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

Despite the relatively low clearing prices in the Regional Greenhouse Gas Initiative’s (RGGI) seventh auction of CO₂ credits on March 10^th -- $2.07 for 2009-2011 allowances, and the auction floor price of $1.86 for 2012-2014 allowances – cumulative RGGI proceeds to be used by the 10 participating states for renewable energy, energy efficiency and low-income energy assistance programs now total $582.3 million.

As reported in today’s announcement of the auction results, this half billion dollars is being funneled into state-run programs that make investments in energy efficiency, accelerate the deployment of renewable energy, and, at the bottom line, create thousands of jobs. In the report, RGGI highlights success stories from regional companies in sectors such as energy audits and weatherization, and the US Department of Energy’s statistic that every million dollars invested in building weatherization creates more than 50 jobs in installation and another 10 to 20 jobs in the production of energy efficient building materials.  Also notable for Massachusetts is DOER Commissioner Phil Guidice’s statement that energy efficiency programs funded in part by RGGI are expected to create or maintain nearly 4,000 jobs in Massachusetts in the coming three years.

This auction was RGGI’s first in 2010, and the first to offer new years’ allowances for sale. Participation increased in both auctions, perhaps as a result of the green shoots of the new economic recovery. 

Participation in the auction of 2010 vintage allowances, which may be used to cover CO₂ emissions from power plants in the first compliance period of 2009-2011, was robust, with 51 entities submitting bids to purchase 2.3 times the available supply of 40.6 million allowances. The clearing price of $2.07 is up from December’s low of $2.05, even though this auction offered 40.6 million allowances for sale, a significant increase from the prior two auctions offerings of roughly 28.5 million each. Eighty-five percent of the 2010 vintage allowances were purchased by entities regulated under RGGI or their affiliates.

Participation also increased in the auction of allowances to be used in RGGI’s second control period (2012-2014). Although Wednesday’s auction marked the second time that supply outpaced demand for these allowances, the quantity of allowances for which bids were submitted increased 31% from December’s Auction 6 of 2012 vintage allowances. Ninety-eight percent of the 2.1 million 2013 vintage allowances offered for sale sold to nine generators regulated under RGGI at the $1.86 mandated auction floor price. As with the unsold allowances from December, the additional allowances may be sold at future auctions, or a state may choose to retire them. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It’s difficult to keep up with the various moves in Congress, attempting either to advance climate change legislation or to preclude EPA climate change regulation. On the advance side, E&E Daily had a very helpful summary earlier this week on the various issues affecting those senators that will need to be brought on board to reach 60 yes votes in the Senate. The identified issues include, not surprisingly: (1) coal, (2) nuclear power, (3) trade-sensitive industries, (4) oil and gas drilling, and (5) sector-specific limits. In what is probably a sidelight to the whole debate, Vernon Ehlers, a Republican, but the first research physicist elected to Congress, has taken climate change skeptics to task, saying that the scientists relied on by the skeptics are not “the experts in the field.”

On the preclusion side, Congress is being deluged with requests, including from some of its own members, to stop EPA from regulating GHG under existing regulatory authority. In the past week:

20 governors (if you include Puerto Rico and Guam) wrote to Congress opposing any EPA regulation of GHG under existing authority. The letter specifically says that they seek not just a delay, but preclusion of any regulation absent specific Congressional authorization.

98 industry groups, including such left-leaning groups as the U.S. Chamber of Commerce and the API, wrote to all senators in support of Senator Murkowski’s resolution to disapprove of EPA’s endangerment finding. The letter specifically asserts that EPA’s tailoring rule “has little legal foundation” – while at the same time criticizing for not going far enough to protect smaller sources of GHG.

Senator Levin wrote a letter to Senator Kerry which, while indicating support for climate change legislation, stated that industrial sources should not be regulated for at least 10 years

I still find it difficult to believe that the resolution disapproving the endangerment finding will be enacted. While Senator Murkowski recently referred to EPA’s efforts as a “backdoor” attempt to regulate GHG, EPA’s is doing pretty much what the Supreme Court ordered it to do, and it seems to be making every effort to minimize the economic impact of those regulations. I still agree that EPA regulation will be a mess, and it’s not obvious to me that the tailoring rule will survive legal challenge, but it’s difficult to see how EPA could be doing anything less than what it is doing in light of Massachusetts v. EPA.

All of which gets back to those fence sitters and the difficulty of getting 60 Senators to agree on enough to move a bill. One aspect is looking more and more certain. If there is a bill, state authority is going to be preempted and EPA authority under prior CAA provisions is going to be superseded.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Late last week, Senate and House Democrats piled more pressure on EPA’s efforts to regulate greenhouse gases under existing Clean Air Act authority. Senator Rockefeller and Representatives Rahall, Boucher, and Mohollan introduced companion House and Senate bills to preclude EPA regulation of stationary source GHG emissions for two years. Unlike the resolution sponsored by Senator Murkowski, which would simply overturn the endangerment finding and thus preclude all GHG regulation, the new legislation would specifically allow mobile source regulation to proceed.

As long as the White House and important committee chairs oppose the legislation, it still seems unlikely to pass, though there have been enough political surprises in the past few months, and there are enough moderate Democrats supporting some kind of preclusion of EPA regulation, that I would no longer rule it out.

Even if the bills are not enacted, the filing of the legislation remains noteworthy. First, Representative Boucher was one of the early, and perhaps most surprising, supporters of cap-and-trade legislation. At a policy level, support for legislation and opposition to EPA regulation under existing authority is perfectly reasonable. I should hope so, because it’s a view that I share. Nonetheless, it still strikes me as a telling example of how much momentum seems to be building to slow down the more aggressive aspects of EPA’s approach to GHG regulation.

The flip side of this coin is EPA’s announcement that it will not require permits for GHG emissions until 2011 and that the program will initially cover only sources emitting at least 75,000 tpy of GHG. Time will tell whether administration opposition and EPA’s moves to limit the pain of stationary source GHG regulation will be enough to beat back the opponents of any GHG regulation under existing authority.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Seemingly just in time to lend support to the revived idea of a carbon tax that we noted on Monday, an Obama Administration inter-agency workgroup has released a report that attempts to do the critical math necessary to put a price tag on CO₂ emissions.

The report sets out four dollar figures that represent the “social cost of carbon,” or the potential damages associated with not stopping the emissions of each incremental ton of CO₂. The figures, which differ due to the use of different models and discount rates, designed to capture different views about the impact of climate on future decisions, include such damages as changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services. 

Not surprisingly, the numbers vary widely – spanning, in 2007 dollars, from $5 to $65 per ton for 2010 emissions, up to as high as $136 per ton for 2050 emissions.   The report outlines the potential shortcomings of the figures in detail, for instance, the potential impact of the other 5 greenhouse gases included in the EPA’s endangerment finding which have not yet been quantified, and the possibility of  “tipping point” scenarios in climate systems that could drastically change the marginal impact of each ton of emissions.  

However, even given these limitations, this valuation could be a critically important step towards determining such figures for use in policies like a carbon tax.  After all, internalizing the externality and cost to society is one main purpose of a carbon tax.

The more immediate impact of the report may also be significant.  Federal agencies are required, by Executive Order 12866, to assess the costs and benefits of regulations before deciding to act.  These figures will be used to incorporate the social cost of carbon into this analysis for all agency decisions, even those which might only have a small impact on global emissions.  As most federal agency decisions will have some impact on global emissions, even if only marginal, adding in the cost of CO₂ could have wide-ranging implications.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

To date, the only circuit courts that have reviewed public nuisance claims related to climate change, the Second Circuit, in American Electric Power, and the Fifth Circuit, in Comer v. Murphy Oil, have ruled that such suits can proceed. However, last week the Court of Appeals for the Fifth Circuit decided to hear Comer v. Murphy Oil en banc, which certainly has to give the plaintiffs pause. While I am not fully versed in this issue, a quick glance at the web indicates that statistical analysis confirms one’s naïve assumption, i.e., that a full appellate court often decides to hear a case en banc because a majority thinks that the panel got it wrong.

As I noted when the original decision was issued, even under liberal standing rules, which suggest that the plaintiffs’ harm can be “traced” to the defendant as long as the defendant’s conduct “contributed” to the harm, it’s going to be very difficult for plaintiffs, particularly under the Supreme Court’s new pleading rules, to argue that, for example, Murphy Oil “contributed” to the harm caused by Katrina. If the Fifth Circuit sitting en banc affirms the District Court dismissal in Murphy v. Comer, we could be headed back to the Supreme Court on climate change, since that would set up a conflict between the Second and Fifth Circuits.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Since I did a post earlier today indicating the cap-and-trade legislation is unlikely to become law in the near term, it’s only fair that I also do a post on efforts by Senators Kerry, Graham, and Lieberman to resuscitate the legislation. The bill's prospects are too uncertain to spend too much time on the details. In short, it would include a phased-in approach to regulation, starting with the biggest emitters, such as utilities, combined with a carbon tax on transportation fuels that has been supported by several major oil companies.

To me, the most notable statements come from Senator Graham, the only Republican in the gang of three. Senator Graham has turned out to be one of the more intriguing and less predictable members of Congress in recent years. This may have its pluses and minuses and I have no idea whether he can bring any GOP support along, but you have to sit up and take notice when a Republican says

Cap and trade as we know it is dead, but the issue of cleaning up the air and energy independence should not die -- and you will never have energy independence without pricing carbon.

Of course, he’s right. The sad thing is that the rest of his party has so demonized any and all taxes that no Democrat could possibly say something like this – and many of the distortions in the various bills we’ve seen to date have resulted from strenuous efforts to avoid having consumers see any price signals about the cost of carbon emissions.

Keep sayin’ it, Brother Graham.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The uncertainty surrounding EPA regulation of GHG emissions under existing Clean Air Act authority was driven home for me last week when the same conference resulted in two diametrically opposed headlines in the trade press. Regarding a forum held by the International Emissions Trading Association, the Daily Environmental Reporter headline was “Existing Law Too Inflexible to Accommodate Market-Based Emissions Cuts, Executives Say.” Over at ClimateWire, the headline was “Some Companies Want EPA to Establish a CO2 Cap-and-trade System.” 

Of course, in fairness to the two publications, both headlines are true – and that’s the problem with the current EPA efforts. Notwithstanding current efforts in Congress to preclude EPA regulations, the endangerment finding seems almost certain to withstand legal challenge. Thus, GHGs will be regulated. Almost everyone wants that regulation to be in the form of a cap-and-trade program, but the last time EPA tried that without explicit Congressional authority, it was shot down in the courts. This may be why the Daily Environment Report story indicated that Vickie Patton of EDF had “pleaded” with executives to support cap-and-trade legislation.

At this point, the most likely near-term outcome appears to be no federal cap-and-trade legislation, and a stripped-down EPA regulatory program that would only apply to really large emitters, so that the inefficiencies inherent in the facility-specific BACT approach won’t appear too unreasonable, because the only people complaining about it will be some very unpopular polluters and all of my economist friends.

Or, as the Stones might have said in their more cynical moments:  Not only can’t you get what you want, but you can’t even get what you need.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Yesterday, EPA Administrator Jackson issued a letter to Senator Jay Rockefeller responding to certain questions regarding EPA regulation of GHGs under existing Clean Air Act authority, including promulgation of the so-called “Tailoring Rule”, describing how stationary source regulation under the existing PSD program would be phased-in once GHGs are subject to regulation. Here are the highlights:

EPA still expects to promulgate the Tailoring Rule by April 2010.

The GHG permitting threshold will be “substantially higher than the 25,000-ton limit that EPA originally proposed.”

No permits will be required until 2011. Initially, only facilities otherwise subject to CAA permitting will be required to obtain permits. The smallest facilities will not be subject to GHG permitting before 2016.

You can talk all you want about global warming, but it seems to me as though it’s EPA that’s feeling the heat. EPA has clearly heard the threats of a Congressional resolution barring EPA regulation of GHGs under existing authority. The reaction from Congress is all the evidence one needs. Both Senators Rockefeller and Murkowski praised the letter. While neither indicated that the letter would be sufficient to stop them from pursuing Congressional action, it might be enough to peel off some fence-sitters who might otherwise have felt compelled to support the legislation.

What does EPA’s statement of intent mean for various law suits swirling around this issue?

I don’t see any impact on litigation against the Endangerment Finding; it will still proceed and it will still lose.

The likelihood of law suits from environmental groups alleging that EPA is shirking its responsibilities under the CAA has certainly increased. Moreover, while EPA has a lot of discretion, I could imagine courts saying to EPA:  “Nice try, but the CAA doesn’t give you the kind of flexibility you have asserted in the Tailoring Rule. Only Congress can provide that flexibility by amending the CAA.” In this respect, the situation is similar to litigation over the CAIR regulations, which pretty much everyone liked, but which were struck down because the approach EPA took in the CAIR rule wasn’t consistent with the CAA.

Finally, any kind of regulation by EPA will provide an additional defense to private nuisance litigation. As I have previously noted, one question raised by the nuisance law suits is whether EPA has regulated GHG in a manner sufficient to “displace” the common law of nuisance. In this respect, the sort of program described yesterday by Administrator Jackson may be the best possible outcome for the regulated community, because it will narrow EPA regulations while providing a ground to preclude nuisance litigation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The grand total is 16 separate challenges to EPA’s endangerment finding, according to Greenwire. I’m not one of those lawyers who regularly bash the legal profession. I still recall my law school professor, Henry Hansmann, stating that the role of lawyers is in fact to be transaction-cost minimizers, and I think that that is largely true. That being said, I am certainly wondering what all of this litigation is about.

The endangerment finding is basically a scientific determination. As I have previously noted, EPA discretion in this area is substantial and the likelihood that a court would reverse EPA’s scientific determination seems about as close to zero as possible. Apparently, some of the law suits do not attack the underlying scientific underpinnings of the determination, but instead attack EPA’s procedures for carrying it out or the expected regulatory and thus economic implications of the finding. If possible, these seem even less likely to succeed.

Finally, before we get to the merits of either of these arguments, there are substantial standing questions, given that the endangerment finding itself imposes no regulatory requirements on any of the plaintiffs.

It is more likely that these law suits are tactical in nature, filed as part of the broader battle to stop EPA from using existing Clean Air Act authority to regulate GHGs. I support that battle in that I agree that regulation under existing authority will be a nightmare. However, I think it’s a losing battle and I don’t see the litigation challenging the endangerment finding as likely to help in any case.

Hope springs eternal, I suppose.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Late last week, the CEQ issued its long-awaited draft Guidance on how to factor climate change into NEPA reviews. CEQ explicitly stated the draft is not effective at this time. CEQ will take comment for 90 days and “intends to expeditiously issue this Guidance in final form” after close of the comment period. Assuming CEQ does so, it will join several states, including California, New York, and Massachusetts, which already require that climate change be addressed in their state NEPA analogues.

The draft is very limited in scope at this point; CEQ may have decided that what is most important is simply the statement that climate change is real, it matters, and it therefore must be taken into account under NEPA. For example, CEQ proposes a threshold a 25,000 tpy of direct emissions CO₂e for NEPA applicability. The Guidance does not propose to apply this threshold to indirect emissions, “the analysis of which must be bounded by limits of feasibility.” Shocking recognition of what’s actually possible.

There are some tidbits that will nonetheless give pause to those who expect to be subject to this Guidance. First, the Guidance does discuss the need to consider the cumulative effects of GHG emissions. This is not surprising, given that NEPA already requires consideration of cumulative impacts outside the GHG context, but since all GHG impacts are cumulative, it is of particular importance here. Second, the Guidance also notes that project planners must consider the impact of climate change on projects, as well as the impact of projects on climate change. The example given in the Guidance is a plan for transportation infrastructure on a barrier island. The Guidance also suggests a longer-term time horizon than may have been used in the past. The example here is that of an industrial process drawing water from a source that relies on snow pack that is expected to decrease as a result of climate change.

As noted above, CEQ spends a lot of effort making the case that the Guidance is not a radical document. The phrase “rule of reason” is used no less than four times in the draft Guidance – and it feels like more. Nonetheless, I doubt opponents will be satisfied. I suspect that they – like the CEQ itself – believe that the fact of the document is more important than its immediate requirements.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Earlier this week, the Southeastern Legal Foundation filed a petition for review of the EPA Endangerment Finding with the District of Columbia Court of Appeals. It’s not really surprising that someone filed suit, but the list of plaintiffs is interesting – though more for who is not on it than who is. There is not a single Fortune 500 company on the list of plaintiffs. Whether that speaks to the larger corporations doubting the merits of the challenge or simply making a strategic decision that it is not worth it to be associated with the litigation, I leave for them to say.

I will say that the likelihood that this challenge succeeds is vanishingly small. Ever since Ethyl Corporation v. EPA, courts have given EPA extraordinarily broad discretion when regulating on “the frontiers of scientific knowledge.” Whatever concerns dissenters may have about climate change science, I think it is pretty clear that EPA has a stronger record to support the Endangerment Finding than it had in Ethyl Corporation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For those of you who missed it, the SEC finally issued an interpretive release last week clarifying public company disclosure obligations concerning climate change. Rather than rehash it here, I am instead linking to the client alert that we did on the topic.

It is worth noting that, as mentioned in the alert, the release has engendered significant political controversy. Indeed, ranking member Spencer Bachus sent a letter to the SEC questioning the appropriateness of the release. My favorite question in the letter:

Do you believe the Commission’s role is to promote a social policy agenda through the securities laws and regulations?

I wonder how the SEC will answer that one?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Until now, I haven’t posted about the climate change email brouhaha. I haven’t thought it mattered. I didn’t think it affected the underlying validity of climate change science and I still don’t. That science seems overwhelming to me. 

However, I have concluded that the email issue matters.  Yesterday’s ClimateWire reported that climate scientists had repeatedly ducked Freedom of Information Act requests, in ways that demonstrate an astounding degree of arrogance. Here’s the money quote from Phil Jones, the head of the Climatic Research Unit at the University of East Anglia:

When the FoI requests began here, the FoI person said we had to abide by the requests,… It took a couple of half-hour sessions -- one at a screen -- to convince them otherwise, showing them what CA [Climate Audit, climate skeptic Steve McIntyre's Web site] was all about. Once they became aware of the type of people we were dealing with, everyone at UEA ... became very supportive.

In other words, the Freedom of Information Act is meant only to provide information to those who agree with you? I don’t think so. 

Doesn’t it seem as though there’s a reason why environmentalists are often described as elitists? Isn’t this the essence of elitism? I know what the data means and you don’t and you can’t be trusted to have it, because you’ll do bad things with it. I may be naïve, but I don’t think that’s what democracy’s about.

Which is what brings me to a related criticism – self-righteousness. God is on my side. The future of the planet is at stake. I can therefore do anything to ensure what I personally know to be the right outcome. 

