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

Yesterday, the Bureau of Ocean Energy Management issued a notice of availability for the Environmental Assessment it prepared in connection with the issuance of leases for wind energy development off the coast of New Jersey, Delaware, Maryland, and Virginia. The EA includes a Finding of No Significant Impact, or FONSI. In other words, BOEM concluded that the issuance of leases does not require a full blown Environmental Impact Report. 

The EA also addresses the individual site assessment plans, or SAPs, that will have to be performed by each leaseholder. While BOEM retains the flexibility to determine whether the implementation of the SAPs is covered by the EA, there is certainly the suggestion that SAPs may be not require separate NEPA analysis.

The FONSI is of course not a full green light for wind development off the Mid-Atlantic coast. Once BOEM starts awarding leases, each lease-holder would ultimately have to prepare a Construction and Operations Plan, which would be subject to NEPA review and it would be quite surprising if individual wind projects were not obligated to prepare full EISs before proceeding to construction. 

Even so, establishing this process, and obviating the need for EISs prior to issuing leases and performing at least some SAPs, can only be helpful in getting siting of wind energy in this area off the ground.

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The nine states still participating in the Regional Greenhouse Gas Initiative are getting ready for the first auction of RGGI's second compliance period, scheduled for March 14th.  In the auction notice released last week, they announced 4 changes to the program, and analysts are predicting there are far more significant changes to come -- namely adjustments to the total emissions cap. 

The first change: which we knew was coming; New Jersey is officially out.  The second:  the reserve price, the lowest price at which allowances may sell, has been increased by 4 cents to $1.93, in line with the Consumer Price Index.  The third:  although RGGI usually offers allowances from two different compliance periods for sale at each auction, March's auction will offer only 2012 allowances, raising some questions about RGGI's own view of its future past this compliance period's end in 2014.  The fourth change:  the participating states announced that they will retire 87 million of the allowances that went unsold during the 2009-2011 auctions, a move that may indicate the states' willingness to set the cap for 2012 below the earlier levels, to avoid such over-allocation of allowances in future years.

The original plan for the RGGI program, when it was introduced in 2008, was to set the emissions cap on large power plants in the Northeast at 188 million tons (estimated 2005 levels) through 2014, then lower the cap by 2.5% per year over the next four years, for a net change of 10%.  But in the intervening years, emissions in the Northeast have declined significantly due to decreasing generation from higher-carbon dioxide sources such as fuel oil and coal, increasing generation from natural gas and renewable, carbon-free sources, and expanded energy efficiency programs -- many of which were paid for by funds collected by the states through the RGGI auctions.  As a result, emissions are now far below the planned reductions already -- 2011 emissions were 34% below the cap, according to Environment Northeast's analysis released last week.  As these changes in emissions are expected to be permanent, the RGGI cap would have to be lowered by a significant amount before the cap-and-trade program became the driving factor in carbon reductions.  

The participating states are currently working on a planned comprehensive review of the RGGI program, with the most recent topics of discussion including evaluating the use of offsets and other cost-containment mechanisms in the future.  While the participating states' willingness to retire the unsold allowances from the first compliance period may be a signal of their intentions to re-set the cap for the 2012-2014 compliance period as well, it remains to be seen whether the states will merely adjust the cap to reflect observed emission trends or try to create even further cuts in emissions. 

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Yesterday, the “Independent Expert Panel” convened by MassDEP to review whether wind turbines cause any adverse health effects issued its report. I was pleased that the headline in the Boston Globe was that “Wind turbines don’t cause health problems.” Similarly, the Daily Environment Report headline was that “Massachusetts Study Finds ‘No Evidence’ of Health Impacts from Wind Turbines.” 

I hope that that’s the way the report will be read, but I’m worried. Perhaps I just have too many NIMBY-related scars. Whatever the reason, I am worried about the report’s statements that there

is limited epidemiologic evidence suggesting an association between exposure to wind turbines and annoyance.

and that

whether annoyance from wind turbines leads to sleep issues or stress has not been sufficiently quantified.

and that there

is limited scientific evidence of an association between annoyance from prolonged shadow flicker (exceeding 30 minutes per day) and potential transitory cognitive and physical health effects.

