Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

After a number of stories indicating that the prospects for climate change legislation were dimming for 2009, the convergence of a number of factors suggests that legislation may still be possible.

Yesterday, Senator Boxer and Senator Kerry released a draft of climate change legislation. This doesn’t mean that Senate passage is imminent. The bill has not been formally introduced and, like the early drafts of the Waxman-Markey bill, leaves some sections blank. Senator Boxer apparently intends to issue a mark-up of the bill sometime in October. One note for the politically-minded readers of this blog – just don’t call the bill “cap-and-trade” legislation. Senator Kerry stated that he does not know what “cap-and-trade” means and denied that this is “cap-and-trade” legislation – notwithstanding that it would cap emissions of CO₂ and allow regulated entities the right to trade allowances to emit CO₂.

Meanwhile, EPA continues to work on climate change regulations. Last week, OMB apparently completed its review of EPA’s proposal to apply PSD rules to sources of CO₂ greater than 25,000 tons per year. EPA apparently intends to issue the rules some time this week. 

Opposition to climate change legislation among the regulated community appears to be splintering. In the past week, three members of the U.S. Chamber of Commerce left the Chamber due to its intransigence on climate change. Perhaps even more tellingly, the Chamber yesterday issued a statement that it supports “strong federal” climate change legislation – though it still appears to oppose significant parts of the Waxman-Markey bill. The Chamber also stated that it prefers legislation to regulation by EPA. Finally, it is worth noting that the Chamber’s statement accused environmentalists of distorting its position, without addressing the withdrawal of three utility members.

The decision in Connecticut v. EPA allowing the public nuisance litigation against six generators to continue. If the threat of EPA regulation hasn’t been enough to tip the balance in favor of legislation, the threat of regulation by injunction may be enough to do so.

Whether these developments will be enough to push climate change legislation over the threshold remains to be seen. Certainly, they improve its prospects.

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EPA released its final version of the Mandatory Greenhouse Gas Reporting Rule today.  The Rule (which we blogged about in its draft form here) will require large emitters of greenhouse gases to begin collecting emissions data on January 1, 2010 and file their first self-certified reports in March 2011.  The EPA will then verify the data, as in other Clean Air Act programs. The new program will cover approximately 85% of the nation's greenhouse gas emissions and apply to roughly 10,000 facilities, down from the 13,000 that EPA had predicted in its draft rule in March. 

The rule has changed somewhat since it was proposed, through two public hearings and over 17,000 written public comments.   Some of the more significant changes include reducing the number of source categories that are automatically required to report (excluding, interestingly, food processing, waste water treatment, and suppliers of coal) and allowing facilities that reduce their emissions below the annual threshold of 25,000 metric tons of carbon dioxide equivalent ( CO_2e) to cease reporting after 5 years.  The rule also adds a provision to allow the use of best available data in lieu of required monitoring methods for the first few months of the reporting period (through March 2010). 

As in the draft rule, the threshold for reporting is generally 25,000 metric tons or more of CO_2e per year, although some source categories are automatically included.  Reporting is conducted at the facility level, except for suppliers of fossil fuels and engine and vehicle manufacturers, who will report at the corporate level.  With this rule, the EPA will be counting emissions from cars, too.  Vehicle manufacturers begin their reporting with CO₂-only for model year 2011, and phase in other greenhouse gases in subsequent model years.

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On Monday, the Court of Appeals for the 2^nd Circuit finally issued a decision in Connecticut v. American Electric Power Company, reversing the District Court decision which had dismissed this public nuisance law suit against six large generating companies. The decision is notable in a number of different respects and may have far-reaching implications

·  Standing. Following Massachusetts v. EPA, it is not really surprising that the plaintiffs were able to establish that they have suffered injuries sufficient to provide standing. The more questionable point is redressability. The Court acknowledged that it must be “likely” that the injury will be redressed by a favorable decision. The Court’s response to this issue was that the plaintiffs need not demonstrate that a favorable decision will eliminate the injury, only that it will provide some measure of relief. Even so, could plaintiffs really prove that even elimination of all CO₂ emissions by the defendants would have any impact on climate change? I’m extremely skeptical. The Court did note that there is a “lowered bar for standing” at the pleading stage, so we may see more of this issue as the case proceeds.

