexible targeting approach used by bank of england and a number of other central banks.

by making public considerable information about policy goals and strategies together with their economic forecasts, these central banks provided a clear framework to help the public and market participants understand and anticipate policy actions. the provision of numerical goals and policy plans also helped make these central banks more accountable for achieving their stated objectives. i was confident that we could adapt this type of framework to the federal reserve's dual mandate to promote both maximum employment and price stability. indeed, central banks using this framework were already in practice often pursuing economic objectives in addition to low and stable inflation, hence the term "flexible" inflation targeting. because the financial crisis and its aftermath naturally occupied so much of policymakers' attention, progress toward a more explicit policy framework at the federal reserve was slower than i had hoped. nevertheless, progress was made.

in the minutes of its october 2007 meeting, the fomc introduced its quarterly summary of economic projections which included key macroeconomic variables such as inflation, gdp growth and the unemployment rate. over time we added long-run projections of inflation growth and unemployment as well as projections of the path of the federal funds rate consistent with each individual's views of appropriate monetary policy. these additions have better informed the prick about participants' views on both long-run objectives of policy and the path of interest rates most consistent with achieving those objectives. we took another important step in january 2012 when the fomc issued a statement laying out its longer-run goals and policy strategy. the statement established for the first time an explicit, longer-run goal for inflation of 2%, and it pointed to the sep to provide information about committee participants'

assessments of the longer-run normal unemployment rate currently between 5.2 and 6%. the statement also indicated that the committee would with take a balanced approach to its price stability and employment objectives. we adopted additional measures aimed at clarifying the rationales for our decisions including my quarterly postmeeting press conference. the increases in policy transparency that were achieved proved valuable during a very difficult period for monetary policy. as it happened, during the crisis and its aftermath the federal reserve's transparency and accountability proved quite critical in a different sphere, namely in supporting the institution's democratic repsychiatry massey. the federal reserve, like other central banks, wields powerful tools. democratic accountability requires that the public be able to see how and for what purposes those tools are being used. transparent si is particularly important in a period like the recent one in which the federal reserve has been compelled to

take unusual and dramatic actions, including the provision of liquidity to a wide range of financial institutions and markets that did not normally have access to the fed's discount window to help stabilize the financial system and the economy. what types of transparency are needed to preserve public confidence? at the most basic level, a central bank must be clear and open about its actions and operations, paragraphly when they involve -- particularly when they involve the deployment of public funds. the federal reserve routinely makes public extensive information on all aspects of its activities, and since the crisis it has greatly increased the quantity and detail of its regular reports to the congress and to the public. importantly, contrary to what is sometimes asserted, all of the fed's financial transactions and operations are subject to regular, intensive audits by the government accountability office, the gao, an independent inspector general and a private accounting firm as well as by our own internal auditors. it is a testament to the

dedication of the federal reserve's management team that these thorough audits have consistently produced assessments of the fed's accountabling and financial -- accounting and financial controls that most public companies would envy. transparency and accountability are about more than just opening up the books, however. they also require thoughtful explanations of what we are doing and why. in this regard, our first responsibility is to the congress which established the federal reserve almost exactly a century ago and determined its structure, objectives and powers. federal reserve board members, including the chairman, of course, as well as senior staff testify frequently before congressional committees on a wide range of topics. when i became chairman, i anticipated the obligation to appear regularly before the congress. i had not entirely anticipated, though, that i would spend so much time meeting with legislators outside of hearings individually and in groups. but i quickly came to realize the importance of these

relationships with legislators and keeping open the channels of communication. as part of the fed's interaction with the congress, we have also routinely provided staff briefings and conducted programs at the board for the benefit of congressional staff interested this federal reserve issues -- in federal reserve issues. i likewise maintained regular contact with both the bush and obama administrations principally through meetings with the secretary of the treasury and other economic officials. the crisis and its aftermath, however, raised the need for communication and an explanation by the federal reserve to a new level. we took extraordinary measures to meet extraordinary challenges, and we had to explain those had beens to earn the public's support and confidence. talking only to the congress and market participants was no longer enough. the effort of to inform the public engaged the whole institution including both board members and the staff. as chairman, i did my part by appearing on television programs, holding town halls, taking student questions at