Can’t you see opponents of wind turbines latching on to these statements and urging the MEPA office to require that wind project developers fill in these “data gaps” before being allowed to proceed in Massachusetts? So climate change is threatening life as we know it (allow me a rhetorical flourish), EPA believes that fossil fuel plants result in significant morbidity and mortality, even aside from climate change, and Massachusetts, which wants to lead the nation in moving to an economy based on renewable energy, is going to get itself tied into knots evaluating claims that wind turbines annoy people? I sure hope not.

I do love that the report acknowledges that “annoyance ‘per se’ is not a biological disease.” Oh, really? That’s good; otherwise, I’d be feeling diseased right about now. We’ve known for years that Bill Koch is annoyed that Cape Wind will be in the view shed from his lovely house on Nantucket Sound (and, to be non-partisan, that the Kennedys are also annoyed). 

On the scales of cost and benefit, I just pray that MassDEP, the MEPA office, and the Massachusetts legislature (which is still reviewing wind siting legislation), give concerns about annoyance exactly as much consideration as they deserve.

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The Massachusetts Supreme Judicial Court today affirmed the decision by the Department of Public Utilities to approve the power purchase agreement, or PPA, between Cape Wind and National Grid. (Full disclosure: Foley Hoag represented the Department of Energy Resources in support of the contract before the DPU.) The decision doesn’t mean that Cape Wind will now get built. Given the (one hopes) temporary problems with the federal loan guarantee program and Cape Wind’s failure thus far to sell the rest of the power from the project, the SJC decision is more of a necessary than sufficient condition to construction.

On the merits, the decision is pretty much a standard nuts-and-bolts review concerning whether there was substantial evidence to support DPU’s decision. The SJC made frequent reference to the deference given both to DPU’s application of its expertise and to its interpretation of statutes it is charged with implementing. 

Going forward, the most significant aspect of the decision is probably the SJC’s finding that, in the absence of a statutory definition of the term “cost-effective,” the DPU was within its authority in in considering

All costs and benefits associated with [the PPA], including the non-price benefits that are difficult to quantify, and including costs and benefits of complying with existing and reasonably anticipated future federal and state environmental requirements.

Similarly, the SJC agreed with the DPU that analysis regarding whether the contract is in the public interest need not be limited to whether lower-priced alternatives exist. The SJC found that there was substantial evidence in the record supporting the DPU’s conclusion that Cape Wind would provide “significant and special advantages by virtue of its location near an area that uses high levels of electricity and the advanced state of the permitting process for the facility.” 

In short, the decision not only affirms the DPU’s decision here, but makes clear that, so long as an appropriate record is compiled, DPU is going to have significant discretion with respect to similar projects going forward.

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With the first compliance period in the Regional Greenhouse Gas Initiative (RGGI) coming to a close in December, it seems an appropriate time to look back at what we can learn from the country’s first market-based program aimed at reducing emissions of carbon dioxide from power plants. A report released Tuesday by the Analysis Group analyzed the economic impacts of RGGI – how the program impacted electricity prices, power producers’ costs, and consumers’ electric bills, and what effect the millions in quarterly auction proceeds has had, and will have, on the region’s economy.

The report does not try to predict what will happen or should happen to RGGI to update it for 2012 and beyond. Instead, it takes the last three years as a snapshot, and models the impacts that the allowances sold and money spent by the states through the last 3 years will have over the next 10 years.

Overall, the 10 states took in $912 million from the auctions, which, when invested by the states in various programs and initiatives, added $1.6 billion in net present value to the region's economy, even when taking into account the nearly $1.6 billion loss in income that power producers face with more efficient energy usage reducing prices and consumption. The report also found that the first three years of RGGI have created over 16,000 new “job years” – from employing people to conduct energy efficiency audits or install efficiency measures,  to maintaining workers in state-funded programs that might have been cut had a state not used RGGI funds to close budget gaps.

The study found that, although the cost of the allowances was largely passed along to consumers, RGGI only increased consumers’ bills by an average of 0.7% over the last 3 years. The study predicts that, over time, RGGI will lower consumers’ bills, because the states invested a substantial amount of the allowance proceeds on energy efficiency programs.  By 2021, consumers of electricity in the 10-state region will enjoy a net savings of nearly $1.1 billion on their electricity bills, and, due to efficiency programs focused on insulation and heating efficiency, another $174 million in savings from avoided expense on natural gas and heating oil. 