·  Displacement. Connecticut v. American Electric Power, unlike the North Carolina v. TVA case decided in January, is basically premised on federal common law of public nuisance. However, federal common law only exists in the absence of legislation addressing the same issues and is subject to “displacement” by such legislation. Following Massachusetts v. EPA, there is no doubt that the CAA provides authority to regulate GHG. What, therefore, is the role of federal public nuisance claims at this point? The Court’s ruling here left defendants alive to argue this issue another day. The Court noted that EPA has not yet issued a final endangerment finding and certainly has not issued regulations limiting GHG emissions from stationary sources. Thus, the problem complained of by plaintiffs “has not been thoroughly addressed by the CAA.” In other words, if either Waxman-Markey passes or EPA moves forward with regulations on its own, defendants may have another crack at dismissing Connecticut v. American Electric Power. 

·  Nuisance Claims in Other Contexts. In tandem with North Carolina v. TVA, this case certainly puts new life into nuisance as a potentially important arrow in the quiver for environmental plaintiffs. As we noted in January, the TVA decision left room for nuisance claims even where National Ambient Air Quality Standards have been attained. This leaves substantial room for nuisance claims in a variety of contexts, as long as underlying legislation hasn’t specifically preempted such claims

·  Prospects for Federal Climate Change Legislation. We have already discussed the choice between regulation by EPA and comprehensive federal cap-and-trade legislation. Now it appears that this dilemma has three horns, not just two. Which would generators prefer? Waxman-Markey or judicial injunctions following nuisance litigation?

It’s a lot to consider.

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On Tuesday, EPA announced its intention to issue new effluent guidelines for the Steam Electric Power Generating industry by sometime in 2012. The announcement follows an EPA study in 2008 which indicated that toxic metals, particularly those collected as part of flue gas desulfurization processes, can pose a problem in facility effluent. EPA’s announcement is not particularly surprising, given the ongoing study and given that EPA has not revised the guidelines since 1982. Indeed, notwithstanding EPA’s announcement, Environmental Integrity Project, Defenders of Wildlife and Sierra Club announced that they would still sue EPA over its failure to timely update the guidelines.

There are two reasons why this announcement is significant beyond just its implications for effluent discharges from these facilities. First, it’s hard to see EPA’s announcement – and the threat of NGO litigation – as anything other than another bullet aimed squarely at the coal industry. From climate change, to attacks on mountaintop removal, to the reaction to the TVA spill, to this effort to make the effluent guidelines more stringent, there is no doubt that coal is in the cross-hairs at the moment. If there are any doubters concerning this point, Duke Energy CEO Jim Rogers isn’t among them. He was quoted in this morning’s Energy & Environment Daily as saying that it is at least possible to envision a world in 2050 “where coal is not in the equation.”

The other reason why this announcement is significant is that it raises fairly squarely the question regarding the very structure of our current regulatory system.  It’s not really any more than happenstance and political convenience that we regulate different environmental media differently. In this context, it is noteworthy that EPA’s Science Advisory Board just recommended that EPA consider setting multi-pollutant standards under the Clean Air Act, rather than regulating each pollutant separately. Theoretically, that’s good as far as it goes, but it doesn’t really solve the problem of the balkanization of EPA’s different regulatory programs.  In the long run, EPA’s regulatory efforts would be much more cost-effective – and would probably garner much more public support – if they were rationally based on an overall assessment of risk, across pollutants and across media.

I’m not holding my breath.