Sorry, folks. Doesn’t sell. Most people have very sensitive self-righteousness detectors and it’s a major turn-off. Precisely because climate change is so important, climate scientists need to knock it off. Right now, they are their own worst enemies.

• Email This
• Print
• Comments (3)
• Trackbacks
• Share Link

Given the stories this week of continuing efforts in Congress to preclude EPA from regulating GHGs under existing Clean Air Act authority, I couldn’t resist this headline. 

The first story is that three House members, including two Democrats (House Agriculture Committee Chair Collin Peterson and Missouri Rep. Ike Skelton) have followed the lead of the Senate – where there are also Democratic sponsors – and introduced legislation preventing EPA regulation. According to Representative Skelton, the bill would “get the EPA under control.”

In light of the efforts in Congress, it just seemed too perfect not to note that EPA’s Assistant Administrator for Air, Gina McCarthy – never one to mince words – was quoted in GreenWire today as saying that

We are furiously ensuring that we get the light-duty vehicle out and ready in March…. There is no hesitation about that. It will be happening.

I don’t doubt that EPA is working furiously to get the rule done, particularly since President Obama has acknowledged that a cap-and-trade bill might not get passed this year. Whether EPA is actually furious, I don’t know. It does appear that some members of Congress may be furious in March if EPA goes ahead and issues the rule. Stay tuned.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The U.S. Securities and Exchange Commission (SEC) issued interpretive guidance yesterday which requires publicly traded companies to consider the impacts of climate change – both the physical damage it could cause, as well as the economic impacts of domestic and international greenhouse gas emissions-reduction rules – and disclose those risks to investors. As we noted when discussing the potential for this announcement in October, the disclosure requirements are likely to affect companies in a wide range of industries. 

In its press release announcing this decision, the SEC said that this interpretive guidance neither creates new legal requirements nor modifies existing ones; rather, SEC guidance is intended to provide consistency among issuers in their disclosure to shareholders of bottom-line risks and consequences. The guidance will cover:

• Risk Factors
• Description of the Business
• Legal Proceedings
• Management’s Discussion and Analysis

The interpretive release will be published in the Federal Register and posted on the SEC’s website. The press release summarizes the key points as these:

• Impact of Legislation and Regulation: When considering potential disclosure obligations, companies should determine whether the impact of existing laws and regulations regarding climate change is material. In some cases, companies should also evaluate the potential impact of pending legislation and regulation related to environmental issues and climate change.
• Impact of International Accords: Companies should consider, and disclose if material, the risks related to or effects upon their business of international accords and treaties relating to climate change.
• Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create both new opportunities and new risks for companies. For example, a company may face decreased demand for goods that produce significant greenhouse gas emissions, or increased demand for goods that result in lower emissions than competing products. Companies should consider the actual or potential indirect consequences they may face due to climate change-related regulatory or business trends.
• Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impact of environmental matters on their business. It is not entirely clear what the SEC means by this, although one example might be agricultural risks associate with altered climate trends that appear to have reduced or increased annual rainfall in particular locales.

When the interpretive release is available, we will provide you with full information. It is likely that pressure from shareholder groups on this issue will continue (here, for instance, is CERES' statement), given that cap-and-trade legislation appears bogged down in Congress and that the prospects for EPA regulation under the Clean Air Act are unclear.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last month, I noted with some trepidation that EPA Administrator Jackson had stated that "I don't believe this is an either-or proposition," referring to the possibility that there could be both climate legislation and EPA regulation of GHGs under existing EPA authority. Today, it’s looking more like a neither-nor proposition.

First, with respect to the prospects for climate change legislation, Senator Gregg was quoted in ClimateWire as saying that “the chance of a global warming law passing this year was ‘zero to negative 10 percent.’" Whether Senator Gregg has the odds pegged exactly right, legislation certainly seems less likely than was thought even a month ago, as health care legislation struggles and Scott Brown (R. Mass.) takes office.

At the same time, Senator Murkowski is moving forward with a resolution to disapprove EPA’s endangerment finding, in order to preclude EPA regulation under existing authority. While binding Congressional action to preclude EPA regulation is unlikely, because it would require approval by President Obama, Senate action does not appear out of the question at this point, given that Senator Murkowski has obtained three Democratic co-sponsors of the resolution, Senators Sen. Blanche Lincoln (D-Ark.), Ben Nelson (D-Neb.) and Mary Landrieu (D-La.). A Senate vote in favor might not preclude EPA regulation without House and Presidential concurrence, but it’s hard to see how such a vote wouldn’t be a further black eye for the administration.

The situation certainly seems to warrant ClimateWire’s lede that “Climate chaos reigned on Capitol Hill yesterday.” Unfortunately, as I have noted previously, uncertainty is not really to anyone’s benefit. Does anyone doubt that, in the longer run, there will be some kind of climate regulation in the U.S.? How are regulated entities supposed to do cost-effective planning for such regulation in the face of this kind of uncertainty?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last April, I noted that the one certainty associated with EPA regulation of greenhouse gases under existing Clean Air Act authority was that there would be unintended consequences. If anyone doubted that this would be so, they might want to read some of the comments submitted to EPA in connection with EPA’s proposed Tailoring Rule, which would exempt facilities emitting less than 25,000 tons per year of CO_2e from the PSD provisions of the Clean Air Act after CO_2e becomes a regulated pollutant under the CAA.

Greenwire has a helpful collection of some of the more notable comments. What I found most interesting is that the National Association of Clean Air Agencies, or NACAA, has told EPA that the transition to the new rule will not be as simple as EPA had thought – tough to disagree with that one – and that states will need more time to adapt their own regulations to the new regime. NACAA is thus proposing that EPA determine that CO_2e is a “regulated pollutant,” not when the mobile source rule is promulgated (expected in March 2010), but rather when those regulations take effect in 2011 or as late as January 2012. However, David Bookbinder of the Sierra Club, which has been generally supportive of EPA’s approach to the Tailoring Rule, took the position to Greenwire that EPA does not have the discretion to allow states more time.

Meanwhile, the Center For Biological Diversity, which has pretty much staked out the extreme left in this debate, is still saying that EPA is proposing to take too much time to regulate smaller CO_2e emitters. If anyone thought that EPA could propose a Tailoring Rule that would not be subject to litigation, the likelihood seems to be growing smaller daily.

I still think that, if a climate bill doesn’t pass and EPA regulates GHG under existing CAA authority, it will not be long after the program goes into effect that there will be an audible sound as every stakeholder in the nation slaps its actual or metaphorical forehead and says “Did we really do that?!”

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Shortly before the holidays, EPA Administrator Jackson issued an Order in response to a challenge to a combined Title V / PSD permit issued by the Kentucky Division for Air Quality to an Integrated Gasification Combined Cycle, or IGCC, plant. The Order upheld the challenge, in part, on the ground that neither the permittee nor KDAQ had adequately justified why the BACT analysis for the facility did not include consideration of full-time use of natural gas notwithstanding that the plant is an IGCC facility. 

The Order may not be shocking in today’s environment – all meanings of that word intended – but the lengths to which the Order goes to avoid its own logical consequences shows just what a departure this decision is from established practice concerning BACT. BACT analyses have traditionally involved the proverbial “top-down” look at technologies that can be used to control emissions from a proposed facility. In other words, EPA takes the proposal as a given, and then asks what the best available control technology is for that facility. 

In EPA’s own words – from its New Source Review Workshop Manual (long the Bible for BACT analysis):

Historically, EPA has not considered the BACT requirement as a means to redefine the design of the source when considering available control alternatives. For example, applicants proposing to construct a coal-fired electric generator, have not been required by EPA as part of a BACT analysis to consider building a natural gas-fired electric turbine although the turbine may be inherently less polluting per unit product (in this case electricity).

Apt example, don’t you think? (In case you are wondering, EPA’s decision does not discuss or refer to this text from the NSR Manual.)

What was the basis for EPA’s decision here? Largely, it is that the IGCC facility will be designed to burn natural gas as well as syngas and the permittee specifically stated that it planned to combust natural gas during a 6-12 month startup period. On these facts, EPA concluded that the permittee and KDAQ had to do a better job explaining why full-time use of natural gas should be considered “to redefine the design of the source.”

As noted above, EPA went to great lengths to minimize the scope of the decision. It states that the Order:

should in no way be interpreted as EPA expressing a policy preference for construction of natural-gas fired facilities over IGCC facilities.

should not be interpreted to establish or imply an EPA position that PSD permitting authorities should conclude … that BACT for a proposed electricity generating unit is … natural gas.

does not conclude that it is not possible or permissible for the permit applicant … to develop a rationale which shows that firing exclusively with natural gas would “redefine the source.”

EPA does not intend to discourage applicants that propose to construct an IGCC facility from seeking to hedge the risk of investing in … IGCC technology by proposing … utilizing natural gas for some period….

Methinks EPA doth protest too much. If I may say so, this is a freakin’ IGCC facility. Isn’t it obvious that one doesn’t plan or build an IGCC facility if one plans to burn natural gas? Don’t you think that EPA could have taken administrative notice of what IGCC technology is?

All of EPA’s protestations about the Order’s limits may be designed to mollify IGCC supporters, but what does its rationale mean for all of the existing facilities – coal and oil – that are already capable of firing on natural gas? Next time they are subject to NSR/PSD review, must they evaluate the possibility of switching completely to natural gas? As I’ve said here before, yikes!

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Yesterday, Senators Kerry, Graham, and Lieberman sent to President Obama a “framework” for Senate climate change legislation. The framework is short on details and does not contain many surprises. For example, it proposes “near term” – near team is undefined – reductions of 17% from 2005 levels and “long-term” – also undefined – reductions of 80%. 

The framework is nonetheless noteworthy, particularly for its inclusion of strong support for both the coal and nuclear industries. Senator Kerry was must have loved writing “Additional nuclear power is an essential component of our strategy to reduce greenhouse gas emissions.” And this: “We will commit significant resources to the rapid development and deployment of clean coal technology.”

It is clear from the public statements that the Senators have made what this language really means. The translation is fairly easy, but for those not in the know, here goes:

“Nuclear power is essential” means “We need some Republican votes.”

“We will commit substantial resources to … clean coal” means “We need some coal-state Democratic votes.

If this weren’t so important to the environment and our economy, I might enjoy watching this.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

On Tuesday, District Judge Roger Titus issued an injunction against the construction of the Beech Ridge Energy wind project – 122 wind turbines along 23 miles of Appalachian ridgelines – unless the project can obtain an incidental take permit, or ITP, under the Endangered Species Act. Judge Titus concluded, after a four-day trial, that operation of the turbines would cause a “take” of the endangered Indiana Bat. 

I’m not going to get into the details of the decision, though it certainly does not seem crazy on its face. I am going to go on a rant that there has to be a better way.

Those of us who are old enough to have gotten interested in policy in the 1970s will recall TANSTAAFL – there ain’t no such thing as a free lunch. Appalachian ridgeline turbines kill Indiana Bats. Offshore wind turbines kill sea birds or spoil pristine views. Remember when everyone thought that hydroelectric power was the “clean” energy? Dams kill fish and alter ecosystems. Nuclear power creates long-lasting wastes. I probably don’t need to explain the costs of coal. TANSTAAFL.

Today, people look to solar, and geothermal, and tidal power. I don’t know about you, but while I’m open to persuasion, my default assumption is that geothermal and tidal power could bring changes to complex systems that we really don’t begin to understand. Maybe solar has no environmental costs, but I wouldn’t bet on it. TANSTAAFL.

In a world where everything has costs, we need to find a way to balance those costs to achieve societal objectives. Maybe the harm to the Indiana Bat would be so great that the Beech Ridge Energy project is not worth it. Maybe not. Either way, does anyone think that the ESA provides a mechanism to make that judgment? Of course not; it’s not designed to do so. It’s designed to protect the bats.

We really need an overarching statute that allows the government to assess the unavoidable trade-offs, because there ain’t no such thing as a free lunch, and decide which projects should move forward. Lest my environmentalist friends think that I want to be able to give developers a blank check, I can only say, no, no, no. I’m agnostic on the outcomes, but I’m quite certain that the approach I advocate would only make thorough (which is not to say slow) review under NEPA and related statutes more important. Decision-makers can’t balance the costs and benefits of different projects unless they have a thorough understanding of what those costs and benefits are.

TANSTAAFL.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As anyone not hiding under a rock has by now probably realized, EPA officially announced Monday that it has concluded that GHG from human activity threaten public health and the environment. Since the announcement was not exactly a surprise, the question remains what impact it will have.

In the short run, the timing certainly seems intended to coincide with the Copenhagen talks and help to demonstrate to other nations that the U.S. is taking concrete steps to address climate change. We’ll see shortly how successful the endangerment finding is in that respect.

Since I spend most of my time down in the trenches, I’m more concerned with the impact of the endangerment finding on the domestic front. There are really three fronts here:

Litigation – If there was any suspense regarding whether anyone would challenge the endangerment finding, such suspense was quickly relieved by an announcement from the Competitive Enterprise Institute that it would indeed sue. CEI’s press release stated that the global warming “models are about to sink under the growing weight of evidence that they are fabrications.” Uphill battle barely begins to describe the likelihood that CEI wins that case.

Prospects for Cap-and-Trade Legislation – Notwithstanding Administrator Jackson’s protestations to the contrary, it’s hard not to see the announcement as a further prod to Congress to get moving, particularly since the Administration keeps saying that it would prefer enactment of a cap-and-trade bill. Even so, however, some members of Congress indicated that the announcement would have little impact, because the endangerment finding was expected and thus adds little new.

EPA Development of Regulations – EPA is moving forward with regulatory development, though Administrator Jackson gave no time line for when stationary source regulations would be promulgated. There was an indication that EPA would issue BACT guidance in advance of issuing NSR regulations. Notwithstanding the promise of BACT guidance, it appears that states are not ready for the brave new world of using the NSR program to regulate GHGs. ClimateWire reported that Bill Becker, executive director of the National Association of Clean Air Agencies, believes that states will have hard time getting ready to process stationary source permits by March.

I actually found the biggest take-away from the announcement to be the Administrator’s statement that she wanted EPA regulations that would be complementary to new legislation. "I don't believe this is an either-or proposition," ClimateWire reported her saying. 

Uh-oh. 

I thought that the deal had always been that legislation would substitute for regulation under the existing CAA. Otherwise, what do the administration’s statements that it would prefer legislation to regulation mean?   I’m having difficulty imagining a world with both a cap-and-trade program and NSR regulation of GHGs.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The states participating in the Regional Greenhouse Gas Initiative (RGGI) announced the results of their 6^th quarterly auction, held on December 2^nd, which brought in the lowest prices for carbon dioxide (CO₂) allowances yet. Wednesday’s auction also marks the first time that RGGI allowances offered for sale outnumbered demand. Only 1.6 million of the roughly 2.1 million allowances for the 2012 vintage sold at RGGI’s required price floor of $1.86. Depending on each state’s regulations, these unsold allowances may be sold in future auctions, or a state may choose to retire them.  Although retirement this early in the game is a somewhat remote possibility, it will be interesting to see whether this will have an impact in RGGI's second compliance period, 2012-2015. 

Prices for the nearly 28.6 million 2009 vintage allowances sold fell from the September auction’s clearing price of $2.19 to $2.05, down significantly from June’s clearing price of $3.23. Despite these low prices, the number of participants in the 2009 vintage auction actually increased significantly: 62 entities, compared to 46 who participated in September’s auction. 

In the 2012 vintage offering, however, the quantity of allowances for which bids were submitted decreased 32% from September, resulting in bids for only 74% of the supply of 2012 allowances offered for sale. As in September’s auction, no non-compliance entities (businesses or persons not regulated under RGGI) participated in the 2012 vintage auction.  In comparison, non-compliance entities submitted 38% of the bids for 2012 allowances in the 4^th RGGI auction, back in June. 

The range of bid prices in the 6^th auction, not surprisingly, was also the lowest that RGGI, Inc. has reported. Bid prices for the 2009 vintage allowances ranged from the minimum clearing price of $1.86 to just $5.00, down from a high of $12.00 in the June and September auctions,  while bid prices for the 2012 vintage allowances topped out at $2.41, down significantly from March’s high bid price of $4.40.

As we said after prices fell in September’s auctions, the national (and international) efforts toward developing carbon regulation that would preempt RGGI are likely having an impact on bidders’ perceptions of RGGI’s future. Combined with additional reports that the RGGI allowance pool is over-funded, these low prices are not too surprising, and will likely continue. 

Nonetheless, RGGI is still bringing in a lot of money. The report highlights that the RGGI program has brought in more than $494.4 million over the last 15 months of auctions for investment in a state-specific programs that are targeted to reducing emissions, building the clean energy economy, and saving consumers money. If you’re interested in where the funds are going in your state, check out RGGI’s convenient summary.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

According to a report released last week by Environment America, power plants were responsible for 42% of the CO₂ emitted in the United States in 2007, substantially more than any other sector, including transportation. What’s the explanation? Largely, it’s the age of the United States power plants. The report, based on EPA data, states that 73% of power plant CO₂ emissions came from plants operating since prior to 1980.

What’s the solution to this problem, in the absence of cap-and-trade legislation enacting? EPA’s already told us, and we shouldn’t be surprised – promulgation of EPA’s “Tailoring Rule,” subjecting existing facilities emitting more than 25,000 tons per year of CO_2e to EPA’s New Source Review program.

And what’s the problem with this solution? To a significant degree, it’s that it is the NSR program that got us in this mess in the first place. As my friend Rob Stavins has noted, regulatory programs – such as NSR – that impose different requirements based on the age of a facility, known in the lingo as “vintage-differentiated regulations” or “VDR”, not surprisingly lead to the perverse result that older, more-polluting, facilities stay in service longer than if regulations were imposed in an even-handed manner on different vintages of facilities.  In other words, we have the NSR program to thank for the situation described in the Environment America report.

Can anyone doubt, therefore, that application of NSR rules to GHGs will cause those who own such facilities to try to operate them as long as possible without implementing any “modifications” that would trigger application of NSR? Moreover, can anyone doubt that application of NSR rules to new facilities would give old facilities a further cost advantage? Sure, EPA can try to tighten the NSR rules and continue to pursue NSR enforcement cases in order to discourage existing facilities from disguising “life-extension” projects as routine maintenance. However, it’s still a jury-rigged system at best. After all, the program is called New Source Review for a reason.

I’m just a poor country lawyer, but I still think that a cap-and-trade program is a better solution for all sides. Add a traditional three-pollutant piece to it, trade that for elimination of the NSR program in its entirety, and you’d really have something. 

Still dreaming, I know.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Following my post yesterday about the E.U. construction standards directive, I received the following two emails from my friend and client Lydia Duff.

Given what people until very recently were paying for in their home purchase decisions, and builders were providing -- e. g. Cathedral ceilings, minimal insulation, no double paned windows, huge foot prints and cheap construction -- it seems that rulemaking to impose more energy efficient building prototypes is just what we deserve. Zero will be hard to get to but I think we're a long ways from technical impracticability at this point. 