universities and visiting a military base to talk to soldiers and their families. the federal reserve banks also played key roles in providing public information in their districts through programs, publications, speeches and other media. the crisis has passed, but i think the fed's need to educate and explain will only grow. when paul volcker first sat in the chairman's office in 1979, there were no financial news channels on cable tv, no bloomberg screens, no blogs, no twitter. today news, ideas and rumors circulate almost instantaneously. the fed must continue to find ways to navigate this changing environment while providing clear, objective and reliable information to the public. for the u.s. and global economies, the most important event of the past eight years was, of course, the global financial crisis and the deep recession that it triggered. as i've observed on other occasions, the crisis bore a

strong family resemblance to a classic financial panic except that it took place in the complex environment of the 21st century global financial system. likewise, the tools used to fight the panic -- though adapted to the modern context -- were analogous to those that would have been used a century ago including liquidity provision by the central bank, liability guarantees, recapitalization and the provision of assurances and information to the public. the immediate trigger of the crisis, as you know, was a sharp decline in house prices which reversed a previous runup that had been fueled by irresponsible mortgage lending and securitization practices. policymakers at the time, including myself, certainly appreciated that house prices might decline, although we disagreed about how much decline was likely. indeed, prices were already moving down when i took office in 2006. however, to a significant extent our expectations about the possible macroeconomic effects

of house price declines were shaped by the apparent analogy to the bursting of the dot.com bubble a few years earlier. that earlier bust also involved a large reduction in paper wealth but was followed by only a mild recession. in the event, of course, the bursting of the housing bubble helped trigger the most severe financial crisis since the great depression. it did so because unlike the earlier decline in equity prices, it interacted with critical vulnerabilities in the financial system and in government regulation that allowed what were initially moderate aggregate losses to subprime mortgage holders to cascade through the financial system. in the private sector, key vulnerabilities included high levels of leverage, excessive dependence on unstable short-term funding, deficiencies in risk measurement and management and the use of exotic financial instruments that redistributed risk in nontransparent ways. in the public sector, vulnerabilities included gaps in

the regulatory structure that allow some systemically important firms and markets to escape comprehensive supervision. failures of supervisors to effectively use their existing powers and insufficient attention to threats to the stability of the system as a whole. the federal reserve responded forcefully to the liquidity pressures during the crisis in a manner consistent with the lessons that central banks had learned from the financial panics over more than 150 years and summarized in the writingings of walter package jet. lend early and freely to solvent institutions. however, the institutional context had changed substantially since badget wrote. the panics of the 19th and early 20th centuries typically involved runs on network banks and other depository institutions. credit extension had progressively migrated outside traditional banking to so-called shadow banking entities which relied heavily on short-term

wholesale funding that proved vulnerable to runs. accordingly, to help calm the panic, the federal reserve provided liquidity not only to commercial banks, but also to other types of financial institutions such as investment banks and money market funds as well as to key financial markets such as those for commercial paper and asset-backed securities. because funding markets are global this scope and u.s. or borrowers depend importantly on foreign lenders, the federal reserve also approved currency swap agreements with 14 foreign central banks. providing liquidity represented only the first step in stabilizing the financial system. subsequent efforts focused on rebuilding the public's confidence, notably including public guarantees of bank debt by the fdic and of money market funds by the treasury department as well as the injection of public capital into the banking system. the bank stress test that the federal reserve led in the spring of 2009 which included

detailed public disclosure of information regarding the solvency of our largest banks further buttressed conferred in theback -- confidence in the banking system. the stress test was yet another way -- example of the benefits of transparency. the sub p subsequent efforts to reform our regulatory framework have been focused on limiting the reemergence of the vulnerabilities that exacerbated the crisis. changes in bank capital regulation under basel iii has significantly increased requirements for loss-absorbing banking firms including a surcharge for systemically-important be institutions and is a ceiling on leverage. the federal reserve's comprehensive capital analysis and review or ccar, a descendant of the 2009 stress test, requires that large financial institutions maintain sufficient capital to weather extreme financial shocks and that they demonstrate that their or internal planning processes are effective. in addition, public disclosure