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As BNA reported this morning, at yesterday's Conference of New England Governors and Eastern Canadian Premiers in New Brunswick, the six New England governors adopted The New England Governors' Renewable Energy Blueprint.  Through this plan, the governors of Maine, Massachusetts, Connecticut, New Hampshire, Rhode Island and Vermont agreed to speed regional development of renewable energy by coordinating state reviews of proposed interstate transmission lines and synchronizing solicitation and decisions on power procurement and long-term energy contracts.  The blueprint calls for states to hold joint hearings and coordinate decisions when appropriate, but even using common applications and timelines could have a significant impact on how long the siting process takes.  

The blueprint is based on conclusions reached in a study conducted by ISO-New England, called the Renewable Scenario Development Analysis, which concluded that there is a large quantity of untapped renewable resources in the New England region, including more than 10,000 MW of on-shore and off-shore wind power potential, but that such resources could not easily be developed without coordination between the states on siting transmission.

The blueprint also discusses the option of New England states tapping into renewable energy sources located in Canada and calls for a state-federal partnership in which the federal government uses regional plans as guidance for interconnection-wide analysis and federally-funded renewable energy infrastructure development.  It will be interesting to see the impact that such regional developments have on the national level.

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The silence from Congress recently concerning climate change legislation has been deafening. The continued health care debate does not bode well for early passage of the Waxman-Markey bill. Meanwhile, EPA is not sitting on its hands.

Daily Environment Report noted last week that EPA has sent to the OMB a proposal to reverse the Agency’s policy that CO₂ is not a pollutant subject to the PSD provisions of the Clean Air Act. Also last week, Greenwire reported that: “As Hill debate flounders, EPA plows ahead on emissions rules.” [And for those of you who can’t get enough of the debate between “founder” and “flounder”, take a look here.] The Greenwire story reports that EPA is moving ahead on rules governing emissions of GHGs from automobiles and large stationary sources.

The biggest debate continues to be whether EPA has legal authority to exempt small sources of CO₂ (probably those emitting less than 25,000 tons per year) from PSD rules. Certainly, the D.C. Circuit’s treatment of EPA’s CAIR rule should give everyone pause that the Court will approve rules that don’t seem to have authority in the CAA, just because everyone thinks that the rules would be good public policy. The strongest argument in support of the exemption – or at least the one mentioned most often – is simply that no one would challenge such a rule, because it would obviously be such a good idea. I’m skeptical. Major sources who want to torpedo the entire rule might easily challenge such an exemption.

I hate to sound like a broken record, but I keep coming back to a slightly different question: Who in their right mind would prefer EPA rules under current CAA authority to comprehensive legislation, however imperfect the legislation might be? Those assessing the merits of legislation can’t compare it to the status quo, because, as these recent moves by EPA demonstrate, the status quo cannot hold for long. The comparison must therefore be between the Waxman-Markey bill and the world as it will be once EPA regulates under existing authority.

It’s looking more and more likely that Congress may not have sufficient momentum to pass legislation until the reality of EPA regulation becomes manifest. I’m not looking forward to that.

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While many people today look to the Daily Show and the Colbert Report for political commentary, the Boston Red Sox leave me with insufficient TV time, so I rely on the Borowitz Report. Whenever the press reports as news something blindingly obvious to normal Americans, Borowitz will refer to the statement as having been authored by D’Oh Magazine.

Last week, in a story that should have been reported in D’Oh Magazine, a Daily Environment Report headline stated that the “Link Between State of Environment, Agency Actions Should be Clear, EPA Told.” The story concerned advice EPA was given by its own Science Advisory Board regarding EPA’s next Report on the Environment, due to be issued in 2012. Among other recommendations, the SAB stated that:

The link between reductions in pollutants and improvements in environmental quality should be made, with the goal of answering the question, “how much reduction in emissions or environmental concentration is needed to produce environmental improvements?” The overarching conceptual model for the ROE needs to include the feedback loop of EPA regulation and policy as an action/response that affects the environment.