Why can't they make as much, or more, money selling equally expensive houses, smaller with more meaningful features? Building disposable houses (and hence communities) is obscenely wasteful. Our time horizons for modern construction are so short. We're beginning to turn people from disposable coffee cups; perhaps we'll shift to enduring buildings, rather than architectural and moral hideosities we merely endure.  (Bias note: my house was built in c. 1860)

Will any of my friends in the development community pick up the gauntlet that Lydia has thrown down? (Oh, and my house was built in 1862, and we love it, but I wish it were more energy-efficient.)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I spoke a few weeks ago at a NAIOP event concerning implementation of the Massachusetts Global Warming Solutions Act. During that talk, I described the GWSA as “the future of everything.” Why? Because to achieve even medium-term greenhouse gas emission targets in 2020 or 2030, let alone the 2050 target of an 80% reduction, is going to require significant changes throughout the economy. Even substantial reductions in the power plant or transportation sectors alone are not going to be enough.

Need more evidence? How about this story from yesterday’s Greenwire. The E.U. has reached agreement on a directive that will require almost all large buildings, including large houses, to attain “nearly zero” energy use. Existing buildings will have to improve energy efficiency during any renovations, if feasible. Sounds like a BACT analysis for building renovations.

The directive still must be approved by the European Parliament and then be written into the laws of the individual E.U. countries. However, unless Massey CEO Don Blankenship can convince Al Gore that we are entering a period of global cooling, can there be much doubt that something like this is in our future here as well?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Boston Celtics’ fans know the phrase “fiddlin’ and diddlin.” Well, the Senate continues to fiddle and diddle over climate change legislation. Those who have worked with Gina McCarthy, current EPA air chief, know that she has probably never fiddled or diddled in her life, and I certainly don’t expect her to do so with respect to GHG regulation under existing Clean Air Act authority in the absence of comprehensive legislation. As a result, it now seems likely that EPA will be issuing climate change regulations before any legislation is enacted.

What’s the basis for this conclusion? First, the Senate side:

E&E Daily reported today that Senate leaders are not planning to bring the cap-and-trade bill to the floor until after work on health care and financial regulation bills has been completed.

Senator Webb today “blasted” cap-and-trade legislation as “enormously complex.” (Even with a tailoring rule, good luck eliminating the complexity from EPA regulation under current authority)

So, things aren’t exactly cooking with gas on the legislation front. What’s up at EPA?

Last week, EPA sent the endangerment rule to OMB for final review

EPA’s stakeholder group on the tailoring rule has been hard at work at work and expects to have a preliminary report out by the end of the year. The Daily Environment Report gives a good flavor of the complexities faced by this project, but there is no question that the group and EPA are moving forward.

The bottom line is that unless a health care bill passes soon, and unless passage relieves a bottleneck in the legislative pipeline, we will all be participating in the experiment to see if EPA can make climate change regulation work under existing CAA authority. 

May you live in interesting times.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

My post on the Portland Climate Action Plan has gotten some reaction, which I take as a good thing. For as reasoned a defense of local climate action as is possible in the space of a blog post, take a look at Holly Doremus’s response in Legal Planet, the Law and Environmental Policy Blog. If the Portland plan really were just about filling in the interstices and addressing local issues, I would be more inclined to agree. However, that’s not how I see the plan. We won’t know the details of how the plan will be implemented for some time, but much of it is simply regulatory. Moreover, it’s very likely that those regulations will be of a traditional command and control sort and will indeed duplicate in some way what a federal program is or should be doing.

In any case, thanks for the reaction. Next time, post a comment. If someone hadn’t let me know about your response, I never would have seen it.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Last week, the City of Portland, Oregon (together with Multnomah County) released an updated Climate Action Plan. The Plan presents a number of aggressive goals and targets, with ultimate goals of GHG reductions of 40% by 2030 and 80% by 2050.

The details of the Plan are obviously only relevant to those in the Portland area, but for those anticipating what regulation might look like in California, Massachusetts, and other states that have enacted or will soon enacted some version of a Global Warming Solutions Act, the Plan provides a helpful catalogue of the types of changes that might be sought. Therefore, a quick summary of some of the 2030 goals seems warranted

Reduce energy use from existing buildings by 20%-25%

All new buildings – and homes -- should have zero net GHG emissions. 

Reduce VMT by 30% from 2008 levels

Recover 90% of all waste generated

Reduce consumption of carbon-intensive foods

Expand “urban forest canopy” to cover one-third of Portland

Reduce emissions from City and County operations by 50% from 1990 levels

What’s my take? I have two immediate reactions. First, if any further evidence were needed that attaining significant GHG emission reductions is going to involve major social and economic changes, this is certainly it. 

Second, and perhaps more importantly, this Plan, and others like it, have to constitute a heavy thumb on the side of the scale arguing for comprehensive federal legislation. In the past, I’ve argued that federal legislation would be preferable to a patchwork made up of EPA regulation under existing Clean Air Act authority, public nuisance litigation, and state and regional initiatives. To that list, we can now add comprehensive local regulation. I don’t mean to be too sanguine about the ability of federal legislation to harmonize this entire process; the existing bills would not preempt most state, regional, and local regulations (other than cap-and-trade programs). Nonetheless, delays in federal enactment can only contribute to the proliferation of state, regional, and local programs, some of which may be beneficial, but many of which will be inefficient, contradictory, or both.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

The US Securities and Exchange Commission released a staff bulletin yesterday that reverses a Bush administration policy that excluded shareholder resolutions which asked companies to disclose their climate-related financial exposure. While not the rule-making we discussed last week, this could be a significant change for the boards of large companies who may now be forced to respond to shareholder concerns about the risks that greenhouse gases and climate change can create.

The Bulletin states that going forward, the Corporation Finance Division will no longer automatically allow the exclusion of proposals that deal with the evaluation of risk, but will look at the subject matter giving rise to the risk.  The Division will generally not permit a company to exclude a shareholder proposal that deals with significant policy issues relating to the evaluation of risk.  The Division noted in its decision that risk management and risk oversight can have major impacts not only on the shareholders, but on the company itself, and that application of the Bush administration framework in SLB No. 14C led to unwarranted exclusions.

CERES, which had long lobbied for such a change in the SEC's policies, applauded yesterday’s announcement, concluding that “the guidance strikes the right balance of ensuring that resolutions about critical matters reach company share owners, without opening the floodgates to proposals of more questionable significance.”

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A few weeks ago, we noted EPA’s release of its long-awaited “Tailoring Rule,” specifying how EPA would apply its PSD program under existing Clean Air Act authority to greenhouse gases, once they definitively become a regulated pollutant under the CAA some time next spring. Today, the proposed rule was published in the Federal Register. Comments are due December 28.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Chairman's Mark of the Clean Energy Jobs and American Power Act (S. 1733), released late Friday night by Senate Environment & Public Works Committee Chair Barbara Boxer, fills in some of the details left out of the earlier-introduced Boxer-Kerry bill, notably identifying which sectors will get CO₂ allowances allocated to them for free. The bill largely follows the lead of the House-passed ACES, and in some areas uses identical language. For instance, as in ACES, the largest share of allowances (30%) is allocated to state-regulated local electric-distribution companies, who are instructed to use any revenue from the allowances to protect consumers from electricity price increases.

The precise allocation numbers are sure to be a source of debate as the negotiations move forward through the remaining 5 committees and individual Senators negotiate for their states’ interests to be met in the bill. But do the allocation numbers actually matter? A recent post by Harvard Professor Robert Stavins makes the case that once the decision has been made to allocate a set number of allowances for free, to whom they are assigned does not have a significant impact on the environment performance of the cap and trade regime or on the overall social costs imposed by the regulatory system.

That's why it is significant that one of the largest differences between the Chairman's Mark of the Senate Bill and ACES is how many allowances will not be allocated for free.  The size of the pot of allowances in the Senate bill to be set aside for the Treasury Department's use for deficit reduction rises from 10% in 2012 to a high of 25% between 2040 and 2050.  In comparison, the House bill earmarks for the Treasury Department only those allowances which are not already freely allocated or auctioned, a piece which falls to 1% by 2014.  The set of allowances marked for direct sale at auction is also larger in the Senate bill -- 15% of all allowances will be auctioned each year through 2029, rising to 18.5% in later years.  As in ACES, one of the key uses for the auction revenues are direct rebates to consumers to help them deal with higher energy bills.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Waxman-Markey. Boxer-Kerry. Public nuisance litigation. EPA regulation under existing authority. What’s next in the arsenal of weapons against climate change? How about including climate change impacts in reviews under NEPA?

In February 2008, the International Center for Technology Assessment, the Natural Resources Defense Council, and the Sierra Club petitioned the CEQ to “clarify” its regulations to require the assessment of potential climate change impacts in environmental reviews performed under NEPA. CEQ has not yet formally responded to the petition, but that hasn’t stopped noted environmentalist Senator James Inhofe (R. Okla.) from weighing in preemptively. Calling NEPA a “bedrock environmental statute,” Senator Inhofe has informed Nancy Sutley, CEQ Chairwoman, that NEPA “is not an appropriate tool to set global climate change policy.” It’s not obvious to me why a bedrock environmental statute shouldn’t be used to address the impacts of climate change.

In any case, whether Senator Inhofe is correct or not, it seems likely that CEQ will eventually take some action, whether by guidance or regulation, to require inclusion of climate change assessments into NEPA reviews. Moreover, this is yet another area of climate change policy in which the federal government will be following the laboratories of democracy, the states, rather than leading. As we have previously reported, a number of states, including California, Massachusetts, and New York, already require GHG assessments in reviews under their state NEPA analogues.

Going forward, those planning large projects, whether the projects are public or private and whether they are state or federal, should expect to have to assess the climate change impacts, including whether alternatives to the project are available that would have reduced climate change impacts.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The U.S. Securities and Exchange Commission is re-examining its rules regarding whether companies should or must disclose climate change related risks. According to an article in ClimateWire, revisions could be issued by the end of October. On Friday, SEC Commissioner Elisse Walter said that SEC staff are working on preparing recommendations, and two options are still on the table. One option is a rule-making that would set specific rules for disclosing climate risks. The other would be a re-interpretation of Form 10-K disclosure rules to require companies to disclose and comment on operations tied in with mitigating climate-change risks.

These changes likely result from frequent criticism by shareholder groups that companies are ducking requirements under the current SEC rules to disclose the climate-related liabilities they face from greenhouse gas emissions, including emerging regulations, rising commodity prices, potential for property damage and long-term costs associated with replacing equipment and infrastructure after climate-related risks take their toll. Spurred on by shareholder initiatives and corporate social responsibility programs, a number of businesses have already started to voluntarily report their climate risks and disclose information on potential financial impacts. But, as stated in the Investor Network on Climate Risk's most recent letter to the SEC on this issue, climate risk disclosures in SEC filings still remain relatively rare. A June 2009 survey by INCR and CERES found that only two of 100 companies in the oil and gas, electric power, coal, insurance and transportation sectors disclosed more than half of the climate-related information sought by investors in their Q1 2008 reports. Changes to the SEC rules could make such reporting a requirement.

Even with forthcoming changes to the rules, the SEC's Walter urged companies not to wait for the SEC to act. As ClimateWire reported, "People should be looking at their own particular facts and circumstances," Walter said. "For example, if you're operating a plant in an area where there's drought, and there are serious water needs, and you don't know if you can satisfy them, costs will triple. That would be one example."
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Two more decisions were released last week concerning whether nuisance claims could be brought with respect to harm alleged to have resulted from private conduct contributing to climate change. First, in Village of Kivalina v. ExxonMobil Corporation, the District Court dismissed nuisance claims. Second, in Comer v. Murphy Oil, the Fifth Circuit Court of Appeals reversed a District Court dismissal of nuisance claims related to damage resulting from Hurricane Katrina.

Village of Kivalina first. In this case, an Inupiat Eskimo village claimed that global climate change traceable to the defendants has essentially made their village uninhabitable. Notably and, I think, shrewdly, they did not seek injunctive relief, but sought only damages related to the cost of relocating the village. The District Court concluded both that the law suit raised non-justiciable political questions and that the plaintiffs did not have standing, because their harm was not fairly traceable to the defendants’ conduct.

The Fifth Circuit wasn’t buying either of these arguments in Comer v. Murphy Oil. To the Fifth Circuit, like the Second, in the American Electric Power case, the complexity of the underlying proof is not sufficient to render these types of cases non-justiciable. The cases involve tort claims; courts resolve tort claims – pretty much, end of story. I’ve got to say, from my lowly perch, that I think that the Second and Fifth Circuits got it right here. It’s easy to say that it would be better for Congress to deal with climate change than state legislatures or, as here, courts. However, that’s not that same as courts declining to exercise jurisdiction. I’d be surprised if the political question argument  has any real legs.

Standing is a different matter. I still think that both the traceability and redressability elements of standing are problematic. Plaintiffs in both Village of Kivalina and Comer v. Murphy Oil solved the redressability issue by seeking only damages, and not injunctive relief. Both the Second and Fifth Circuits noted that traceability, as a standing issue, necessitates only that the plaintiffs allege that the defendants’ conduct “contributes to” the plaintiffs’ injuries. This is not a stringent test. However, in light of the recent Supreme Court decision in Ashcroft v. Iqbal, I could imagine some courts looking askance at the types of allegations made in these complaints, even at a pleading stage.

On balance, what these cases tell me is that some of these cases are actually likely to be litigated all the way through to trial. Notwithstanding the potentially huge recoveries, it seems here that the cost to the defendants of paying out anything more than nominal damages would be high, and the prospects of successful defense of these claims are still reasonably good. That’s a recipe for trial, as far as I can tell.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

New York Governor Patterson last week announced a plan to divert $90 million in funds raised from New York’s share of RGGI auctions to deficit reduction. The reaction was not positive from environmental NGOs, who are understandably concerned about the “precedent-setting nature of this move.”

It shouldn’t really be surprising in these times of fiscal challenge for state governments. It’s no different than what happened with the diversion of money from tobacco settlements away from smoking prevention programs to deficit reduction.

The interesting questions will be whether other states follow New York’s lead and whether this has any effect on the debate in Congress regarding preemption of state and regional trading programs in the context of a federal cap-and-trade program.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Environment & Public Works Chairwoman Barbara Boxer (D-CA) announced Tuesday that committee hearings on the Boxer-Kerry climate bill, S. 1733, will begin on October 27 and that a mark-up will be planned for early to mid-November. Meanwhile, the Energy and Natural Resources Committee is continuing its hearings on emission allocations, with the next hearing scheduled for Oct. 21.

After announcing the hearing, Boxer said she would try to win over all of the Environment & Public Works Committee Democrats, including coal-state Senators Max Baucus (D-MT) and Arlen Specter (D-PA).  Boxer said she does not expect to secure any Republican votes. She plans to release a modified version of the Boxer-Kerry bill before the legislative hearings begin, with only a handful of "tweaks" compared to the version unveiled last month.

This aggressive timetable might be enough to have a bill in hand before the Copenhagen discussion in December, a goal the White House is pressing very hard to meet.

One change that would be more than a tweak would be a boost to nuclear energy. The Boxer-Kerry bill has a modest nuclear title focused on worker training and research into waste management technologies.  But the bipartisan blueprint for a comprehensive energy and global warming bill that Sens. John Kerry (D-MA) and Lindsey Graham (R-SC) spelled out in their joint op-ed in the New York Times Sunday calls for additional incentives for nuclear power, stating that “nuclear power needs to be a core component of electricity generation if we are to meet our emission reduction targets.”   In the op-ed, Kerry and Graham called for a streamlined permit system that maintains vigorous safeguards while allowing utilities to secure financing for more plants.  As E&E reports, Tom Carper (D-Del) yesterday called for a nuclear energy amendment that could help bring aboard swing votes who support the industry, such as Senators Joe Lieberman (I-Conn.), John McCain (R-Ariz.) and Graham, who are seeking more federal financial backing and other support. Carper’s plan involves more funding to the Nuclear Regulatory Commission, rather than a focus on streamlining.

As notable as this change would be, one problem with basing a consensus for the climate bill on nuclear power is that it's nuclear. Puns aside, opinions run strong on the issue of nuclear power, particularly among the environmental lobby, and too much emphasis might lose more votes than it picks up.  With only a few legislative weeks left before the end of the year, it will be interesting to see if the fast-paced timetable holds, and whether a consensus can be built in time.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On Thursday, EPA issued its long-awaited proposed rule describing how thresholds would be set for regulation of GHG sources under the existing Clean Air Act PSD authority. Having waded through the 416-page proposal, I’m torn between the appropriate Shakespeare quotes to describe it: “Much ado about nothing” or “Methinks thou dost protest too much.”

First, notwithstanding its length, the proposal is quite limited in scope. In essence, it has three parts:

Establishment of an applicability threshold for PSD and Title V purposes of 25,000 tons per year of CO₂e.

Establishment of a PSD significance level of from 10,000 tpy CO₂e and 25,000 CO₂e.

Development over the next five years of means to streamline GHG regulation of sources greater than the current statutory levels of 100-250 tpy.

Basically, EPA’s position is that, once it begins to regulate GHGs as a pollutant by promulgating its mobile source rule – expected next spring – stationary source regulation under the PSD and Title V programs follow automatically. Thus, the issue for EPA at this point is not whether to regulate stationary sources, but how to do so without the entire program grinding to a halt.

Here’s where the protestation comes in. Most of the proposal is devoted to explaining EPA’s reliance of the doctrines of “absurd results” and “administrative necessity” to justify exclusion of sources that would seem to be categorically included by the explicit language of the statute. Members of the regulated community will understand the irony in EPA’s extensive discussion regarding how the purpose of the PSD program is to achieve environmental protection and economic development – and that this latter purpose would be jeopardized by regulation of sources at the 100/250 tpy threshold. I don’t think we will ever again see EPA devote this many pages to a description of its concern about economic growth.

I’m not going to predict here whether EPA will win any challenge to the higher thresholds. Certainly, the absurd results doctrine argument is the stronger of the two. It is noteworthy that the four leading environmental cases EPA cites in support of its administrative necessity argument, while acknowledging the existence of the doctrine, all went against EPA.

More relevant still is the question of who would in fact challenge this regulation and what would be the result even if the challenge succeeded. Following the debacle that resulted from vacation of the CAIR rule, what is the likelihood that a successful challenge would result in vacation of the rule in its entirety? Isn’t it more likely that the rule would stay in effect as to the large sources, with the court remanding the case to EPA to promulgate rules governing smaller sources? In fact, that’s what EPA is already doing, which is probably EPA’s strongest practical argument in support of the rule.

Public comments will be due 60 days from Federal Register promulgation and there are some issues that the regulated community should consider. These include the significance threshold, and suggestions regarding how to streamline the program for smaller sources. EPA has proposed some interesting ideas, including presumptive BACT determinations and general permits. 