The analysis I found the most interesting concerns how state decisions to spend RGGI proceeds affected local economies. The Memorandum of Understanding that set up RGGI required that the states invest at least 25% of the proceeds for “public benefit,” but left the rest up to each state. As a result, there was a divergent approach to spending that, according to today's report, resulted in significant differences in returns.

New England states spent 86% of their RGGI funds on energy efficiency, and only 3% on direct  assistance to low-income consumers. Because the investment in energy efficiency introduced funds into the economy twice – both when the state paid into the efficiency program, and when consumers paid less for electricity, leaving them free to spend elsewhere in the economy – the overall macroeconomic impact of RGGI in New England was almost $900 million, even though those states only took in $275 million in allowance funds.

In comparison, the states in the PJM regional transmission organization (New Jersey, Delaware and Maryland), spent 41% of their funds on direct bill assistance and only 13% on energy efficiency.  The direct bill assistance also freed consumers to spend money elsewhere in the economy, but the analysis found that, without the multiplier effect of energy efficiency, the returns for these states were not as great.   As a result, although these three states received more money from allowance sales than New England -- $310 million – the net positive impact of RGGI was only $341 million.

It’s not much of a surprise that the investment of auction proceeds in energy efficiency is one of the big success stories of the first three years of RGGI. Nonetheless, it will be interesting to see whether the report’s conclusions regarding the relative impact of spending on energy efficiency as compared to low-income assistance will influence how states spend their auction proceeds going forward. 

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The most popular suite of tools to measure and manage greenhouse gases just got a lot more complete -- allowing companies to track the impact of their products from natural resources and raw materials, through manufacturing, use and disposal, and providing a detailed framework to measure companies’ “everything else” Scope 3 emissions.   

The Greenhouse Gas Protocol Initiative (a collaboration between the World Resources Institute and the World Business Council for Sustainable Development) finalized its two newest global greenhouse gas standards on October 4. The GHG Protocol are the most widely used suite of accounting tools for measuring, managing and reporting greenhouse gas emissions -- for instance, in 2010, more than 85% of the nearly 2,500 respondents to the Carbon Disclosure Project survey used these standards. With the addition of the two new standards -- the Corporate Value Chain (Scope 3) Accounting and Reporting Standard and the Product Life Cycle Accounting and Reporting Standard -- companies have more guidance on a methodology and common language to report the impacts of their operations as they span the supply chain and the life cycle of their products. The GHG Protocol website even includes a cute video to explain what Scope 3 emissions are and why they claim these new protocol will save the world.

The new standards, which have taken three years to develop, involved the input of close to 2,500 partners, and were actively road-tested by 60 companies from 17 countries. The final standards have been influenced by the many comments received since they were published in draft form last November, and are intended to build upon the GHG Corporate Standard from 2004 which details how to report Scope 1 emissions (direct emissions from sources a company owns or controls, like factory smokestacks and company-owned cars) and Scope 2 emissions (indirect emissions attributable to the electricity, heat and cooling the company directly consumes).

Scope 3 emissions, which include everything else, are the great unknown variable in greenhouse gas reporting. They contain the vast majority of emissions, and accordingly, have the biggest opportunities for reductions. The authors of these new standards hope that they provide companies with a “treasure map” to identify and locate these opportunities to help both the environment and the business’s bottom line. At the very least, these protocol will simplify and reduce the costs for companies taking on a Scope 3 inventory, and improve the relevance, completeness, consistency, transparency and accuracy of the emissions reported each year. 

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 In the Carbon Disclosure Project's 2011 analysis of the largest 500 companies, the Global 500, there is a very interesting statistical trend -- the companies who were the most strategically focused on accelerating low-carbon growth had returns from January 2005 to May 2011 that doubled the Global 500 as a whole, with returns totaling over 85%, compared to the 42.7% returns for the index.  Even more amazingly, the 13 companies that had been recognized by CDP for this strong focus for the last 3 years outperformed the Global 500 by over 60 percentage points over the same period.  Does monitoring and disclosing a company's carbon footprint and incorporating the risks and opportunities of climate change at executive levels actually lead to increased financial performance?  This report suggests there is a high correlation, at least. 