I don’t mean to be flip, but isn’t that precisely what EPA and other regulatory agencies are supposed to be doing 100% of the time? I understand that real-world science is messy, but if EPA and other environmental agencies aren’t sure of the link between their regulatory programs and reductions in or prevention of pollution, shouldn’t they be hesitating before they regulate?

Am I missing something?

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The Regional Greenhouse Gas Initiative (RGGI) has released the clearing prices from its 5th quarterly auction of CO₂ allowances, held on September 9, 2009.  Prices for the 28.4 million 2009 vintage allowances sold fell sharply from the June auction's clearing price of $3.23 to $2.19, and the 2.1 million 2012 vintage allowances sold for only $1.87, just one cent above the market floor of $1.86, and well below the $3.05 that they earned at the March 2009 auction, which was the first at which these later vintage allowances were offered for sale. 

Interestingly, while the number of participants in the 2009 vintage auction remained relatively steady, no non-compliance entities (persons not regulated under RGGI) participated in the 2012 vintage auction.  These participants had amounted to 38% of the bids for 2012 allowances in the June auction. 

RGGI, Inc. has also released the range of bid prices in the 5th auction, allowing some insight into how the players value these allowances.  Bid prices for the 2009 vintage allowances ranged from the minimum clearing price of $1.86 to $12.00, the same as in the 4th auction, while bid prices for the 2012 auction ranged from $1.86 to just $3.00, down from June's high bid price of $3.84 and March's high bid price of $4.40.

Wednesday's auction was the first since the passage of ACES by the House in late June.  ACES provides for an even exchange of RGGI allowances for national allowances, something that could increase the value of RGGI allowances going forward, as it removes some uncertainty.  Nonetheless, pundits had predicted lower prices from this auction for a number of reasons, including doubt about the likelihood that the Senate will pass a national cap-and-trade program

The decrease in prices and lack of participation in the 2012 auction is also interesting given a report released on Wednesday by Point Carbon which predicts that actual emissions from the RGGI-regulated northeastern power plants will already be much lower than the RGGI cap, set at 188 million allowances per year.  According to Climate Wire, the report notes that the economic downturn, combined with a cool summer and warm winter reduced the amount of fuel for electricity used in the 10-state region. Falling natural gas prices have also prompted generators to switch away from more carbon-intensive fuels like coal and oil to natural gas.  The report predicts that the CO₂ emissions from the 233 power plants regulated under RGGI will emit 155 million tons this year, well below the cap.

Although the RGGI cap will begin decreasing by 2.5% each year in 2015, the years until then may provide an opportunity for regulated generators and other interested bidders to stockpile  allowances.  Given that RGGI allowances may be banked for future use without restriction, such a large number of allowances being banked could keep prices depressed for some time.

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Although we had earlier predicted that comprehensive climate legislation could reach a floor vote in the Senate as early as October, that deadline is likely to move to November or later.  As reported by BNA this morning, the lead democratic authors of the bill, Senators Boxer and Kerry, announced yesterday that they need more time to craft the Senate bill and will put off introduction until the end of September. 

The plan had been to introduce the bill on September 8th, when the Senate returns from its month-long August recess.  The Senate Environment and Public Works Committee, of which Senator Boxer is the chair, would begin mark ups as soon as a week afterward.

Introducing the bill in late September means that the six committees with jurisdiction over the Senate climate legislation -- Agriculture, Commerce, Energy & Natural Resources, Environment & Public Works, Finance, and Foreign Relations -- will not begin markups on the bill until late October. 

One driver of the timing of the bill is the UN climate summit in Copenhagen, Denmark, which begins December 7.   As Greenwire reported, during the August recess, a number of Senators have been speaking out about the climate bill, what they hope to see in it, who is likely to support the bill or oppose it, and how likely meeting the UN climate summit deadline will be.  It will be interesting to see how this delay affects that strategy.

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