Bottom line? Large sources better get ready to comply. Smaller sources, take a deep breath and count your blessings – for now. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

According to an article by BNA published this morning, EPA may soon act to apply the prevention of significant deterioration (PSD) provisions of the Clean Air Act to facilities that emit more than 25,000 tons of carbon dioxide annually.  Presumably, EPA's action is either an effort to exert leverage on Congress to pass pending climate change legislation or to ensure that GHG are regulated in the event that legislation doesn't pass -- or both.  

Under the Clean Air Act, PSD applies to major new sources, which are defined by their emissions level -- for pollutants in identified industrial sources categories, the threshold is 100 tons per year, while for others it is 250 tons per year.  Assuming that EPA moves forward with its its proposed endangerment finding, the default assumption (and the doomsday scenario presented by the Chamber of Commerce) would be that all GHG sources greater than 250 tons or 100 tons, depending on the source, would be subject to PSD regulations.

As an example, per the General Reporting Protocol's conversion factors, burning only 265.3 tons of coal or 1,173 barrels of fuel oil would produce 250 tons of CO₂.  However, the 25,000 ton threshold is the same used by the EPA in the endangerment finding and its proposed mandatory reporting regulations, so seems likely to be applied here as well.

As we previously noted, the EPA's official current position on this point is still the memorandum issued December 18th by former EPA Administrator Stephen Johnson, which said that since CO₂ is not a regulated pollutant under the Clean Air Act, PSD does not apply.  However, current EPA Administrator Lisa Jackson issued a letter on February 17 stating that the agency will reconsider this position. 

As noted in the BNA article, there is reason to question EPA's authority to exempt small GHG sources from PSD requirements once GHG are found to be pollutants which endanger public health and the environment.  Moreover, EPA's record in defending creative interpretations of the Clean Air Act -- even where they are generally supported, such as in the CAIR regulations -- has not been sterling.  

The entire debate is likely to get messier before it is resolved. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 Comprehensive Energy and Climate legislation is moving along through the Senate, and could come to a floor vote by October. Six Senate committees – Agriculture, Commerce, Energy & Natural Resources, Environment & Public Works, Finance and Foreign Relations -- have jurisdiction over portions of the bill, a tactic that Senate leadership hopes will give a number of influential, but as yet undecided, Senators input and a stake in the bill’s passage. Chair of the Environment and Public Works Committee Barbara Boxer (D-CA) will go first with a draft, and plans to unveil her climate bill September 8^th, following the Senate’s return from summer recess. As Greenwire reported, Senate Majority Leader Harry Reid (D-NV) hopes to do work out as many problems as possible before bringing the bill to the floor, but is still shooting for a vote as early as October.

So what’s going to be in the bill? A lot of what was in ACES, for one. Greenwire reports Chairwoman Boxer as saying that "the Waxman-Markey bill is the mark we're working off to write our bill. I would say tweaks are more of what you're going to see than major changes." 

But Senate Finance Committee Chairman Max Baucus (D-MT), who is also a member of the Environment & Public Works Committee, could be a roadblock to passage of the bill. Baucus has increased his climate, energy and trade staff, bringing as many as 10 aides into various meetings on the legislation, and said he plans to mark up climate provisions dealing with emissions allocations and trade. It is not yet clear if his Finance Committee will schedule a markup before the Environment & Public Works Committee, or whether Baucus will wait until after EPW reports out a bill. Either way, Baucus will play a critical role as the most senior Democrat on Boxer's committee and a leading centrist Democrat with a voice that carries tremendous weight in the leadership ranks. 

Members of the Senate Agriculture Committee will also play a key role in shaping the bill. The Committee plans to hold hearings to explore the role for agriculture and forestry in climate change legislation. Two major farm groups on opposing sides of the debate, as well as senior Obama Administration officials will all testify at the hearing. Agriculture Committee Chairman Harkin (D-Iowa) noted today that one of the provisions he would like to see changed is the allocation of allowances to the utility sector based on both historic emission levels and retail sales – a compromise that the Edison Electric Institute focused on including in the House bill.  

Meanwhile More liberal members such as Sens. Sheldon Whitehouse (D-RI), Bernie Sanders (I-VT), and Frank Lautenberg (D-NJ) are pushing for tighter emissions limits than the 17% target included in the House-passed bill. 

Ultimately, compromise is likely to be the name of the game, just as it was in the House. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As most readers know, Massachusetts and California have been leading the pack in requiring analysis of greenhouse gas impacts in connection with reviews of new development. Now, New York State is catching up. This week, the Department of Environmental Conservation, or DEC, released its Policy on Assessing Energy Use and Greenhouse Gas Emissions in Environmental Impact Statements. The policy is certainly similar to the Massachusetts Greenhouse Gas Emissions Policy and Protocol. Nonetheless, the DEC Policy has a few items worth noting.

DEC has provided that, with respect to indirect GHG emissions from: (1) off-site energy generation and (2) vehicle trips, a project proponent may avoid the need to provide a quantitative analysis of these issues if he/she can demonstrate to DEC that the project already “has minimized emissions to the maximum extent practicable.” This opt-out is similar to one provided in the Massachusetts GHG policy, except that the MA policy requires that the developer commit in advance to GHG reductions that are variously described as “exceptional” and “extraordinary.”

The DEC Policy includes specific provisions governing assessment of methane emissions from landfills. It requires use of site specific information, together with EPA’s Climate Leaders Greenhouse Gas Inventory Protocol, Direct Emissions from Municipal Solid Waste Landfilling module (October 2004).

Even aside from the provisions addressing landfill emissions, the Policy requires an assessment of emissions from waste generation and management. This is not required by the MA policy.

Like Massachusetts, the DEC Policy requires that “priority and preference” be given to on-site mitigation measures. Off-site mitigation can be considered, but only after DEC staff have considered the “completeness” of on-site mitigation.

There is no doubt that requiring an assessment of the GHG impacts of new development is a trend at this point – and one that is only going to accelerate. As federal legislation or regulation under existing CAA authority becomes a reality, and as more states start to pass their own version of a Global Warming Solutions Act, as California and Massachusetts have already done, squeezing the maximum GHG reductions out of new development is going to become an imperative. At some point, GHG review may become similar to offset programs in non-attainment areas. New developments are going to have to be as efficient as possible – and may also have to purchase offsets to make such new developments climate neutral.  

Time will tell, but it’s often much easier to go after new development than to try to squeeze emissions reductions out of existing facilities. The result is that increasingly stringent mitigation requirements seem inevitable.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Earlier this week, the Georgia Court of Appeals reversed a decision of the Superior Court in Georgia that would have required Longleaf Energy Associates, developer of a coal-fired power plant, to perform a BACT analysis of CO₂ emissions control technologies in order to obtain an air quality permit for construction of the plant. The case is a reprise of the Deseret Power case regarding a coal-fired plant in Utah.

The court in Longleaf Energy concluded that CO₂ is not yet a regulated pollutant under the CAA, and thus that no BACT analysis is required. There were several bases for this conclusion:

The “Johnson Memo,” issued in response to Deseret Power, has not been withdrawn by EPA, though it is under reconsideration. Even EPA’s proposed endangerment finding for CO₂ noted that such a finding would not make CO₂ a regulated pollutant under the CAA.

As discussed in the Johnson Memo, neither the CAA nor any existing EPA regulations impose emissions limitations on CO₂.

Such a finding would “preempt” Congressional and EPA decision-making on the issue and impose standards in Georgia to which facilities outside of Georgia would not be subject.

The Longleaf Energy decision is a perfectly reasonable interpretation of the CAA – but it’s not the only plausible interpretation. I mention this in order to highlight a point I have made previously. As members of Congress and stakeholders consider the costs and benefits of federal climate change legislation, they have to consider the alternative. Most people, including me, have framed the question as a comparison of the legislative option with regulation by EPA under existing authority. This is largely correct, but misses two points. First, it’s going to take EPA some time to promulgate regulations. In the meantime, there will be more Deseret Power and Longleaf Energy decisions and there is no reason to be confident that such decisions will be consistent or even reconcilable. Second, even after EPA issues regulations, the Longleaf case gives me pause as to whether such regulations would be effective in creating any kind of uniform national interpretation of these issues.

There is just no question that, in the absence of federal legislation, the resulting patchwork of regulations and federal and state decisions concerning the regulation of CO₂ and other GHGs is going to be a big mess.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Massachusetts Department of Environmental Protection (DEP) yesterday published a final amendment to the first set of Global Warming Solutions Act regulations, 310 CMR 7.71.  These regulations set a baseline for Massachusetts' 1990 emissions and create a reporting system that will track emissions going forward, providing a framework for economy-wide reductions of 10% to 25% by 2020 and 80% by 2050.  The regulations are the first phase of implementation of the Global Warming Solutions Act, passed last August, which, at the time, called for the largest cuts in greenhouse gas reductions seen in the nation.

In short, the reporting regulations require any facility that emitted more than 5,000 short tons of CO₂ equivalents from stationary sources (whether from fossil fuel combustion or biofuels), and any facility that is required to have an air permit under Title V of the Clean Air Act to report annually its greenhouse gas emissions.  The regulations begin with reporting 2009 emissions of CO₂ from the combustion of fuels, and ramp up in 2010 to require reporting of emissions for all six greenhouse gasses (CO₂, methane, nitrous oxide, chlorofluorocarbons, per fluorocarbons, and sulfur hexafluoride), whether or not they were produced by the combustion of fuels. Most reporting entities will also have to report emissions from vehicles (both off-road and on) that are owned or leased by the company and used in support of a facility.  As DEP provided in its response to comments, this could include cars given to executives for commuting.  

The final regulations make substantial changes from the emergency regulations, issued in December, 2008.   Among them, reporters must certify their emissions and have independent third-party verification of emissions every three years.  Also notable is the provision that requires every retail seller of electricity in Massachusetts to report the megawatt hours it sold the previous year and the greenhouse gas emissions that are associated with that power.  To calculate the emissions, DEP will create four emissions factors every year -- one based on fossil fuel-powered generators in Massachusetts, one based on biofuel-powered generators in Massachusetts, and two that are based on New England-wide emissions.

Now that the 1990 baseline has been officially set at 94 million metric tons, DEP must next establish a firm target for reductions of between 10% and 25% below that baseline to be reached by 2020, and issue an economy-wide plan to achieve that target by January 2011.   DEP estimates that 300 facilities in Massachusetts will report their emissions under 310 CMR 7.71.  It will be interesting to see the percentage of the reduction the Commonwealth will call upon those 300 entities to achieve.  If the Commonwealth looks solely to those entities to achieve the reductions, then there will surely be complaints about both fairness and efficiency.  If the Commonwealth looks beyond the 300, then there will be questions as to how compliance will ultimately be monitored. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 The House of Representatives narrowly passed H.R. 2454, the American Clean Energy and Security Act of 2009 by a vote of 219-212 on Friday, June 26.  The bill, the first piece of major legislation on global warming that has passed either house of Congress, is 1,428 pages long, and includes 5 titles covering everything from renewable energy and efficiency to adaptation and transitioning to a clean energy economy.  While it retains many key concepts from the draft introduced by Representatives Henry Waxman and Edward Markey, some of revisions and additions that ensured its passage were significant and have generated controversy as the sponsors made certain compromises in order to reach a majority. 

Attention now turns to the Senate, which, according to statements by key committee members and Obama Administration officials, will likely not reach a vote on global warming legislation until this fall, at the earliest.  Should the Bill fail to pass in the Senate, greenhouse gas emissions may still be regulated through other methods, such as state and regional climate change initiatives and possibly direct regulation by the EPA through the Clean Air Act, under its endangerment finding.

For more details on the bill and an in depth analysis of the Cap-and-Trade title, please take a look at our recent client alert. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In the category of dog bites man, EPA today announced it was granting the State of California a waiver that will allow California to regulate greenhouse gas emissions from motor vehicles. The granting of the waiver was expected after Obama’s election and became pretty much inevitable after the administration announced in February that it was reconsidering the waiver request.

Substantively, it is not clear that the waiver matters that much, given the announcement on May 19 of the “grand bargain” among California, the federal government, and automakers to improve fuel economy nationwide. The real significance of today’s notice is that it is further evidence of a coordinated national strategy by the administration to address climate change. Although the administration has not yet finalized its endangerment finding with respect to GHGs, EPA’s notice today stated in part that California had a need to regulate GHG due to “compelling and extraordinary conditions”  resulting from the cumulative impacts of GHG on California and the US as a whole. Sounds like endangerment to me.

In other words, in light of the close vote in the House on the Waxman-Markey bill, interest groups on both sides of the bill should keep in mind their BATNA – one acronym that has stuck with me in 25 years since the Kennedy School – their best alternative to a negotiated agreement.  If there isn’t a bill, is there any doubt at this point that EPA will regulate GHGs on the basis of existing authority? Furthermore, is there any doubt that such regulations would be uglier, messier, more complicated, and less efficient than whatever might come out of Congress?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

At the fourth auction of CO₂ allowances under the Regional Greenhouse Gas Initiative (RGGI) on June 17, participation was certified as robust by market monitor Potomac Economics, but auction prices decreased. Last week’s clearing price for 2009 vintage CO₂ allowances was $3.23 per allowance, only slightly above the clearing price of $3.07 at RGGI's initial auction in September 2008, and below March’s clearing price of $3.51.  The 2.1 million 2012 vintage allowances offered for sale in last week’s action sold for $2.06, almost one-third below the $3.05 price that they earned at the March auction, which was the first at which these later vintage allowances were offered for sale.  

RGGI, Inc. has released the range of bid prices from the fourth auction, allowing some insight into how CO₂ is valued by the players in these auctions.  Bid prices for the 2009 vintage allowances ranged from $1.86 (the minimum clearing price) to $12.00, up $2 from the maximum bid in the March auction, while bids for the 2012 vintage allowances ranged from $1.86 to $3.84, down from March’s high bid price of $4.40. Participation in the 2009 vintage offering remained high at 54 entities, while participation in the 2012 vintage auction was down from March’s 20 entities to only 13.

Interestingly, the share of non-compliance entities (persons not regulated under RGGI) who participated in the 2012 vintage auction rose this time, with only 62% of the bids submitted in that auction coming from compliance entities (power plants regulated under RGGI).  Even so, regulated generators and their affiliates continued the trend from previous auctions of winning the vast majority of the allowances – 85% of 2009 allowances and 81% of 2012.

The difference in the clearing price for the 2009 vintage and the 2012 vintage is not surprising. RGGI allowances may be banked without limitation and used in future years, making the 2009 allowances more valuable than later vintages.  What is notable is the drop in both participation in the 2012 vintage allowance and the clearing price (nearly 33% less than it was only 3 months ago). It seems that many market participants are uncertain about the value of the 2012 allowances, given the possibility that RGGI may be replaced by a national cap-and-trade program whose provisions are not yet known. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Thinking about how to take advantage of funding for energy efficiency retrofits from the federal stimulus package, state-level programs like Massachusetts’ Green Communities Act, or even utility-funded programs?  You should also think about whether your actions will create another income stream – offsets under the Regional Greenhouse Gas Initiative (RGGI) – and whether taking funds will prohibit the creation of offsets when the project is finished.

RGGI, Inc. this week released model applications for offset projects which could create interesting incentives if implemented by each of the RGGI states. Unlike some of the offset provisions proposed under ACES, all of the RGGI offset categories are outside of the electric generation sector that RGGI regulates. The 5 categories of emission reductions that are eligible for offsets in RGGI include landfill methane capture and destruction; reductions in sulfur hexafluoride in the electricity transmission and distribution sector; sequestration of carbon due to afforestation; avoided methane emissions from agricultural manure management, and, most interestingly, reductions or avoidance in CO₂ emissions from natural gas, oil or propane in residential or commercial facilities due to energy efficiency in the building sector. 

RGGI has a notoriously strict stance on additionality which certainly shows in the application for energy efficiency offsets. To qualify, the applicant must certify that the project did not receive any funding or incentives from any state run programs or programs funded with RGGI auction proceeds. Given that a large portion of the money from RGGI auctions is being directed by the states toward energy efficiency improvements, being able to provide this certification may be difficult. The application also notes that any renewable portfolio standard (RPS) attributes generated by the offset project must be transferred to the state regulatory agency, rather than sold separately. 

Energy efficiency projects that can qualify for offsets are not necessarily complex. The types of energy efficiency projects that can qualify for offsets include:

• Improvements in the energy efficiency of combustion equipment that provides space heating and hot water, including a reduction in fossil fuel consumption through the use of solar and geothermal energy
• Improvements in the efficiency of heating distribution systems, including proper sizing
• Installation or improvement of energy management systems
• Improvement in the efficiency of hot water distribution systems, including reduction in demand for hot water
• Measures that improve the thermal performance of the building and reduce the building envelope air leakage
• Measures that improve the passive solar performance of buildings or utilize active heating systems using renewable energy
• Fuel switching to a less carbon-intensive fuel in combustion systems, including the use of liquid or gaseous eligible biomass (but not conversions to electricity).
  

On the other hand, the projects must achieve very high efficiency gains to qualify. Whole-building energy projects must be 30% above ASHRAE 90.1-2004 standards, and retrofit projects that commenced after January 1, 2009 must show that the energy conservation method they employ has a market penetration rate of less than 5%, although the market or class of buildings can be defined by the applicant. In addition, the baseline from which reductions in CO₂ are measured is based on a combination of the current building code and the actual equipment to be replaced, so not all of the gains from retrofits can be certified as offsets. 

If your summer home improvement efforts this year include upgrading to a state-of-the-art boiler, you didn’t take RGGI funds from the state to do so, and you are persistent enough to endure certification and verification of the reductions, you could qualify for up to 10 years of offset credits to sell to electric generators in the 10-state region. It is certainly something to think about.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

According to a quote from House Energy and Commerce Chairman Henry Waxman in an E&E article this morning, the Waxman-Markey bill could reach a floor vote inside of 3 weeks.  Speaker Pelosi had set a deadline of next Friday, June 19, for the 8 House Committees still evaluating HR 2454 to conclude their review, but has not indicated when Democrats will bring the legislation to the House floor.  Waxman said yesterday that he wants debate to begin on June 22 and the bill to go to a vote before the July Fourth recess -- "I think the speaker and the majority leader and the administration agree with that timing, and we're going to do all we can to stick to it because after we come back from the July Fourth recess, it is health care for the rest of the month."

The tension in scheduling the Administration's dual priorities of energy and health care seems to be an issue.  Ways & Means Chairman Charles Rangel reported that in the Democratic committee members' meeting with the President this week , the President did not give lawmakers a specific deadline for sending him a climate bill -- a marked contrast with the firm deadline for health care legislation.  Rangel told reporters that in order to concentrate on both climate and health care, the Ways & Means Committee might skip markup of the climate bill and instead work out their concerns with Chairman Waxman before a floor vote or during floor vote, via amendments.