The report analyzes the responses the Global 500 companies submitted to a questionnaire that has CDP has sent on behalf of institutional investors every year since 2002.  Participation has increased each year -- up to 81% for 2011 -- as has the quality of the companies' answers and reporting, and the targets and goals that companies set for themselves.  This year's results show significant progress by all of the reporting companies in a few key areas, such as 74% of respondents setting greenhouse gas reduction targets, and 59% reporting a payback period of 3 years or less on their emission reduction activities. This year's survey also marked the first time that a majority (68%, up from 48% in 2010) of respondents have integrated carbon reduction efforts into the heart of their business strategies.

The set of 58 companies that doubled the returns of their peers were listed by CDP as part of the Carbon Disclosure Leadership Index (CDLI) (those that scored the highest on carbon emission measurement techniques and subsequent public disclosure) and Carbon Performance Leadership Index (CPLI) (those that fell within the top 10% of respondents when scored on strategic commitment to the business issues related to GHG emissions, energy use, and climate change).  There were 23 companies who made both lists.  Companies in Canada, Japan and the US were under-represented on these lists, compared to their peers in Australia, Germany, Italy, Switzerland and the U.K.  Surprisingly, given the regulatory focus it faces, the energy sector lags behind other sectors with the lowest proportion of companies setting targets (55%) and under-representation on both the CDLI and CPLI.

What did the CDLI and CPLI companies do differently?  As the report highlights, one notable difference between the companies named to the CDLI and those that were not is the practice of setting emissions reduction targets on which the company places significant emphasis -- 96% of the CDLI companies have emissions reduction targets, versus just 70% of the remaining companies.  Also significant seems to be whether the companies dedicated resources and time to identifying the new opportunities, investments and potential partnerships that a low-carbon economy could bring about -- the average score for the CDLI companies on this rubric is 88 (out of 100) compared to 54, across all respondents.  Similarly, all 29 of the CPLI companies have integrated their climate-related risks and opportunities into their business strategy, and used monetary incentives to encourage employees to meet carbon reduction goals.  The CPLI companies also universally submitted their emissions data for adequate verification -- something that only 37% of the remaining companies did, despite the importance of providing investors validated data.

Although the authors of the report argue that this data is a clear indicator that it makes good business sense to manage and reduce carbon emissions, correlation is not necessarily causation.  The companies who are better managing their carbon may just be better managed overall, leading to better performance.  Either way, the fast-rising number of Global 500 companies who are moving to capitalize on these opportunities highlights that more sustainable business models are, increasingly, simply the way business is done.

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The Regional Greenhouse Gas Initiative (RGGI) celebrated its third anniversary by holding its 13th quarterly auction of carbon dioxide allowances on Wednesday.   As today's Market Monitor report highlights, although the number of bidders was up, the percentage of allowances purchased was down.  Thirty-one bidders purchased just under 18% of the 42,189,685 current compliance period allowances offered for sale by the 10-state group (including New Jersey).  These allowances, with vintage dates from 2010 and 2011, can be used by electric generators in the current compliance period, which will end in December.  The previous low for demand for these allowances dates from the last auction in June, where 25 bidders bought only 30% of the available allowances, also at the floor price of $1.89.  

The states other than New Jersey then held an auction offering 1.8 million allowances from vintage year 2014, which can be used to comply in the next compliance period, from 2012-2014.  In perhaps the most direct sign of uncertainty for the future of RGGI, no one bid on these allowances. 

Per the Market Monitor report, there were not any market barriers to bidding in the auction of future compliance period allowances.  Bidders were just not interested.  The future of RGGI could seem  uncertain to would-be-bidders, between member states' reconsidering their involvement -- for instance, New Hampshire's Senate recently failed to overturn a veto by the Governor of a bill that would have removed the state from the program -- and RGGI, Inc.'s ongoing comprehensive review of the program for the new compliance period. 

In addition, the compliance entities, who are estimated to own 97% of the allowances in circulation, might feel that they have enough allowances already.  In the press release accompanying the monitor report, Maine's Public Utilities Commissioner chalked the low sales of the auction up to reduced emissions across the RGGI region, arguing that the states' investment in energy efficiency have worked.  With lower emissions, fewer allowances are needed.  Since RGGI allows banking, but not borrowing, extra allowances from the 2009-2011 compliance period can be used in the 2012-2014 period, but not the other way around.  As a consequence, the over-allocation of allowances to this early period could make sales of RGGI allowances in the second compliance period sluggish, even without the added political uncertainty.

