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

Earlier this week, Energy & Environmental Affairs Secretary Ian Bowles announced the release of the nation’s first ocean management plan. The plan is similar, but not identical to, the draft plan issued last July. Here are the highlights

A Prohibited Area off the coast of the Cape Cod National Seashore, where most uses will be – you guessed it – prohibited

Multi-Use Areas, constituting approximately two-thirds of the planning area, where uses will be permitted if they comply with stringent standards for protecting marine resources

Renewable Energy Areas, where commercial- and community-scale wind projects have been found to be appropriate.

One significant element of the final plan, and one highlighted in Secretary Bowles’s press release, is that, where projects are proposed in areas including sensitive marine resources, it will be presumed that an alternative project outside the resource area would be less environmentally damaging. Project proponents would have to meet a balancing test, demonstrating that the project has public benefits which outweigh the detriment to the resource.

It’s going to take some time to digest the entire plan. However, most of the nation outside Houston has accepted the concept of zoning on land for almost 100 years – and land-based zoning affects private property. It’s difficult to argue with the concept that the Commonwealth should plan for resources – state waters – that it does own. In addition, having a defined framework for reviewing proposals to utilize state waters should help remove some of the uncertainty associated with the current ad hoc review that necessarily occurs in the absence of a plan. 

Deerin Babb-Brott – time to take a well-earned vacation!

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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.

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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.

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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.

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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?

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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.

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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.

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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.

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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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 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. 

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Congress moved one step closer to adopting a federal renewable electricity standard ("RES") with the narrow passage of the American Clean Energy and Security Act by the House.  Twenty-nine states already have adopted some form of renewable energy portfolio standard, but a federal RES is widely thought to be important for creating a national renewable energy and energy efficiency market.  The House RES establishes a national compliance obligation overseen by the Federal Energy Regulatory Commission (“FERC”) under which large retail electricity suppliers (“Suppliers”) are required to invest in renewable energy and energy efficiency. For each compliance year, a Supplier must calculate its total volume of electricity sales during that year and then submit to FERC a sufficient number of federal renewable electricity credits (“Federal RECs”) and demonstrated annual electricity savings to meet the RES goal for that compliance year. Up to 25 percent (or 40 percent, upon a state’s request) of a Supplier’s RES obligation may be met through electricity savings rather than Federal RECs. The trade-off, however, is that the incentive to develop and deploy new renewable energy capacity may be diluted by allowing efficiency measures to count toward the RES goal.

The RES passed by the House would not preempt state programs with stricter compliance targets, meaning that the federal program would preserve to some extent the patchwork of state standards. If Congress does pass a federal RES, leveraging the resulting business opportunities will thus require an intimate understanding of how both federal and state programs work and, perhaps more importantly, how they interact.

For more details on the RES, please take a look at our recent client alert.

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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. 

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 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. 

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This week, the Massachusetts Executive Office of Environmental Affairs announced release of the draft Ocean Management Plan, developed pursuant to the Oceans Act of 2008. The draft Plan has gotten most press for its identification of specific areas for off-shore wind energy development – as well as its prohibition of wind farms in other areas, including the area of the proposed Buzzards Bay wind farm. EOEEA Secretary Ian Bowles was quoted as saying that Buzzards Bay is too crowded and sensitive for the development of large-scale wind farms.

The Plan is about much more than wind farms, however. It really is zoning brought off-shore. There are areas where certain uses are prohibited, areas in which uses are encouraged, and other areas that will be subject to performance standards to determine whether specific uses should be allowed. Where uses are at least conceptually allowed, there will be provisions to protect sensitive areas, including a provision that requires proponents of uses in such areas to “avoid, or demonstrate that there is no less damaging practicable alternative, or demonstrate that data does not accurately characterize the resource or use.”

The Plan is important for several reasons:

The breadth of its application

The effort to integrate ocean planning with the Commonwealth’s climate change agenda

Its potential precedential effect on other states and nascent federal ocean zoning efforts

Public hearings on the Plan will be held in September, though they have not yet been scheduled. Even in advance of the hearings, comments on the Plan can be submitted here. The schedule calls for the final Plan to be issued by December 31, 2009.

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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. 

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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.

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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. 

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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. 

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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.)

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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. 

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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.  

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 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.

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 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.

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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?

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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