What the bill will look like when when it reaches the floor is still under discussion.  One committee expected to offer substantial amendments on hot-button issues like biofuels and offsets is the House Agriculture Committee.   While the offsets debate may be even more heated than that for the allocation of credits, biofuels may be the first amendment offered.  As Climate Wire reported Wednesday, House Agriculture Committee members are considering a legislative fix for EPA's proposed regulation of biofuels.  At EPA's public hearing on the recent proposal, which involves the requirement of a 100-year long lifecycle analysis for biofuels international impact, testimony from both biofuel advocates and environmentalists urged changes.  Particularly since the lifecycle emissions of petroleum production are not evaluated in the same way, calculation of biofuels' carbon footprints will have a huge impact on whether the Congressional mandate to ramp up biofuel use to 36 billion gallons a year by 2022 can be met. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For those of you looking for a cogent and concise economic analysis of the current debate regarding the distribution of allowances in the Waxman-Markey bill, take a look at this post from Rob Stavins.  Rob makes several important points, but I think that two are most fundamental.  First, with some caveats, how allowances are distributed does not affect the environmental results attained by the program.  Second, the allocation proposed in the Waxman-Markey bill is by no means a “give-away” to industrial interests. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As highlighted in yesterday's issue of Greenwire, one of the controversial aspects of the  American Clean Energy and Security Act (ACES) passed by the House Energy & Commerce Committee last night is that 35% of the allocated allowances created in the cap-and-trade program will go for free to the electric power industry.  30% will go to Local Distribution Companies, or LDCs, traditional regulated utilities who sell power directly to consumers, and 5% will be allocated to independent merchant energy generators that sell power to wholesale power markets, primarily in the Northeast, Great Lakes, California and Texas.

Not surprisingly, the allocation between LDCs and merchant generators is the subject of substantial political infighting. Merchant generators own 40% of the nation's generating capacity, but as Greenwire reports, the National Association of Regulatory Utility Commissioners, which represents the LDCs, is campaigning to knock out any share of allowances for merchant generation.  

Following an amendment to ACES that passed Committee yesterday, the emission allowances given to local distribution companies must be used exclusively for the protection of retail ratepayers against rising electricity rates.  In other words, utilities have to pass on the savings from their 30% of allocated allowances to their customers.  Not so for the allowances given to merchant generators, who sell power into the grid, rather than directly to consumers.  Their 5% share could apparently be worth $2.7 billion to $5.5 billion a year, depending on how high the price of carbon allowances are in the program's first years. 

The 5% allocation to merchant generators is seen as necessary to obtain support from House members from Texas and the Midwest who represent a number of coal-fired merchant generators.  Such votes could be critical in a House floor vote, which is the next hurdle for ACES.

Even though ACES was voted out of the Energy and Commerce Committee last night, the allocation debate is not necessarily finished.  Chairman Waxman said he would accommodate Republican requests to have at least one more day of additional hearing testimony over the distribution of emission allowances next month. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Apparently in an effort to demonstrate to Congress that coal states also support greenhouse gas regulation, the Midwestern Greenhouse Gas Reduction Accord last week released draft design recommendations for a GHG program. Several facets of this announcement are interesting:

1.                   The Waxman-Markey bill would basically preclude the MGGRA from implementing its program.

2.                   If the point of the effort is to demonstrate to Congress that coal states indeed do support GHG regulation, they might be more successful if they had managed to bring Indiana and Ohio into the fold.

3.                   The program as tentatively proposed would include a cap-and-tax approach, in which, like other cap-and-trade models, GHG emitters would need allowances for each ton of CO_2e that they emit. However, they would also have to pay a fee, suggested to be in the range of $2-$4/ton of CO_2e, for each allowance.

It’s difficult to imagine the MGGRA approach going anywhere at this point, but I don’t want to be too dismissive. Like potential EPA regulation under existing CAA authority, the threat of yet another regional program has to add to the weight of issues pushing fence-sitting members of Congress towards a willingness to support a federal program.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Congressmen Waxman and Markey today released their proposal for allocating allowances under a cap-and-trade program. At least 15 different categories of entities will receive a piece of the allowance pie. Here’s the list:

Local Distribution Companies –                           30%

Merchant Coal and PPAs –                                      5%    

Natural Gas Distribution Companies –                   9%

States (for home heating oil users) –                     1.5%

Low/moderate income households –                   15%

Energy intensive / trade-exposed industries –    15%

Domestic oil refiners –                                          2%                                                     

Carbon capture / sequestration –                          2%    

Renewable Energy / energy efficiency –             10%

Advanced automobile technology –                       3%

Research and development –                                1%

Tropical deforestation / offsets –                         5%

Domestic adaption –                                             2%

International adaptation/technology transfer –    2%

Worker assistance / job training –                        0.5%

If you think that this adds to more than 100%, you are correct, though it is also true that these numbers vary over time. Most significantly, the first four items above would phase out in the period from 2026.

What’s notable here? The total amount of allowances allocated to LDCs and merchant generators is about what was expected, but of that 35%, the merchant generators may have expected to get more than they did.  We’ll see how the coal industry responds to this proposal. 

The phase-out period is almost certainly more generous than environmentalists expected or hoped for, and is evidence that the vote counters did not believe that the votes would be there for the bill otherwise.  For allowances to utilities and power producers not to begin to phase out until 2026 would be a major victory for the industry.

Obviously, this is not the end; we’ll see over the next few days how the Waxman-Markey proposal is received. The bill itself is scheduled for release later today.

(If the percentages in the columns aren't justified, blame our blog host; I just couldn't make it work and still get this done this century.)

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

The competition between the states on who can move more aggressively in regulating greenhouse gases continues. Earlier this week, the Massachusetts Board of Building Regulations and Standards voted to approve a “Stretch” Building Code. The Stretch Code can be adopted locally by municipal option. Where adopted, buildings will have to be 20% more efficient than what would be required under the ASHRAE 2007 standard.

Since there was some ambiguity previously, let me be clear: I’m not a supporter of the stretch code. It’s one thing for states to regulate greenhouse gases in the absence of an active federal program. Even state and interstate programs, such as RGGI, should go away once a federal program is in place. To go the other way, and allow multiple programs within a state, is simply to let too many flowers bloom. Consistency is too important. 

There’s an element of “be careful what you wish for” here, but my view is that if a more stringent code can be cost-effectively achieved, then the Board could adopt that code for the entire state; if the standards in the Stretch Code cannot be cost-effectively achieved statewide, then they should not be allowed by local option.

The Stretch Code is important evidence that Massachusetts continues to pursue an aggressive agenda on climate change, notwithstanding the current economic slowdown. The element of competition among states should also not be underestimated.  Yesterday, New York City Mayor Bloomberg announced an agreement with 13 hospital systems to reduce GHG emissions by 30% over 10 years.  That’s a major commitment – and one that I’m sure will be noticed in Massachusetts and California.  

Any bets on how long it will take Ian Bowles at the Massachusetts Executive Office of Environmental Affairs to call MGH and BIDMC and see if they are willing to up the ante?

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Are Representatives Waxman and Markey near settling on language that will get a majority in Committee for the climate change bill?  The tenor today was significantly more positive than in the past few weeks.  An update seemed worthwhile, given the number of specific provisions on which agreement has apparently been reached.

1.                   The initial CO_2e reduction goal will be 17% over 2005 levels by 2020.  This compares to 14% sought by the President and 20% in the original draft bill.

2.                   35% of allowances would be distributed to local distribution companies and 15% of allowances would be distributed to industries subject to international trade issues, though the percentages would decrease over time.

3.                   The renewable electricity standard, or RES, would be set at 15% by 2020.  The efficiency standard, or EERS, would be set at 5% by 2020.  If s state demonstrates that it cannot meet the 15% RES, the RES could be set as low as 12%, as long as the state makes up the difference by increasing the EERS percentage so that the total of the RES and EERS equals 20%.

It’s still not obvious when a bill will be done or if there is a majority, but House Majority Whip James Clyburn was quoted as indicating he thinks he can deliver the votes on the House floor. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It seems that news on the behind-the-scenes dance in the House in an effort to bring major energy and climate change legislation to a floor vote by Memorial Day emerges every few hours, changing pundits' predictions and analysis.  Even so, this morning's article by E&E contained enough interesting tidbits to warrant highlighting it here.  

In short, Energy & Commerce Chairman Henry Waxman has set his goal to produce an amended draft of ACES this week, and intends to stick to his Memorial Day deadline, although it remains unclear whether the markup will begin in the full committee or the Energy & Environment Subcommittee.   

E&E reports that lawmakers are focusing on finding consensus in four critical areas: targets and timetables for domestic cuts in greenhouse gas emissions (latest prediction: 14% cut below 2005 levels by 2020); distribution of allowances (latest prediction: at least some allocation during the first 10 to 15 years of the program); use of offsets to ease industrial compliance costs; and a nationwide renewable electricity standard (Waxman has apparently revised his 2025 target from 25% to 17.5%).

E&E also reports on lawmakers' discussions of alternatives and compromises, most interestingly the idea of coupling cuts in CO2 with increases in drilling.  This controversial idea was floated by an unnamed senior Obama official to a reporter for The New Yorker.  As the New Yorker reports, the idea is a "grand bargain" energy deal which would include a "'serious' and 'short term' increase in domestic production -- perhaps opening up for oil exploration places like the waters off the coast of California—that would appease the “Drill, baby, drill” crowd, while also adopting a cap-and-trade plan that could take effect one or two (or more) years after 2012, which is when Obama’s current plan would start."   The official characterized it as "something like T. Boone Pickens and Al Gore holding hands on a broad compromise."  

While Administration officials have not provided any more details and I have seen no reports that Waxman would include such changes in ACES, the move could come from elsewhere within the House.  E&E quotes House Natural Resources Committee Chairman Nick Rahall as saying that "it's certainly my feeling that this is the time to explore those options of exploring oil and gas drilling under protection of certain sensitive areas." 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Based on the current pace of developments, weekly updates on climate change legislation seem to be about the right frequency. This week’s forecast is bullish on more free allowances.

The news this week has centered on the delay in scheduling a mark-up on the Waxman Markey bill in the house. It has been widely reported that the mark-up has been delayed because the sponsors don’t yet have enough votes to pass the bill in committee. I wouldn’t read too much into the difficulty at this point. It doesn’t mean that a bill won’t get out of committee or won’t get passed. It just means that these are difficult issues, which we already knew. As Senator Reid said: “Health care is easier than this global warming stuff.” Now that’s a quote likely to chill an environmentalist’s heart.

In terms of getting a sense where the substantive terms of the bill are headed, I thought that the most revealing quote was from Representative Gene Green (D-Texas), who apparently told reporters that the mark-up has to wait for another hearing, and that that hearing should take place after the bill’s sponsors fill in the blanks on how allowances will be allocated. This remains the $64,000 question – or perhaps it’s more like the $64,000,000,000 question (that’s a lot of zeros to type). 

We previously reported that the administration has pretty much acknowledged that some allowances would be allocated for free, at least initially, and it is looking more and more as though that will be the case. As each day passes, my prediction regarding the number of allowances that will be allocated for free to existing generators increases.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For those of you who aren’t convinced that Senator Specter’s defection to the Democrats will be the savior of cap and trade legislation, and who are concerned by Senator Durbin’s recent pronouncement that, at this point, there are not 60 votes in the Senate, the question as to how EPA might regulate greenhouse gases under existing authority has taken on greater importance.

The traditional assumption, and the basis for the doom and gloom scenarios projected by the U.S. Chamber of Commerce, has been that EPA would regulate greenhouse gases under the NSR program. While there have been arguments concerning whether EPA has sufficient regulatory flexibility to avoid regulating de minimis sources of greenhouse gases, a new study from NYU proposes an end-run around this question.

The study, entitled “The Road Ahead: EPA’s Options and Obligations For Regulating Greenhouse Gases,” suggests that EPA has authority to establish a cap and trade program under the Clean Air Act without any new statutory authority.  Several of their conclusions are open to question. To name just one, the D.C. Circuit decision striking down the CAIR rule seems to pose a real obstacle to a cap and trade program without specific new statutory authority.

In fairness to the authors, however, the study acknowledges the various difficulties.  The study also does an excellent job identifying the problems inherent in attempting to regulate greenhouse gases through command and control regulation, such as the NSR program, rather than a cap and trade program.  For anyone thinking about EPA’s options at this point, it’s a must read.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I’ve made a conscious decision not to blog about every twist and turn in the climate change legislation debate. While a blogger can’t quite take a “wake me when it’s over” position, I think that periodic updates are going to be more than sufficient. That being said, in the wake of EPA’s issuance of its endangerment finding last week, a brief update seems appropriate.

What’s clear at this point is that at least everyone in the political center favors a legislative approach and hopes that the endangerment finding will ultimately have no practical impact, other than serving as an incentive for Congress to Act. When not only David Crane, CEO of NRG Energy, and James Rogers, CEO of Duke Energy, but also Fred Krupp of EDF take that approach, it’s clear that the middle ground is firmly occupied.

In the meantime, the U.S. Chamber of Commerce is still taking the position that EPA does not have the discretion to regulate greenhouse gases without regulating relatively small emission sources – with the result being economic and political chaos. 

The interesting question in all this is one that will probably never get discussed – whether EPA’s issuance of regulations concerning greenhouse gases under the current Clean Air would violate the nondelegation doctrine. From a purely legal point of view, that question was basically answered by the Supreme Court decision in Whitman v. American Trucking Associations, in 2001, in which the Supreme Court concluded that the Congressional grant of authority to EPA to issue NAAQS did not violate the nondelegation doctrine.  From a policy perspective, however, it’s difficult to avoid the issue.  

When Fred Krupp says that Congress is “better suited … to work out the details than EPA,” he is fundamentally making the point that these are legislative decisions and it is appropriate that they be made by our elected legislators. In their heart of hearts, would even the most vociferous advocates of the need to regulate greenhouse gases as soon as possible say that these are decisions that should be made be EPA, rather than Congress?  Only if they are willing to admit that they don’t believe in our current version of representative democracy.

It’s unclear where this will all end up, but the prognosticator almost most certain to be correct has to be former EPA depute associate administrator Jason Burnett, who helped draft EPA’s original endangerment filing that the Bush administration declined to issue. As Burnett acknowledged, “there’s no question … that there will be some unintended consequences.” 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This morning, EPA issued a proposed finding that greenhouse gasses contribute to air pollution and may endanger public health or welfare. The proposed finding comes almost exactly two years after the Supreme Court, in Massachusetts v. EPA, ordered the agency to examine whether emissions linked to climate change should be curbed under the Clean Air Act, and marks a major shift in the federal government's approach to global warming.

The finding, which now moves to a 60-day public comment period, identifies the six greenhouse gases that pose a potential threat as a set, a tactic which we discussed the potential impact of a few weeks ago. 

Overall, the proposed finding is very similar to the language released in March. It concludes that “in both magnitude and probability, climate change is an enormous problem. The greenhouse gases that are responsible for it endanger public health and welfare within the meaning of the Clean Air Act.”

Some interesting highlights of the finding include:

• Environmental justice: As the EPA press release states, “in proposing the finding, Administrator Jackson took into account the disproportionate impact climate change has on the health of certain segments of the population, such as the poor, the very young, the elderly, those already in poor health, the disabled, those living alone and/or indigenous populations dependent on one or a few resources.”
• National Security: As the EPA press release phrased it, “Escalating violence in destabilized regions can be incited and fomented by an increasing scarcity of resources – including water. This lack of resources, driven by climate change patterns, then drives massive migration to more stabilized regions of the world.” 
• Vehicles: By including a "cause or contribute" finding for cars, the proposed finding implies that not only are greenhouse gases dangerous in general, but that such emissions from cars and trucks are reasonably likely to contribute to climate change

The finding does not include any proposed regulations.  However, while release of the finding is a huge development, it still seems likely that the Obama Administration will hold off on regulations in favor of a legislative solution. As the Washington Post reported today, at the Aspen Environment Forum last month, Administrator Jackson emphasized that "the best solution, and I believe this in my heart, is to work with Congress to form and pass comprehensive legislation to deal with climate change.” 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Now that the initial euphoria following the introduction of the Waxman-Markey climate change bill  has passed, this past week may have reminded supporters of climate change legislation just how difficult it will be and what sort of compromises may be necessary to get it done. First, Greenwire reported again on the difficulty that senators and representatives from coal states will have supporting climate legislation that would increase electricity rates. This was consistent with the recent Senate action that seemingly put the final nail in the coffin on the idea of using the budget process as a vehicle for climate legislation in the Senate (in order to avoid the threat of a filibuster).

Last Thursday, the Obama Administration seemed to acknowledge this reality. White House spokesman Benjamin LaBolt, while stating that the Administration’s goal remains a cap-and-trade program in which all allowances are auctioned, rather than simply allocated to existing emitters, noted that Congress was looking at a number of options and stated that the Administration “will be flexible” in order to get a bill passed. Another White House aide, Joseph Aldy also did not rule compromise on the auction issue.

Part of the Administration’s concern has to be placating the so-called Gang of 16, a group of moderate Senators. It is difficult to imagine climate change legislation being enacted without the support of this group, which includes several senators most people would think of as reliable votes for the Democratic leadership.

The Administration faces a difficult balancing act on this issue. If it signals too early and too strongly a willingness to compromise, that could be perceived as a sign of weakness and the debate could shift too far—from the Administration’s perspective—toward allocating allowances, rather than auctioning them. On the other hand, if the Administration sticks too firmly to the auction approach, it risks losing credibility and influence, as Congress may simply develop legislation without regard to the White House. If I were a betting man, I’d still assume that climate legislation will include an auction, but the percentages may start out relatively low (perhaps with a mechanism to increase that percentage over time).

This post also appeared on the Environmental Protection website, an organization that provides pollution and waste treatment solutions for environmental professionals.

• Email This
• Print
• Comments (1)
• Trackbacks (1)
• Share Link

I previously noted that some of my friends in the development community were concerned that I seemed to be too welcoming of certain moves by the Patrick administration related to energy efficiency and climate change.  If, as is often the case, developments in California are a harbinger of things to come in Massachusetts, now I am in a position to really give Massachusetts developers something to worry about.

San Diego Congresswoman Lori Saldana, who is part of the Democratic leadership in the California Assembly, has introduced legislation that would require all new residential construction in California to be energy neutral by 2020.

In case anyone has any doubts, this is a heads up, not a statement of support.  As noted by Tim Coyle of the California Building Industry Association, the problem is with existing homes; new home construction is, of course, already much more energy efficient than existing homes. That is only one of many good reasons to oppose such legislation.  However, given our track record in Massachusetts, who would bet against introduction of a similar bill here? 

And I'd give better odds of it passing in Massachusetts than in California. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 As we have already noted, Representatives Waxman and Markey released a 648-page discussion draft energy bill last week that provides the first comprehensive look at how Congress may approach the nexus of energy, job creation, and the environment. Although this bill is only being released in discussion draft form, as the first major energy volley by Congressional Democrats, it will undoubtedly have a major influence on the debate in Washington. 

