Unprecedented regulatory proposals and a paradigm-shifting federal court ruling are converging to put big polluters on the hook for their contributions to global warming. The developments raise the stakes for Congress as it considers whether to curb greenhouse gas emissions and how to do so.

On Sept. 21, the U.S. Second Circuit Court of Appeals ruled that state and local governments and other groups can sue individual power companies over heat-trapping greenhouse gas emissions. Eight states, the city of New York, and three conservation groups brought a public nuisance suit against six major coal utilities.

The decision overturned that of a lower court, which had said the issue was too complex and inherently political to be decided judicially. The Second Circuit sent the case back to the lower U.S. District Court for the Southern District of New York. The district court must now decide on the merits of the case and issue remedies, if appropriate.

Environmentalists are calling the decision a game changer. The ruling will open the door for other state and local governments or environmental groups to sue major emitters of greenhouse gases.

Polluters could increasingly feel themselves pinned between litigation and oncoming federal regulations being developed by the Obama administration. The threat of tort lawsuits and prescriptive requirements imposed by government agencies may compel polluters to reduce their carbon dioxide emissions.

During the week of Sept. 28, the U.S. Environmental Protection Agency (EPA) is expected to announce the first-ever proposed limits on carbon dioxide emissions from stationary sources such as power plants, oil refineries, and other large industrial facilities, according to BNA news service (subscription required).

Insiders say EPA will require any facility meeting an annual 25,000-ton emission threshold to install best available technologies for limiting emissions of carbon dioxide, the most abundantly emitted greenhouse gas.

EPA usually caps pollution at 250 tons, but carbon dioxide is emitted in much greater quantities than most other pollutants. The tailored limit should quiet concerns voiced by opponents of carbon dioxide regulation who claim EPA would impose requirements on minor emitters like small retailers, schools, or churches.

The Obama administration has already released a proposal attempting to tackle the other major source of carbon dioxide emissions – vehicles. On Sept. 15, EPA and the National Highway Traffic Safety Administration (NHTSA) jointly issued a proposed regulation covering carbon dioxide emissions from passenger cars and light-duty trucks.

EPA's part of the rule would – for the first time ever – set a limit on carbon dioxide emissions from vehicles. The average car in a manufacturer's line of vehicles would be allowed to emit no more than 295 grams of CO2 per mile in 2012. The rule would ratchet the limit down to 250 grams per mile by 2016.

To stay within the limits, manufacturers would be forced to improve vehicle fuel efficiency under the existing Corporate Average Fuel Economy (CAFE) program administered by NHTSA. CAFE standards set miles-per-gallon requirements on cars and trucks. NHTSA's portion of the rule revises CAFE standards to match EPA's proposed emissions limits. The new standards will require the average car to travel 30.1 miles on a gallon of gas in 2012 and 35.5 miles by 2016.

The agencies published the rule in the Federal Register on Sept. 28 and will accept public comments through Nov. 27. The agencies will also hold three public hearings on the proposal in Detroit, Los Angeles, and New York City.

EPA is pursuing both the vehicle and stationary source regulations using its authority under the Clean Air Act. In 2007, the U.S. Supreme Court ruled that the EPA must determine whether greenhouse gases should be considered a pollutant under the act. The act has previously been used to curb more traditional forms of pollution like smog and soot. In April, EPA proposed a formal finding declaring greenhouse gas emissions a danger to public health and welfare. If EPA finalizes the endangerment finding, which it is expected to do soon, it will obligate the agency to finalize regulations on greenhouse gas emissions, such as those under development now.

The proposed limits on both vehicles and stationary sources come on the heels of EPA's establishment of a greenhouse gas registry. Beginning Jan. 1, 2010, major greenhouse gas emitters will be required to keep track of their emissions, the agency announced Sept. 22. After receiving reports from facilities, EPA will make the data publicly available on its website. (Read more about the greenhouse gas registry.)

Advances on the regulatory and judicial fronts stand in stark contrast to the lack of progress in Congress, where climate change legislation has taken a back seat to health care reform and other priorities.

In June, the House passed its version of a cap-and-trade bill, which would set a national limit on carbon dioxide emissions and create an economy-wide system in which polluters buy, sell, and trade emissions credits. However, action has stalled in the Senate. Sens. Barbara Boxer (D-CA) and John Kerry (D-MA) are expected to introduce a companion cap-and-trade bill during the week of Sept. 28, according to ClimateWire, but Democratic leaders have said a vote on the bill will likely be delayed until 2010.

The legislation holds the potential to dramatically alter the emerging system in which greenhouse gas emissions would be regulated by lawsuits and sector-specific rules. The House bill would prohibit EPA from finalizing any greenhouse gas regulations using its Clean Air Act authority. If passed, the bill would scuttle both the stationary source and vehicle emissions regulations. Instead, the agency would help to administer the cap-and-trade program.

It is less clear how passage of cap-and-trade legislation would affect tort lawsuits filed in the wake of the Second Circuit decision. Passage of the bill could provide polluters with the legal cover to avoid liability.

The cap-and-trade system would be partially dependent upon EPA's greenhouse gas registry, which is unaffected by any pending legislation.

Unlike regulatory approaches, cap-and-trade legislation would fit emissions reductions into a broader framework. Congress faces a choice: It could act itself by mandating a comprehensive, market-based, and tightly controlled emissions-reduction regime, or it could let EPA continue with more familiar command-and-control regulations and preserve a role for the courts, both of which would yield less predictable results.