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The Environmental Protection Agency proposed a rule yesterday that would exempt carbon dioxide injected into underground carbon capture & storage (CCS) wells from regulation as hazardous waste, so long as the CO₂ is held in wells designated for that purpose under the Safe Drinking Water Act.  In its press release announcing the program, EPA noted that the purpose of the regulation -- as well as its prior rulemakings under the Clean Air Act to require emissions reporting by CCS facilities, and the Safe Drinking Water Act to require appropriate siting, construction and monitoring of CCS wells -- was to reduce barriers to the use of CCS and promote the technology, which has yet to be proven at a commercial scale.  If the EPA is behind it, what more could CCS need? 

The interagency task force charged with evaluating barriers to CCS concluded in a report released last year that the chief obstacle for CCS was regulatory uncertainty, since most of our environmental laws do not contemplate such a technology.  The task force recommended that EPA implement regulatory changes such as this hazardous waste clarification. 

But the biggest barrier remains -- without comprehensive climate legislation and a price on carbon, there is no stable framework to encourage investment.  And this barrier is taking its toll.  This uncertainty is why AEP recently shelved plans to build a $668 million CCS retrofit on its Mountaineer coal-fired electric plant in West Virginia.

Although the outlook for CCS projects within the U.S. is thus uncertain, the United Nations' support of the technology could prompt some CCS projects in developing nations.  E&E reports today that a decision to allow CCS projects to be eligible for credits under the Clean Development Mechanism may soon be forthcoming, if technical issues such as monitoring and verifying reductions, and environmental safety and insurance coverage can be resolved.  

Other international organizations are also jumping on the CCS bandwagon.  A recent report by the International Energy Agency's Greenhouse Gas R&D Program touts the potential benefits of combining CCS with biomass facilities, particularly in Asia and Latin America.  The IEA theorizes that because the plant life used to make biomass fuels absorbs CO₂ from the atmosphere, subsequent storage of the CO₂ released from highly efficient biomass processes could actually reduce global atmospheric concentrations of carbon.  It's like how celery has negative calories.

The report asserts that we technically have the potential to annually remove from the atmosphere up to 10 gigatons of CO₂ -- or about 1/3 of annual global emissions -- through the use of biomass integrated gasification combined cycle plants and CCS.  A more economically-feasible implementation of these nascent technologies would still lead to reductions of 3.5 metric gigatons of CO₂ annually.  Notably, even this "feasible" scenario assumes that CO₂ will be priced at 50 euros ($71) per ton, worldwide.  Even in dreams of what could be, the development of CCS still has to face the obstacle of the price on carbon.

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According to EPA, buildings account for 36 percent of total energy consumption and 65 percent of electricity consumption in the United States. In the absence of comprehensive legislation that would put a price on carbon, which would give building owners direct incentives to implement cost-effective efficiency measures, a number of jurisdictions have started looking into and in some cases implementing requirements that at least commercial buildings be subject to energy efficiency ratings.

Last week, the Institute for Market Transformation (now isn’t that a name to put fear into the hearts of Tea Party members) released a report on the state of building rating programs in the United States. It makes interesting reading. First, while California, Washington, and Massachusetts have either enacted rating legislation are considering some kind of program, most of the action on building ratings isn’t even at the state level, it’s at the local level. This differs from EPA mileage or Energy Star ratings.

Second, most of these programs are triggered by some kind of transaction involving the building, such as sales, leases, and financings. Using a transaction trigger is understandable in that it avoids the avalanche of complaints that would likely follow any program that applied broadly to all buildings over a certain size. However, at a time when the real estate industry just led us into the worst downturn since the great depression, and prices are still low in many markets, I can certainly imagine some in the real estate industry being concerned about imposition of additional requirements that might discourage real estate transactions.

A related point is that, in markets where much of the building stock is old, many in the real estate industry are concerned that such ratings will be like putting a scarlet letter – perhaps an I for “inefficient” – on older buildings.

The IMT report describes rating and disclosure as a:

market-based policy tool to help overcome informational barriers to energy efficiency. Systematically assessing or “rating” building energy performance puts important information in the hands of owners and operators, helping them identify opportunities to improve energy efficiency. Disclosing ratings empowers tenants, investors and banks to identify and compare the energy performance of buildings, unlocking the market’s ability to drive demand and competition for energy-efficient space. The premise mirrors transparency rules in other market sectors, such as nutritional labels on food and fuel economy ratings on vehicles, which are recognized around the world as consumer protections and keystones of free and fair enterprise.