In addition to the global warming provisions that we posted about last week, clean and renewable energy occupies a significant place in the draft bill.  The first 157 pages are dedicated to energy, with additional provisions scattered throughout. 

Title I, the clean energy section, addresses four broad policy areas: (1) creation of a national renewable energy standard, (2) carbon capture and geologic sequestration (“CCS”), (3) low-carbon vehicles and transportation fuels, and (4) electricity transmission including smart grid technologies. In addition, the draft creates a State Energy and Environment Development Fund ("SEED Fund") to act as a repository for monies received through federal energy programs.  Each of these provisions is an example of how policy leaders are beginning to see synergies between job creation and environmental stewardship. 

We take a deeper dive into the energy provisions after the jump.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 As we mentioned yesterday, the discussion draft of the Waxman-Markey “American Clean Energy and Security Act of 2009” which was released on Tuesday is notable both for what it includes and the significant portions it leaves to be decided at a later date. 

In summary, the bill contains four titles:

1) a “clean energy” title, which promotes renewable energy through a portfolio standard of 6% in 2012 rising to 25% by 2025, additional funding for carbon capture and sequestration, a low-carbon transportation fuel standard, and authorization for federal agencies to enter into long-term contracts with renewable energy providers;

2) an “energy efficiency” title, which calls for a nationwide building efficiency code, and directs EPA to set emission standards for locomotives, marine vessels and non-road sources;

3) a “global warming” title, which specifies that greenhouse gases are not to be treated as criteria pollutants or regulated in new source review under the Clean Air Act (the authorities currently viewed to be EPA’s best tools in regulating greenhouse gases), lays out up to 83% cuts in greenhouse gas emissions from 2005 levels by 2050 and creates the framework for a cap-and-trade auction system to be overseen in part by FERC, but does not specify how allowances would be allocated or auctioned, nor how auction proceeds would be spent, other than giving a portion to preventing international deforestation; and

4) a “transitioning” title which establishes a new council within NOAA to prepare an adaptation plan and fund, but does not provide details on where the funds come from, and lays out various programs creating release valves to be triggered by increasing prices, but again withholds critical details, such as how the programs will provide assistance to consumers.

After the jump, we provide more detail about Title 3, the Global Warming section.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

I finally found time to review the 648-page “discussion draft” of the “American Clean Energy and Security Act of 2009” released by Representatives Waxman and Markey this week. It is fair to way that, though release of the draft may be an important way-station on the road to a climate change bill, there remains a lot of work to do. While the draft includes some important markers that are likely to set boundaries on what might be included in the final bill, it is at least as notable for what is omitted than for what is included. Here are some highlights of Title III of the bill, which addresses climate change: (We hope to post soon about the energy titles as well.)

·  No surprise here – the bill would create a cap and trade program requiring facilities with emissions of more than 25,000 tons per year of CO₂ equivalents to have allowances in order to continue such emissions.

·  Allowances would be allocated so that emissions would decrease 20% from 2005 levels by 2020 and 83% from 2005 levels by 2050

·  The bill contains a framework for an auction system, but it does not specify what percentage of allowances will be auctioned or what will happen to the proceeds.

·  There are several measures designed to address concerns about multiple, conflicting, or inefficient regulatory programs:

o  The President is directed to “harmonize” “to the extent practicable” DOT fuel efficiency standards, EPA regulations, and California regulations regarding motor vehicle emissions

o  Other than regulations implementing the act, EPA is precluded from using existing authority to regulate greenhouse gases as hazardous air pollutants or under NSR rules (unless they have non-climate change related impacts) and precludes listing of greenhouse gases as criteria air pollutants based on their impact on climate change

o  State cap and trade programs would be preempted, at least from 2012 through 2017. It appears as though allowances already issued under RGGI will be folded into the federal program

Overall, this looks like a measured approach designed to win support from both sides. Environmentalists will be pleased by firm caps, including a 2020 cap more stringent than some have proposed. Regulated industries will be pleased by the attempts to harmonize standards on motor vehicles, preclude Clean Air Act regulation of greenhouse gases, and to preempt state or regional cap and trade programs.

If I had to guess, I’d say that this bill marks the death knell for regulation of greenhouse gases under existing Clean Air Act authority (assuming that a bill gets passed; if Congress fails to act, then EPA certainly will use existing authority); it is probably also the beginning of the end of state and regional programs.  On both of these issues, If Representatives Waxman and Markey are already staking out this position, then it seems difficult to imagine a final bill that doesn’t incorporate these elements of the draft bill.  As to the rest, time will tell.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

The results of EPA’s annual auction of sulfur dioxide (SO₂) allowances under the acid rain program provide empirical support for a proposition that the regulated community repeatedly advances – certainty is critical to the success of complex regulatory regimes. Prices for 2009 allowances fell from last year’s average of $380/ton to $70/ton, or more than 80%. Prices in the 7 year advance auction fell even more dramatically, from $136/ton in 2008 to $6.65/ton, or more than 95%.

The short explanation for the crash in prices? Uncertainty over the fate of EPA’s Clean Air Interstate Rule. Although there may be a number of other factors in play, the consensus seems to be that CAIR is the primary culprit. Having a rule issued, challenged, struck down, vacated, and then temporarily reinstated does not provide much of a basis for rational investment planning by corporations that might need allowances.

The number and identity of the bidders are also interesting. Two bidders purchased more than 98% of the spot auction allowances. One bidder – JP Morgan Ventures Energy Corporation – purchased essentially 100% of the 7 year allowances. (Though you will all be comforted to know that “Bates College Environmental Econ” was able to purchase 2 allowances in both the spot and 7 year auctions.) Of course, most of the allowances are allocated to existing emitters; fewer than 3% of allowances are auctioned. Nonetheless, this seems like remarkably little interest.

Is there a lesson here for a CO₂ cap and trade program? Don’t let the perfect be the enemy of the good might be one candidate. Another would simply be not to tinker too much. The importance of cost certainty in corporate planning may be obvious, but that does not mean that it doesn’t bear repeating in times such as these.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Empire Strikes Back? Revenge on the NIMBYs? Whatever you want to call it, the U.S. Chamber of Commerce now has a great new web site, called Project No Project, which lists energy projects which have been stalled by local opposition.  The site lists project by state and by type, and explains the status of the project, who the opponents are, and what its prospects seem to be.

It is good to see the Chamber join the digital age and adopt some of the methods of those on the other side of these battles.

Of course, one person’s NIMBY is another’s abomination.  As this story was reported in ClimateWire on Monday, Glenn Wattley, CEO of the Alliance to Preserve Nantucket Sound – the leading opponent of the Cape Wind project – disputed the notion that the group’s opposition to Cape Wind resulted from the NIMBY phenomenon.  Isn’t it amazing that project opponents almost always acknowledge that NIMBYism exists, but always deny that their opposition to the project they are fighting is motivated by NIMBYism?

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A recent post of mine concerning Congressional testimony by Phil Giudice, Commissioner of the Massachusetts Department of Energy Resources, in support of a national building code requiring significant improvements in energy efficiency, has apparently caused heartburn among some of my friends in the development community in Massachusetts. Some folks have asked if I have “drunk the kool-aid.” My selfish responses to these comments are, first, that I’m glad some one is reading the blog and, second, that I’m sorry they are not commenting directly. I really do want discussion.

My third reaction is that a point of clarification seems in order. No, I am not a supporter of the so-called “stretch” building code in Massachusetts, which would allow municipalities, by local option, to promulgate a building code more stringent than the already efficient code recently promulgated by the State Board of Building Regulations and Standards. Local option or not, one building code is enough for Massachusetts.

At the same time, there is little doubt that energy consumption in buildings is going to be a significant piece of the solution to climate change. It’s not all going to come from power plants and mobile sources. Moreover, tough regulations that involve some measure of technology-forcing are almost certainly going to be necessary if we’re going to achieve an 80% reduction in GHG emissions. Just as those in the power generation sector and mobile source sector have had to deal with technology-forcing in the past – and will again going forward with respect to climate change – so too will the building and development sectors.

Finally, from a purely parochial level, if that type of tough technology-forcing regulation is coming in Massachusetts, I want the same tough regulations nationwide; otherwise it’s only going to get more difficult for Massachusetts to compete with other states for new development projects.

If that’s drinking the kool-aid, give me more.

• Email This
• Print
• Comments
• Trackbacks (2)
• Share Link

RGGI, Inc. the operators of the Regional Greenhouse Gas Initiative (RGGI) today announced the results of its third auction of CO₂ allowances, held on March 18, 2009.  The auction offered allowances from all ten states participating in RGGI -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. 

 As we noted earlier, new for RGGI’s third auction was that the states offered just under 2.2 million allowances for the 2012 vintage, providing a first-look at future market prices for RGGI allowances. These 2012 allowances sold at a clearing price of $3.05, while the 31.5 million 2009 vintage allowances offered sold at a clearing price of $3.51 per allowance, up nearly 4% from the December 17^th auction’s clearing price of $3.38 and significantly above the initial auction’s clearing price of $3.07. This increase seems particularly notable given current economic conditions.

For the first time, RGGI, Inc. also released the range of bid prices, allowing some insight into how CO₂ is valued by the players in these auctions. Bid prices for the 2009 vintage allowances ranged from $1.86 (the minimum clearing price) to $10.00, while bids for the 2012 vintage allowances ranged from $1.86 to $4.40. Regulated generators and their affiliates continued the trend from the first two auctions of winning the vast majority of the allowances – 78% of 2009 and 93% of 2012.

It is interesting, though not surprising, that 2009 vintage allowances raked in higher bids than the 2012 vintage allowances. Given that RGGI allowances may be banked without limitation and used in future years, the 2009 vintage allowances are arguably more valuable. Even so, the fact that the 2012 vintage allowances sold for $3.05, lower even than the first RGGI auction’s clearing price of $3.07, indicates some lack of confidence in those allowances’ future value. The 2012 allowances are the first to fall within RGGI’s second three-year compliance period (2012-2015), which is significant because 2015 is the first year that the RGGI cap begins its annual process of ratcheting down 2.5%. One might think that this feature would make the allowances more valuable.  However, there remains significant uncertainty regarding what the carbon emission market will look like in 2012, whether there will be a national cap-and-trade system, and whether RGGI will still exist. Given that uncertainty, this relatively low price is understandable.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

An update to a development we noted a few weeks ago --  as reported by Climate Wire today, at the national meeting of the National Association of Insurance Commissioners (NAIC) yesterday, regulatory officials from all 50 states, the District of Columbia and five U.S. territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands) unanimously voted in favor of rules requiring insurers to disclose the impacts of climate change on their business decisions. 

The mandatory survey's adoption comes shortly after Maplecroft, a British risk management firm, reported that, although third world countries are more likely to experience climate-related fatalities, the US ranks #1 in the study's list of nations facing financial climate risk, and averaged $18 billion annually in economic losses from natural disasters between 1980 and 2008. 

As insurance is regulated by each state independently, the climate risk rules must still be adopted by individual states in order to be enforced.  Nonetheless, given that all members voted in favor of the rules, adoption seems likely.   To ensure that the rules are applied evenly, the NAIC Climate Change Task Force plans to monitor states' actions and collect sample answers from insurers to see how the surveys are completed. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Greenwire reported yesterday that EPA plans to issue its endangerment finding on emissions of greenhouses gases, in response to Massachusetts v. EPA, by the end of April. Greenwire also released EPA’s internal presentation regarding its recommendation to the Administrator.

Although EPA’s anticipated decision is not a surprise, it is still noteworthy. Among the highlights:

• The finding will conclude that greenhouse gas emissions endanger public health (the proposed endangerment finding that the Bush administration EPA had prepared, but then withdrew, was limited to public welfare issues.
• The finding will apparently note that there are environmental justice implications associated with climate change. This is particularly interesting, given that there is also concern that there are equity issues associated with the likely responses to climate change – Warren Buffett this week described a cap-and-trade plan has as a “regressive tax.”
• EPA’s preferred option at this point is to base the endangerment finding on identifying the entire group of GHG as the “air pollutants” that cause the endangerment. One specific rationale is that doing so will facilitate flexibility in setting standards for these pollutants. In other words, if GHG are grouped together, EPA will be able to propose a regulatory program that will allow netting and offsets among the different GHGs. 

Other than the nod to regulatory flexibility provided by grouping GHGs, EPA has not tipped its hand regarding the nature of any regulatory regime for GHGs, let alone when it might be able to propose and finalize such regulations. Doing so remains a gargantuan task. 

Moreover, while EPA is clearly committed to addressing this issue, if one believes the statements of Congressional committee chairs to the effect that climate change legislation will get done promptly, there is a certain logic to waiting for such direct legislative authority. On the other hand, fear of what EPA may do remains part of the calculus on Capital Hill, so EPA may decide to move forward aggressively with regulatory development under current Clean Air Act authority simply in order to keep pressure on Congress. 

It’s going to be a busy – and interesting – year.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

The Environmental Protection Agency (EPA) today proposed regulations which create the first nationwide system for reporting emissions of CO₂ and other greenhouse gases emitted by major sources in the US.  The proposed regulations are promulgated pursuant to the FY2008 Consolidated Appropriations Act  which was signed into law in December 2007, and instructs the EPA to require mandatory reporting of greenhouse gas emissions in all sectors of the economy.  Approximately 13,000 facilities will be subject to the rule, accounting for 85% to 90% of greenhouse gases emitted in the U.S.   Despite this large number, EPA believes that most small businesses will not be subject to the rule, as the primary threshold is set at 25,000 metric tons of CO₂ equivalent, an amount equal to the emissions from 2,200 homes, 58,000 barrels of oil, or 131 rail cars of coal.

In addition to facilities that directly emit 25,000 metric tons of CO₂ equivalent per year, the proposed rule also requires suppliers of fossil fuels and industrial greenhouse gases, as well as manufacturers of vehicles and engines, to submit annual reports to EPA, cataloging all 6 greenhouse gases.  The rule does not require control or caps on emissions, but only that the sources monitor and report greenhouse gas emissions. EPA will use the data gathered from this reporting process to formulate and assess the impacts of future policies.

Interestingly, the rule requires reporting of emissions from both upstream production facilities and downstream emission sources, which could result in some double-reporting of emissions – for instance reporting of emissions by both an upstream supplier of fuel oil and the large end-user facility who burns the oil. In guidance that accompanies the proposed regulation, EPA clarifies that such double reporting is consistent with the appropriations language, and will provide information to EPA to craft policies that address both sides, such as cap and trade upstream and end-use emissions standards downstream.

If adopted, the proposed rule would require reporters to submit their first annual greenhouse gas emissions report by March 31, 2011, based on emissions data from 2010.  Facilities who already report emissions data quarterly (such as for the Acid Rain Program) would continue to report quarterly. Requirements for vehicle and engine manufacturers would kick in with the 2011 model year.

For the majority of reporters, EPA will collect data at the facility level. Vehicle and engine manufacturers, fossil fuel importers/exporters and local gas distribution companies will report at the corporate level. Verification of reported data will be verified by EPA, as in other Clean Air Act programs.

For more information on which facilities are subject to the rule and what emissions they will have to report, we recommend this chart, from EPA guidance.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As the New York Times reported on Friday, New York Governor David Paterson may increase the number of carbon allowances that New York gives to power plants for free, creating a significant policy departure from New York's earlier approach to RGGI.   New York, together with seven other RGGI states, had earlier committed to auction nearly 100% of its allowances.  As such, New York gave away only a small portion of its allowances this year (1.5 million out of 62 million) through a program designed to lessen the impact of RGGI on the price of electricity. Paterson's proposed adjustment would increase that number four-fold, giving away 6 million allowances to regulated power plants, at an estimated value of $21.9 million per year.  That money could have otherwise been used by the state to fund energy efficiency programs.  

If New York were to change its allocation structure, the state would have to reopen its regulations, and any change would require notice and public comment.  As a result, any changes would not impact the next auction, scheduled for March 18th, or, apparently, the following two in June and September.  Although New York controls 31% of the allowances in the RGGI program, this potential shift would not affect overall carbon emissions from power plants.  Both the amount of allowances allocated to New York and the total number of allowances in the RGGI program are capped. 

Regardless of the number of allowances now to be allocated, the change is potentially politically significant. The statement from the Governor's office is framed in neutral language -- "we have an obligation to monitor how a program is working and advance any needed changes to make the program more effective."  Nonetheless, one wonders whether the lawsuit filed last month by Indeck against New York, alleging that the state agencies did not have the authority from the New York legislature to implement the program, played any part in the Governor's decision.  That lawsuit and this potential change in New York's allocation structure are both underpinned by the idea that New York's implementation of RGGI adversely affects against electric generators that are bound by long-term fixed-price contracts, and cannot pass the added price of allowances on to consumers. 

New York's shift might also make it more difficult for the other RGGI states to stick with their 100% auction, in face of pressure from industry groups to increase allocation, though, as ClimateWire reports, some state leaders have discounted the potential impact. It also remains to be seen what effect this will have on the national debate.  As we noted last week, the debate over how a cap-and-trade or carbon tax would operate is beginning to heat up.  Since RGGI is the nation's first CO2 cap-and-trade system to be implemented, experiences with RGGI are likely to have a significant impact on national legislation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

We previously noted efforts by Massachusetts to require greater energy efficiency in new construction through revisions to the state building code. The Massachusetts Global Warming Solutions Act requires adoption of a more energy efficient code. Massachusetts is also pursuing an even more aggressive “Stretch” code, that municipalities would have the option of adopting.

Yesterday, Massachusetts took this green building message to Washington. The Environment Reporter states that Phil Giudice, Commissioner of the Massachusetts Department of Energy Resources, testified before the Senate Energy and Natural Resources Committee in favor of Congressional action to require states to require at least a 30% increase in energy efficiency over current standards. The 30% figure appears to be a minimum. Mr. Giudice stated that a requirement for a 50% reduction would be even better.

There is little doubt that there is a lot of the proverbial low-hanging fruit to be picked with respect to energy efficiency in buildings. It’s good to see Massachusetts taking its message onto the national stage.  At least this way, if such legislation is enacted, Massachusetts won’t be at a competitive disadvantage compared to other states whose codes currently do not require significant improvements in energy efficiency!

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

As we noted last week, President Obama’s budget includes revenue from auctioning 100% of allowances under a cap-and-trade system. ClimateWire today reports two competing versions of the prospects for a 100% auction approach. First, the Southern Alliance for Clean Energy signed up a number of economists, including Franklin Fisher of MIT, in support of the President’s plan to auction all allowances from the get-go. Part of the argument reflects environmental justice concerns, stemming from the recognition that a cap-and-trade program will increase utility costs. The Southern Alliance is expecting that some of the auction proceeds would be rebated back to low-income consumers, thus cushioning that blow.