of the results facilitates market discipline. the basel iii framework also includes liquidity requirements designed to mitigate excessive reliance on global banks on short-term wholesale funding into otherwise constraining risks at those banks. further steps to toughen the oversight of large institutions and to strengthen the financial infrastructure, for example, by requiring central clearing with greater transparency for the trading of most standardized derivatives. oversight of the shadow banking system has also been strengthened. for example, the new financial stability oversight council has designated some nonbank firms as systemically important financial institutions or sifis by the federal reserve. in addition, measures are being undertaken to address the potential instability of short-term wholesale funding markets including reforms to money market funds and the triparty repo market.

of course, in a highly integrated global financial system, no country can effectively implement the financial reforms that i've described in isolation. the good news is that similar reforms are being pursued throughout the world with the full support of the united states and with international bodies such as the basel committee and the financial stability board providing coordination. more broadly, the approach to regulation and supervision at the federal reserve has evolved to include a substantial macroprudential or systemic orientation in addition to the traditional focus on individual institutions. for example, the federal reserve has created the office of financial stability policy and research which coordinates system efforts to monitor the interactions of financial institutions, financial markets and economic developments to identify emerging vulnerabilities and systemic risks. enhanced monitoring of this type is especially important as the

changes in regulatory structure and financial innovation may lead risks to manifest in new ways or to migrate outside the perimeter of the current regulatory structure. much progress has been made, but more remains to be done. in addition to completing the efforts i have already mentioned including the full implementation of new rules and supervisory responsibilities, the agenda still includes further domestic and international cooperation to insure the effectiveness of mechanisms to allow the orderly resolution of insolvent institutions and thereby increase market discipline for those large institutions. the evaluation of potential macroprudential tools that might be used to address emerging financial imbalances is another high priority. for example, the new basel iii regulatory capital framework includes a countercyclical capital buffer which may help build additional resilience within the financial sector during periods of buoyant credit creation. staff members are investigating

the potential of this and other regulatory tools such as sensitive loan to value requirements for mortgages to improve financial stability. a number of countries including both advanced and emerging market economies have already deployed such measures, and their experiences should be instructive. although in principle monetary policy can be used to address financial imbalances, the presumption remains that macroprudential tools together with well-focused, traditional regulation and supervision should serve as the first line of defense against emerging threats to financial stability. however, more remains to be done to better understand how to design and implement more effective macroprudential tools and how these tools interact with monetary policy. whilely liquidity provision and other emergency steps were critical to stemming the financial panic, a rapid shift in the stance of monotire policy was -- monetary policy was necessary to counteract the massive economic blow delivered

by the crisis. the fomc reduced the target federal funds rate from 5.25% in the summer of 2007 to a range of 0 to one-fourth percent by the end of 2008, a very rapid easing. the federal funds rate has been at its effective lower bound ever since. to provide additional monetary policy accommodation despite the constraint imposed by the effect of interest rates, the federal reserve has turned to two alternative tools; enhanced forward guidance regarding a hikely path of the federal funds rate, and purchases for the portfolio. other central banks have responded to development since 2008 in roughly similar ways. tradition, the bank of england and the bank of japan have employed detailed forward guidance and conducted large scale asset purchases while the european central bank has moved to reduce the perceived risk of sovereign debt, provided banks with substantial liquidity and

offered qualitative guidance regarding the future path of interest rates. with short-term rates near zero, expanded guidance about intentions for future policy has helped to shape market expectations which in turn has eased financial conditions by putting downward pressure on longer-term interest rates and helping to support economic activity. forward guidance about the short-term interest rates supplements the broader policy framework that i described earlier by providing information about how the committee expects to achieve its stated policy objectives despite the complications created by the zero lower bound on the policy interest rate and uncertainties about the cost and efficacies of the available policy tools. beginning with qualitative guidance, the committee's communication about its anticipated future policy has evolved through several stages. in december 2012 the committee introduced state con tip gent guidance announcing for the first time that