As ClimateWire notes, the U.S. Climate Action Partnership, which includes the NRDC, EDF, and the Nature Conservancy, has already lined up behind a plan that would allocate up to 40% of allowances to industry at the beginning of the program, with the amount of allocated allowances decreasing to zero over time.

In the same issue, ClimateWire reported that Abyd Karmali, the head of carbon emissions for Merrill Lynch, has concluded that the President’s proposal won’t fly in today’s economy.  Mr. Karmali predicts that not more than 30% - 50% of allowances will be auctioned initially.

Will the President get his way or is Mr. Karmali correct?  Over the past year, people have underestimated President Obama at their peril.  At the same time, it’s hard to argue with Mr. Karmali’s assessment of the current political climate.  Unless we get some prompt political climate change, I’d guess that a 100% auction approach remains some years away.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Strange as it sounds, the next industry group to take substantive action on climate change might just be insurers.  In Tuesday's key vote by the Climate Change and Global Warming Task Force of the National Association of Insurance Commissioners, 18 state insurance commissioners voted to approve rules requiring insurers to disclose the impacts of climate change on their business decisions. If the rules are approved by the full committee in March, and each state adopts them, reporting could begin as early as May 2010.

The survey approved by yesterday’s vote asks insurers to annually answer eight questions involving what the company is doing to measure and mitigate its own emissions, how it identifies climate risks in its portfolio, how emerging climate risks could affect coverage, whether the company has altered its investment strategies in light of climate change risks, and what the company is or could be doing to change the behavior of millions of Americans, and reduce our overall risk from climate change.  The survey is based on the Carbon Disclosure Project questionnaire, the tool through which over 1550 companies voluntarily reported their emissions in 2008.

The proposed survey is not without controversy. In December, the Task Force agreed to remove a requirement that would have mandated survey answers to be included in each company's annual financial statements, and made the questions more general to avoid requiring companies to disclose confidential competitive information.

The Task Force is also working on guidance to help insurers answer the questions, and examples of how insurers can change their procedures to reach climate change goals. One idea that has been mentioned is pay-as-you-drive insurance, a policy that could reduce car emissions by rewarding motorists for driving less.

The next step for the proposed survey is a final vote by the full association at the national meeting in March. The National Association of Insurance Commissioners is a voluntary organization of the insurance regulatory officials of all 50 states, the District of Columbia and five U.S. territories (American Samoa, Guam, Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands).  As insurance is actually regulated by each state independently, there is no guarantee all states will adopt the survey. Nonetheless, it seems likely that at least some reporting requirements for insurers are on their way, and with them, probably other companies, too.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

As Congress considers approaches to climate change legislation, with pragmatists seeming generally to support a cap and trade system, while purists support a carbon tax, the Commonwealth of Massachusetts has now weighed in with a new approach: How about both?

Although Massachusetts dithered a bit at the end of the Romney administration, it rejoined the Regional Greenhouse Gas Emission under Governor Patrick in time to participate in the first auction under the RGGI cap and trade program. Last week, the Governor balanced the scales, announcing a proposal for a 19-cent increase in the gas tax. Now, to be fair to the Governor, the gas tax increase is not being touted as a carbon tax. Moreover, there is no doubt that the Commonwealth has a gaping hole in its infrastructure budget – to the tune of $15 billion to $19 billion over the next 20 years, according to the Findings of the Transportation Finance Commission. Indeed, the true need to improve the Commonwealth’s infrastructure has led development interests to support a gas tax increase for some time now.

Nonetheless, a tax is a tax, and an increase in the size of the gas tax will inevitably have some impact on vehicle miles traveled. Just as anti-smoking advocates view cigarette taxes, environmentalists will applaud this move either way. It will almost certainly decrease VMT, thus decreasing greenhouse gas emissions. At the same time, because people will still drive, the revenue from the tax will facilitate important infrastructure spending, including various transit projects that environmentalists have long supported. In fact, even aside from the gas tax itself and the funding of mass transit, the Governor’s announcement included provisions to make the Commonwealth’s transportation infrastructure more green and to reduce transportation-related GHG emissions.

If the Governor can get the tax through the legislature – and use the revenue as he has indicated (as opposed to funding legislators’ pet projects) – and implement the reforms he has described – then maybe we’ll be able to talk about a real win-win situation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

We posted recently about the revival of EPA’s NSR enforcement program. Now, yet another shoe has dropped. The Center for Biological Diversity has announced the creation of the Climate Law Institute, the purpose of which is to use citizen law suits under existing laws to advance regulations intended to address climate change. The press release states that the Institute has $17 million in funding with which to pursue its mission.  

While that mission will focus on climate change, as its name implies, it will not be limited to litigation under the Clean Air Act. It was the CBD which led the litigation resulting in the listing of the Polar Bear under the Endangered Species Act.  The Institute indicates that, in addition to the Clean Air Act, the ESA, NEPA, and the Clean Water Act may all be utilized as part of its overall litigation strategy.  

Among other specific targets identified in the press release, the Institute states that it aims to prevent the construction of any new coal-fired power plants and to phase out existing coal plants as quickly as possible.

Unless EPA moves very quickly across a number of fronts – which may well happen – it looks as though we’re going to see a lot of climate-related litigation in the near future.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Among energy efficiency advocates, “decoupling” is the word of the day. Last year, the Massachusetts Department of Public Utilities issued an order decoupling utility rates from sales volume, joining California on the front lines of this issue. The point of decoupling is to eliminate utilities’ rate-based incentive simply to sell more and more power, thus making it easier for utilities to get behind demand management measures.

Congress is now grappling with the decoupling issue as it considers whether to require that states implement decoupling as a quid pro quo for stimulus money related to energy efficiency and conservation. Last week, both the National Association of Regulatory Utility Commissions and the Industrial Energy Consumers of America sent letters to congress opposing decoupling provisions. 

With climate change lingering in the background, and with an increasing chorus saying that we have to act yesterday in order to prevent the worst impacts of global warming, there is going to be a lot of pressure on Congress to get this right, and to do so quickly, in order to maximize incentives for energy efficiency. Decoupling clearly seems right as a theoretical matter, but this is definitely a “devil is in the details” situation par excellence.  The decoupling issue might be better decided as part of comprehensive negotiations over a climate change bill than as part of hurried discussions over the stimulus package.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Recently, I posted about Governor Schwarzenegger’s efforts to suspend the California version of NEPA with respect to economic stimulus infrastructure projects. Today’s news concerning the impact of the current economic downturn on an ambitious environmental agenda comes from the other coast. Massachusetts has been attempting to rival California in its commitment to a green energy economy, but the Boston Globe today reported on concerns about the Commonwealth’s ability to achieve its green energy goals. My friend Rob Stavins of Harvard is quoted in the Globe as saying that the factors affecting the Commonwealth’s ability to achieve its goals -- including the depth of the downturn and the size and timing of the federal stimulus package -- are not within our control.

The tension is obvious from just one of the administration’s pet programs. Last November, the administration announced a plan for the installation of solar panels on the roofs of big box stores and other buildings with large flat roofs. However, if no new big boxes are being built because of the economy and if big box retailers are instead closely examining their operations and closing some stores, it’s going to be hard to persuade them to incur the up-front cost to install solar panels, even if there is a long-run return.

To throw in a mention of my pet peeve, such plans are particularly likely to stick in property owners’ collective craw when, at the same time, the administration has announced draft new stormwater rules that could impose substantial costs on anyone owning an impervious surface.

The administration’s goals are laudable, a lot of progress has been made, and it’s clear that some progress will continue. However, to suggest that there is no tension at all between environmental goals and economic development seems like a serious case of wishful thinking.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

While Congress considers climate change regulations, and states pursue regional cap and trade plans, it becomes apparent that the number of different ways to regulate carbon emissions is limited only by the creativity of those doing the regulating. Last week, the Minnesota Public Utilities Commission (PUC) issued a certificate of need for the construction of transmission lines necessary to carry power from a new coal-fired plant, known as Big Stone II, to be built in South Dakota.

The certificate of need includes several provisions affecting CO₂ emissions by the utilities. It requires that an older coal plant be closed by 2018 (though of course there is an exception if the plant is needed). The new plant must be constructed to be “carbon capture retrofit ready.” Finally, and most notably, the certificate provides that Otter Tail Power, which is one of the utilities building the new plant and which, because it is located in Minnesota, is subject to the jurisdiction of the Minnesota PUC, may not recover CO₂ emission control costs from the ratepayers to the extent those costs exceed $26/ton.

In fact, at this point, $26/ton seems like a high number. Environmental advocates had sought complete rejection of the certificate of need request and are not happy about the $26/ton cap. Nonetheless, the important story here is not the level at which the cap is set in this case. The important feature is the imposition of the cap as part of the certificate of need process. 

Today $26/ton. Tomorrow, who knows? Departments of public utilities could be the next front in the climate change battle.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Sometimes it seems as though the days for coal are short. With a new administration that seems truly committed to addressing climate change, it can be difficult to envision a long-run future. 

Other days, coal, like Citigroup, seems too big to fail. Today, I’m in the latter camp. Yesterday, Zurich Financial Group announced that it would provide insurance to cover risks associated with carbon capture and sequestration (CCS) projects. It’s one thing for Congress, where climate change advocates may need votes from coal-state legislators, to support CCS projects, but when the market starts suggesting that CCS projects are viable, it’s time to sit up and take notice.

Time will tell whether CCS really has a future as part of a climate change strategy, but certainly Zurich’s announcement is a positive one for coal.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a decision that could have significant impact on states’ efforts to limit cross-border pollution, Judge Lacy Thornburg of the District Court for the Western District of North Carolina issued an affirmative injunction against the TVA this week, requiring it to install pollution control equipment at its facilities located nearest to North Carolina and imposing specific emissions limits from those facilities. The basis for the injunction was a finding, after trial, that the facilities created a public nuisance as a result of the air pollution transported from those facilities to North Carolina.

The decision is notable for a number of the findings and holdings.

• Generally speaking, compliance with regulations does not preclude a finding that air emissions constitute a nuisance. (The Court applied the nuisance law of the states in which the plants were located.)
• Ozone and PM_2.5 can create adverse health impacts at concentrations below the National Ambient Air Quality Standards (NAAQS). This suggests that facilities contributing to concentrations of air pollutants can be subject to an injunction requiring the facility to decrease emissions, even if the area is in attainment of the NAAQS.
• The Court looked to survey data indicating that Blue Ridge Parkway visitors would pay $328 in annual taxes in order to improve visibility. As many readers will know, this kind of survey research is extremely controversial and may lead to some extraordinary damages findings.
• The Court declined to impose an injunction against TVA facilities that were not proximate to North Carolina, essentially on the ground their impacts on North Carolina were de minimis. The court found that those plants against which an injunction was entered contributed to somewhere between 5% and 10% of ambient contaminant concentrations. The other plants contributed less 0.1% of ambient concentrations.
• The Court imposed a stringent schedule by when pollution control equipment must be installed. The Court gave the TVA 27 months to install scrubbers and 21 months to install SCRs. This time frame was substantially shorter than that proposed by the TVA.

The one piece of good news for generating plants was the court’s causation analysis with regard to more distant plants. That analysis, if followed, suggests it would be extremely hard for a public nuisance plaintiff to prevail in a global warming case, since the causative contribution of any facility or even group of facilities to the global warming problem is almost certain to be even more attenuated than for those TVA plants distant from North Carolina.

The decision undoubtedly gives downwind states a substantial hammer against upwind sources of contamination (and could be applied to water pollution cases as well as air pollution). Indeed, in the current set of Congressional negotiations, industrial interests could conceivably be tempted to accept more stringent emissions limits in return for preemption of state nuisance laws. It will be interesting to see how this plays out in Congress.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

RGGI, Inc. announced today that its third auction of CO₂ allowances will be held on March 18, 2009, and will offer allowances from all ten states participating in RGGI -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. The sealed bid format and the reserve price of $1.86 remain the same as the previous two auctions, but one big change is in the works.

New for this auction:  the participating states will offer approximately 2.2 million allowances from vintage 2012, in addition to the 31.5 million CO₂ allowances from 2009. These 2.2 million allowances from 2012 comprise about 5% of that year's cap, and will be sold in a separate, but parallel offering from the 2009 allowances.  The offerings occur simultaneously from 9 AM to 1 PM on March 18, a bidding window that is 1 hour longer than in previous auctions. 

The sale of 2012 allowances could offer an interesting insight into how bidders perceive the future of carbon cap and trade and RGGI itself. Will the 2012 allowances go for a higher price than the 2009 vintage? On one hand, since RGGI allowances may be banked without limitation into future years, a 2009 allowance is arguably the most valuable of them all.  On the other hand, 2012 allowances are our first taste of allowances within RGGI's second three-year compliance period (2012-2015), a period which spans 2015, the first year that the RGGI cap decreases by 2.5%.  Then there’s the question of RGGI’s future amid federal legislation. We might have a national cap-and-trade system by 2012, or some other system entirely, and it might (or might not) allow for the exchange of RGGI allowances.

We shall see. RGGI, Inc. plans to announce the results of the third auction on March 20.

• Email This
• Print
• Comments (2)
• Trackbacks (1)
• Share Link

It’s now de rigueur to say that there is no conflict between a healthy economy and a healthy environment. President-elect Obama said so himself as recently as December 15, when he introduced members of his environmental and energy team. Certainly, in a perfect world, where information is free and everyone agrees on the economic value to be placed on protecting environmental interests, that would be true as a matter of definition.

Unfortunately, we live in the real world and in the real world, there are often trade-offs to be made between economic growth and environmental protection. This critical tension was brought home last week, when news broke that Governor Schwarzenegger was seeking to expedite, and have the authority to waive, certain environmental reviews for infrastructure projects deemed critical to economic stimulus efforts. Among other authorities, Governor Schwarzenegger – who has been a leading figure in state efforts to fight climate change – wants to exempt a dozen highway projects from environmental reviews and to create a three person “super-Cabinet” that would have authority to waive environmental reviews on other projects. He has also suggested that federal NEPA review be waived for any project funded as part of a federal stimulus package.

Environmentalists, of course, are having none of it. Tina Andolina, of the California Planning and Conservation League, called the Governor’s plan’s “ridiculous.” But are they? Anyone involved in any kind of development project, whether highway or mass transit or power generating – or even schools or low income housing – knows that environmental reviews can slow such projects by months or even years. In fairness to the environmental review process, that’s part of the purpose – to make certain that projects aren’t developed without careful consideration of their impacts.

However, everyone seems to agree that we are in the midst of an extraordinary time. President-elect Obama has himself said that prompt economic stimulus is critical, in order to avoid an even worse economic crisis. A substantial part of the stimulus plan is for infrastructure projects that every thinking person must acknowledge could conceivably have adverse environmental impacts. What if it simply isn’t possible both to thoroughly assess those impacts and get the projects started sufficiently quickly to have the stimulus that everyone agrees is needed?

Given the dire state of the economy, I’d certainly err on the side of facilitating projects, but I’m sure that some of my readers would disagree. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

We have previously noted that efforts to achieve economy-wide reductions in greenhouse gas emissions will necessarily go beyond the electricity generating sector. One obvious target will have to be greenhouse gas emissions from buildings, which EPA estimates account for 17 percent of U.S. carbon emissions.

Although there have been efforts, particularly in California and Massachusetts, to use state NEPA analogues to control carbon emissions from new projects going forward, and there have been similar efforts to build energy efficiency into state building codes, existing buildings will inevitably become a focus, simply because their carbon emissions are too big to ignore.

Yesterday, EPA Region II and Cushman & Wakefield got out ahead of the curve, announcing a voluntary agreement pursuant to which Cushman & Wakefield agreed to reduce energy consumption from the 3,000+ buildings it owns or manages by 30 percent by 2012. There are other aspects to the agreement as well, such as a commitment to achieve LEED certification for new construction. 

The size of the reduction to which this agreement commits Cushman & Wakefield is notable, in that a 30 percent reduction by 2012 is more aggressive that the nascent regulatory schemes are envisioning. It certainly suggests, as environmentalists have argued for some time, that there is a lot of low-hanging fruit to be found in the energy demand management area.

This type of agreement is almost certain to become more common as the threat of mandatory regulation becomes more tangible. In fact, depending on the nature of greenhouse gas reduction regulations, such agreements could provide significant economic benefit to the Cushman and Wakefields of the world, if they are allowed to obtain early reduction credits or other economic recognition of the reductions achieved under the voluntary agreements.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Union of Concerned Scientists (UCS) released a report on Friday that concludes that the cuts in emissions from power plants within the Regional Greenhouse Gas Initiative (RGGI) region may be compromised by power generated outside the RGGI region and imported into the region. This problem is called "leakage" in carbon-capping jargon, and it is a problem for which RGGI, Inc. has never found a satisfying solution.

The UCS report highlights that although RGGI caps the emissions of power plants in 10 Northeastern states, ratcheting down emissions to 10% below 2005 levels by 2018, it does not preclude utilities that supply electricity to homes and businesses within the region from buying more electricity from coal-fired plants outside the region. UCS estimates that use of the excess capacity of existing coal plants to the west and south of the RGGI region -- the equivalent of 15 new coal plants -- could produce emissions greater than three and a half times the expected cuts of CO₂ emissions from RGGI. With the addition of the six coal-fired plants that are under or near construction in states near the northeast, emissions from outside the region could equal 140% of RGGI's reductions. The problem comes not only from the fact that cost of electricity within the RGGI region is already higher than in surrounding states, but also from planned efforts to expand the capacity of the grid, allowing less expensive power produced in coal-intensive states like Ohio, Pennsylvania and West Virginia to be imported into RGGI states at higher levels.

The report makes 4 suggestions for RGGI states to help "plug the leak":

• Limit the ability of in-state electricity suppliers to contract for power from more polluting plants, whether inside or outside the region.
• Cap global warming emissions for the entire portfolio of each local electricity supplier.
• Together or individually, RGGI states could require local electricity suppliers to account for global warming emissions from electricity produced outside the region as well as inside it, offsetting the advantage of imported coal power. States could, for example, require local suppliers to offset any increases in emissions linked to higher imports by expanding their investments in energy efficiency, renewable energy, or another public good.
• RGGI states could insist that proposed transmission projects to expand the import of power from states with abundant coal consider the Northeast’s goals for cutting global warming pollution.

The majority of these suggestions would require new legislation -- as the RGGI implementing statutes in each of the states only reach generators above 25 MW, not utilities -- but several states have already moved to require local electricity suppliers to account for greenhouse gas emissions generated by the power they sell, whether it is produced within the state, within the RGGI region, or imported. Such a provision is expected to be included in Massachusetts' second round of regulations implementing the Global Warming Solutions Act (see Thursday's post for more information), and New Jersey's draft report on implementing its Global Warming Response Act suggests managing imports as a solution to the issue of leakage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As we previously noted, the recent Environmental Appeals Board decision in the Deseret Power matter raised the possibility that CO₂ and other greenhouse gases need to be considered in PSD reviews. On December 18, EPA Administrator Stephen Johnson issued an interpretation which concluded that GHG still do not need to be considered in PSD reviews.

Senator Boxer, not always known for her restraint, has already asked Attorney General Mukasey to reverse the interpretation, calling it “illegal.” Illegal or not, I’d guess that Senator Boxer will get her wish soon after January 20.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

RGGI, Inc., the operators of the Regional Greenhouse Gas Initiative (RGGI) announced today that the second auction has proceeded smoothly and as planned.  All 31,505,898 allowances offered for sale at Auction 2 on December 17 were purchased at a clearing price of $3.38 per allowance.  This price is above the first RGGI auction's clearing price of $3.07, and in line with recent prices for RGGI futures on the Chicago Climate Futures Exchange, which traded Monday at the same price. Auction 2 was the first to feature allowances from Delaware, New Hampshire, New Jersey, and New York, a factor which might have caused the increase in price.

RGGI's market monitor Potomac Economics noted that the majority of winning bidders were compliance entities or their affiliates, as in the first auction.  So far, it seems like the concerns about market manipulation and entities taking advantage of RGGI's 100% auction structure remain unfounded.

RGGI will release more data January 6th, including the names of the "potential bidders" who qualified and filed an intent to bid in Auction 2 (whether or not they actually bid). 

Meanwhile, Governor Patrick's office has announced that Massachusetts will spend its $14.8 million share of Auction 2's $106.5 million total proceeds as set forth in the Green Communities Act, or more specifically:

• $2.4 million for 2008 utility-administered energy efficiency programs
• $5 million for start-up funds for the Green Communities program
• $2 million for heating system replacements for low-income households
• $400,000 for administrative and vendor costs for the RGGI auction
• $5 million for a new program, Energy Efficiency Skills and Innovation Institute providing job training for energy auditors and seed grants for innovative delivery methods of efficiency

RGGI compliance obligations for fuel-fired generators over 25 MW begin January 1, 2009.  The next auction will be March 18, 2009.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Massachusetts and California seem to be neck-and-neck in the race to be the first state to cap greenhouse gases economy-wide.

Massachusetts issued emergency regulations last week which create the first phase of a mandatory reporting program, thus taking the title of first state to implement the beginnings of an economy-wide cap and trade plan.   The regulations commence January 1, 2009, so Massachusetts facilities that might need to report should read Foley Hoag's Client Alert on the new regulations very soon.

Not to be outdone, California also released big news last week.  With the Air Resources Board's approval of the Scoping Plan, California now claims it will be the first in the nation to approve a greenhouse gas cap that includes every sector of the economy.  

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

On the eve of the second RGGI auction, it is reasonable to ask what the trend is in CO₂ emissions in the RGGI states. Environment Northeast just issued a report which seeks to answer that question. According to ENE, which utilized data from EPA and the RGGI states, CO₂ emissions in the RGGI states through the third quarter of 2008 are trending 16 percent below the RGGI cap.

As ENE notes, both oil and coal prices were extremely high during this period, so there is no guarantee that these low emission levels will be reflected in data for the fourth quarter 2008 or in 2009. However, the cause of the recent price drop – lowered demand resulting from the contraction in economies worldwide – suggests that emissions will probably be low in 2009 as well. If total purchases of oil drop, it does not matter whether the cause is a shift along the demand curve due to higher prices or a shift in the demand curve due to lower economic output (though it is certainly true that, even with lower demand for energy overall, decreases in oil and coal prices will lead to shifts towards coal and oil).

The critical point to remember in all this is that businesses which have significant CO₂ emissions cannot be expected to reduce those emissions efficiently unless clear and stable price or regulatory signals are sent. Therefore, I for one hope that the ENE report does not lead regulators to conclude that the cap is too high and should be reduced. If we do that, do we then raise the cap again if emissions exceed the cap for more than the expected amount? What is needed is as stable a downward trajectory in greenhouse gas emissions as we can manage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As we have noted, there have been a number of arguments regarding the implications of a decision by EPA to utilize current Clean Air Act authority to regulate greenhouse gases. The Chamber of Commerce has been in the “sky is falling” camp. Nonetheless, environmentalists are already pressing President-elect Obama to regulate greenhouse gases under the CAA, without waiting for what could be a lengthy legislative process.

According to a story in the Daily Environment Report, at a recent forum held by the American Law institute and the American Bar Association, the prevailing view was that the sky would not fall and that EPA’s authority under the CAA is sufficiently flexible as to allow it to regulate greenhouse gases without regulating every source that emits more than 250 tons per year of CO₂, which is the usual major source threshold for criteria pollutants – and a level that is certainly exceeded by many, many, more facilities than are currently subject to regulations.

William Harnett, director of EPA’s Air quality Policy Division, identified at least two ways to avoid regulating sources that emit greater than 250 tpy of CO₂. First, he suggested that EPA could rely on “administrative necessity,” taking the position that it does not have the resources to regulate all sources above 250 tpy. Harnett also suggested that EPA could take the position that the result of regulating all sources above 250 tpy would be absurd – a proposition with which the Chamber of Commerce would probably agree – and therefore could not be what Congress intended.

I’m not sure that I would like to have had to defend either of these arguments in law school. However, as David Bookbinder, chief climate counsel at the Sierra Club noted, if EPA, business, and environmental groups all do not want EPA to regulate small sources of CO₂, then, as a practical matter, EPA should be able to find a way to make CO₂ regulation work under the existing CAA framework. That does not mean that everyone would be happy with the format of such regulations. However, if the Obama administration does not want to wait for Congress – or if they want to put pressure on Congress to act – EPA will probably figure out a way to regulate under the CAA.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As the reality of climate change begins to hit home – and as the economy continues to weaken – one issue that may ultimately prove critical in how we respond may be how corporations account for the financial impacts of climate change. Now ASTM is getting into the act. ASTM is working on a standard, titled “Financial Disclosures Attributed to Climate Change,” to provide guidance on the issue.

ASTM has something of a track record in setting environmental standards. Its guidance on doing Phase I site assessments has dictated practice in that area to the point that it was essentially written into EPA’s brownfields regulations. Time will tell whether the financial disclosure standard has the same impact.

In any case, for those interested in learning more about the state of the ASTM process, Gayle Koch of the Brattle Group, who is on the ASTM work group preparing the standard has written a helpful summary of where ASTM appears to be headed. ASTM has recognized that it will not be possible to eliminate uncertainty regarding financial impacts of climate change. ASTM has also acknowledged that the costs to obtain information about the financial impacts of climate change should not outweigh the benefits of the information. 

In summary, the guidance will likely require reporting of near term impacts that could be severe for the company, where the likelihood that such impacts will occur is more than remote. It’s hard to imagine how a guidance document such as this could be more specific – flexibility is obviously necessary and appropriate – but there is little doubt that CPAs and lawyers will have much to argue about concerning when this standard has been met.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

In October 2007, the Massachusetts MEPA office issued its Greenhouse Gas (“GHG”) Policy, requiring certain limited categories of projects subject to MEPA to assess the GHG impacts of those projects and include mitigation of those impacts in the environmental impact review. In short, projects with obvious traffic or air emissions impacts were subject to the policy.

On August 8, 2008, Governor Patrick signed the Global Warming Solutions Act of 2008. Among other provisions, the Act provided specific statutory authority for the MEPA GHG Policy and provided that greenhouse gas emissions should be addressed in any state permits.

As a result of this change, the MEPA office has revised the MEPA GHG Policy to require that any project that will require an Environmental Impact Report must comply with the GHG Policy. This revision to the jurisdiction of the policy will be applicable to any project proponent who files an Environmental Notification Form after the February 2, 2009 MEPA filing deadline. The Secretary has retained discretion to require compliance with the GHG Policy for any Notice of Project Change filed after the February 2, 2009 filing deadline. For your convenience, the MEPA office has provided a summary of the changes to the policy.

Let the fun begin.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

That did not take long. When I first drafted the introduction to this blog, I included text inviting people to notify us if, God forbid, I made a mistake. The powers that be vetoed that language, apparently on the basis that it was not possible for a Foley lawyer to make a mistake.

Well, the blog’s been up for less than a week, and I have received my first such notice. In my post yesterday about the Governor’s announcement regarding changes to the state building code, I noted that developers would be concerned about a multiplicity of building codes in different municipalities. The Commonwealth’s MEPA director, Alicia McDevitt, correctly notes that municipalities will not be able to promulgate their own building code provisions regarding energy efficiency. There will be only two codes: the baseline code and the “stretch” code, which municipalities will be permitted to adopt at their option.  However, the municipalities will not be able to tinker with either code; they will have to choose between them.

I have revised the original post, but wanted to thank Alicia and invite everyone to tell me when I’m wrong if, God forbid, it should ever happen again.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Massachusetts, officials are continuing to try to walk the climate change walk as well as talking the talk. Today, Governor Patrick and Secretary of Environmental Affairs Ian Bowles announced a program to encourage installation of solar panels on roofs and big box stores and other commercial buildings with flat roofs that are larger than 50,000 square feet.

Initially, the program will be voluntary, but there is no question that this is part of a broader effort by the administration to make energy efficiency a central issue in building design and construction. It is of a piece with the issuance of the greenhouse gas policy issued by the Commonwealth’s MEPA office and the requirement recently imposed by the Department of Public Health to require consideration of energy efficiency in making determinations of need for health care facilities.

The Governor also announced today an effort to develop a "super-efficient energy code for consideration by the Board of Building Regulations and Standards as a local option for municipalities that want to reduce greenhouse gas emissions from development in their communities."  This would be beyond the revised version of the state building code that is required by statute to incorporate requirements in the International Energy Conservation Code.  This past year, developers successfully fought efforts that would have allowed communities to set their own energy standards in their building codes.  Hopefully, this new effort, which would allow communities to adopt what the Commonwealth is calling the "stretch" code, but otherwise not allow different codes in different communities, will prove more manageable. 

No doubt, the pace of incentives – and requirements – will only accelerate as the Commonwealth begins to implement the Global Warming Solutions Act over the coming months and years. Don’t blink or you’ll miss something.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

In the struggle to control greenhouse gases, one debate has been which should come first, innovation or regulation. The Bush administration, of course, came down firmly on the side of innovation. It invested money – though many argued, not enough – in developing energy efficient technologies or means of controlling greenhouse gas emissions, but it fought to end against regulation of CO₂ as a pollutant.

From a theoretical point of view, the Bush position was certainly inconsistent with traditional economic theory – as well as with off-stated conservative positions on issues. Once one accepts that greenhouse gas emissions lead to climate change, i.e., in economic terms, that there is a negative externality associated with energy generation, then the economic answer should be to put a price on the externality, so that economic entities that generate greenhouse emissions have to internalize the full cost of those emissions. 

Moreover, conservatives – and some liberals – don’t necessarily assume that government knows best which technologies will prove the winners in the market. Why should we believe that government will fund the right technologies? Thus, these twin arguments go, government should set a price on carbon and get out of the way. This is called technology-forcing, and it has a solid history in environmental regulation.

Recently, however, Michael Shellenberger & Ted Nordhaus, who certainly have solid environmental pedigrees, advocated for spending on innovation in advance of imposing regulation on carbon emissions. In fact, they state that “cap and trade regulations, which would cap greenhouse gas emissions and allow companies to trade reductions, cannot work in the U.S.--and are not working in Europe.” They also argue that, in a serious recession, deficit spending on innovation in energy efficiency and greenhouse gas control makes more sense than imposing significant new taxes.

I have to say that I’m open to persuasion on this. My default position is that I would rather have the market than the government make bets on technology (which is not to say that government funding doesn’t have a role, particularly in fundamental research). However, the complexities of greenhouse gas regulation truly are terrifying and the potentially adverse impacts on the economy are, to put it mildly, non-trivial, if we get it wrong.

Unlike those who supported the losing vice-presidential candidate in the recent election because she is like them, my position is firmly that I hope that President Obama understands this stuff better than I do, and I sure hope he gets it right.

Your thoughts?

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

In Massachusetts v. EPA, the Supreme Court concluded that greenhouse gases, including CO₂, are “air pollutants,” the it left (barely) open the question whether CO₂ is “subject to regulation” under the Clean Air Act (“CAA”). 

Following Massachusetts v. EPA, there have been a number of cases in which advocates of climate change regulation have sought to require EPA to regulate CO₂ as a pollutant. One of those cases, In re Deseret Power Electric Cooperative, was just decided by the EPA Environmental Appeals Board. In Deseret Power, the Sierra Club had challenged issuance of a PSD permit issued by EPA Region 8 which would have allowed Deseret Power to construct a coal-fired power plant near Bonanza Utah. The basis for the challenge was the failure of EPA to impose a best available control technology, or BACT, limit on CO₂ emissions.

Notwithstanding the decision in Massachusetts v. EPA, EPA took the position that it historically had not interpreted the term “subject to regulation under the Act” to include CO₂. Moreover, it claimed in Deseret Power that it did not have authority to impose a BACT limit on CO₂ emissions. The EAB firmly rejected EPA’s position that it did not have authority to impose BACT limits on CO₂. However, the EAB also rejected the Sierra Club’s argument that EPA was required to impose compliance with BACT for CO_2.  In fact, the EAB concluded that “the statute is not so clear and unequivocal as to preclude Agency interpretation of the phrase ‘subject to regulation under this act,’ and therefore the statute does not dictate whether the Agency must impose a BACT limit for CO₂.”

So where does the Deseret Power decision leave the regulation of CO₂ under the CAA?  Probably pretty much where it was before the decision was issued – that is, right in the lap of the new administration. However, if I were a betting man, I would certainly be reluctant to back new ventures that involve significant CO₂ emissions unless the developer has a plan for addressing CO₂ emissions.

• Email This
• Print
• Comments
• Trackbacks (1)
• Share Link

Opening yet another front in the effort to force EPA to take more aggressive action to combat global warming, the Environmental Defense Fund recently announced its intent to sue EPA for its failure to update emissions standards with respect to emissions of methane from landfills. As EDF has alleged, Section 111 of the Clean Air Act requires that EPA update its New Source Performance Standards every eight years. EPA last updated the landfill NSPS in 1996.

Of course, at the time EPA last promulgated landfill NSPS, climate change was not part of the equation. Now, it is. Methane is a potent greenhouse gas, 21 times more potent than CO₂. Although landfills have increasingly made efforts to capture methane for waste-to-energy projects, these efforts are apparently not fast enough or comprehensive enough for EDF.

Specifically, in its 1996 promulgation, EPA determined that energy recovery from landfill methane was not available. EDF, in its Notice, cites sources indicating that energy recovery is now feasible, even at smaller landfills. 

The likelihood that EPA will revisit this issue in the limited time remaining to the current administration seems vanishingly small. However, there is no doubt that this issue will be revisited in the next administration. Given methane’s potency as a greenhouse gas, it seems likely that regulations will target this area, whether as part of a revision to NSPS or as part of a broader strategy aimed directly at climate change. Once cap and trade programs expand beyond the power generation sector, as seems likely, regulators are certainly going to be looking at reductions from landfills, among other non-power sources.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The operators of the Regional Greenhouse Gas Initiative, or RGGI, announced today that all of the 12,565,387 CO₂ allowances offered for sale at the first RGGI auction on September 25 have been purchased at a relatively low price of $3.07 per allowance. This is only marginally above the auction reserve price of $1.86 per allowance, and below recent prices on the Chicago Climate Futures Exchange.

RGGI did not announce the names of the winning bidders, but did note that there were 59 participants in the auction, from the “energy, financial and environmental sectors.” In total, the bidders sought to purchase more than 51 million allowances, or approximately four times as many as were offered. 

The auction was administered by World Energy Solutions, Inc., and RGGI also retained an independent market monitor, Potomac Economics, to oversee the auction. Potomac Economics stated that most of the allowances were purchased by compliance entities or their affiliates.  Given that RGGI seems here to stay, at least in the absence of federal cap and trade legislation, it is good to know that fears that allowances would be bought up by someone seeking either to control the market or to put fossil fuel generators out of business seem to have been laid to rest, at least for now, though we won’t really know how well RGGI is working until we see who the winning bidders are and until RGGI gets a few more auctions under its belt without incident.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

EPA has publicly taken the position that the current Clean Air Act is ill-suited to regulation of CO₂ as a pollutant.  In an advance notice of proposed rulemaking. EPA stated that regulation of greenhouse gases “could result in an unprecedented expansion of EPA authority that would have a profound effect on virtually every sector of the economy and touch every household in the land.”  (Of course, proponents of regulation of greenhouse gases under the CAA might say that that is precisely what is needed to address the problem of global climate change.)

Given EPA’s stated reluctance to regulate CO₂ and other greenhouse gases under the CAA, it came as something of a surprise this week when it became widely known that EPA recently approved an amendment to Delaware’s state implementation plan, or SIP, incorporating state regulations in which Delaware would in fact regulate emissions of CO₂ from stationary sources in that state. 

While EPA is apparently still taking the position that CO₂ is not a regulated pollutant under the CAA – and is apparently having second thoughts about its approval of the Delaware SIP amendment, environmental groups are taking a different position.  Patrice Simms, with the NRDC recently told the BNA that the Delaware SIP does make CO₂ a regulated pollutant under the CAA.  In the absence of a formal change of heart by EPA, this decision is certain to be cited broadly by those seeking immediate regulation of CO₂ by EPA. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Since the Supreme Court issued its decision in Massachusetts v. EPA, Congress, EPA, state regulators, environmentalists, and industry groups have been trying to determine what it would mean to regulate CO₂ under the Clean Air Act. While both presidential candidates are on record as supporting some kind of climate change legislation, the currently proposed legislation is extraordinarily complex and there are certainly no guarantees that legislation will in fact be enacted any time soon.

In the meantime, Massachusetts v. EPA does not seem to leave EPA much wiggle room, notwithstanding the agency’s current unwillingness to move forward on CO₂ regulation. In the absence of new legislation, it seems likely that, at some point, some court is going to order EPA to promulgate regulations governing emissions of CO₂ as a pollutant. 

So, what would be the scope of regulation of CO2 under the Clean Air Act? Based on a recent report by the U.S. Chamber of Commerce, the answer is – really, really, broad. The Chamber assumes that any facility emitting more than 250 tons of CO2 per year would be regulated as a stationary source under the Clean Air Act. The Chamber report estimates that more than 1,000,000 million facilities would be subject to such regulati9ons. 

Making these estimates is quite difficult; EPA’s own estimates were lower than those in the Chamber report. However, whether the estimate is several hundred thousand or more than one million, the picture is not pretty. The bottom line is that everyone has an interest in climate change legislation, because, in the absence of legislation, regulation will come at some point – and when it does, its impacts will be felt everywhere.

• Email This
• Print
• Comments
• Trackbacks (2)
• Share Link