Real mom and apple pie stuff. Who could be agin’ it. Sarcasm aside, I’m not even against it (or agin’ it). The question though, is which market failure building ratings are trying to address. If the purpose of the rating program is simply to address the information failure described above, then it should unambiguously be a good thing. Indeed, if that is the case, all other things being equal, such programs should actual lead to increases in prices, as previously unrealized but available cost-effective efficiencies are implemented.

However, if the purpose is to impose on building owners the cost of the externality created by building energy consumption, one would expect building prices to decrease compared to those in jurisdictions that do not force building owners to internalize that externality, and I would suggest that a local patchwork of such regulations would not be a good thing.

I don’t even know if would be feasible to do an econometric study examining the impact of such programs on building prices. They are a lot of variables for which an economist would have to control. It will be interesting to follow this issue over the next few years. I’m keeping an open mind at this point. I don’t doubt that there are market failures resulting from imperfect information. If the programs are truly focused on remedying those failures, they might be a long-term boon – and reduce GHG emissions a bit on the side.

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After the death of Waxman-Markey, and given the current political climate, cap and trade is the Legislation Which Shall Not Be Named. Instead, there is discussion of either a renewable electricity standard (RES) or clean electricity standard (CES), and the talking points for supporters concern energy security and the growth of a clean energy economy, not climate change (also known as the Reality Which Shall Not Be Named). 

Either an RES or an CES would spur use of alternatives to fossil fuels in electricity generation and would lead to decreases in CO₂ emissions. However, as a report issued yesterday by the Congressional Budget Office highlighted, neither an RES nor a CES could reduce carbon emissions in as cost-effective a manner as could a cap and trade system. Moreover, a cap and trade program would ensure a certain level of GHG reductions, while the GHG impact of any particular RES or CES program would be uncertain.

I still don't understand how a market-based regulatory approach that originally had to be sold to skeptical environmentalists because it was seen as a "license to pollute" has become the poster child for government overreaching. 

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Last week, AEP announced that it was putting on hold its plans to develop commercial scale carbon capture and storage technology at its Mountaineer plant in New Haven, West Virginia. As explanation, AEP cited the uncertain status of U.S. climate policy. More specifically, AEP CEO Michael Morris noted that it is difficult to get regulatory approval to recover CCS capital costs until GHG reductions are required. 

Well, duh. 

It’s understandable that, in a world where putting a price on carbon emissions has become The Policy Which Shall Not Be Named, those who are trying to move technology forward look to other policy instruments, such as federal grants or subsidies, or tax provisions. A robust clean energy standard would provide increased incentives for technologies covered by the standard, but it is hardly the most efficient approach economically.

To this simple country lawyer’s mind, it’s not really that complicated. I can’t expect those who doubt the reality of climate change to support climate policy. For those who do, at some point we’ve got to recognize that there is no way to reduce carbon emissions, protect industry, and hold consumers harmless. The whole point is that carbon emissions are a negative externality – a cost that no one has been paying. Until we make someone pay those costs, its unrealistic to think that we can really encourage the technologies we need to develop to reduce carbon emissions.

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Demand for allowances in the nation's only cap-and-trade program for carbon dioxide emissions fell sharply last week.  At the 12th Quarterly Auction of the Regional Greenhouse Gas Initiative (RGGI), held on June 8th,  70% of the current compliance period allowances went unsold.  As the RGGI Market Monitor Report highlights, with only 25 bidders participating in the auction of the 2009-2011 compliance period allowances, only 30% of the 42 million allowances offered for sale by the 10-state group (including New Jersey) were actually purchased at the floor price of $1.89.  Demand for future allowances, good for the 2012-2014 compliance period, fared only slightly better, with the 5 participants in that auction buying just over 50% of the 1.86 million allowances offered by the still-participating states (minus New Jersey, which supplied allowances for the 2009-2011 auction, but not the 2012-2014 auction) also at the floor price of $1.89.  

This sharp drop in the sale of allowances at auction is surprising, particularly given that the last auction, held in March, sold out of allowances for the first time since Auction #8.  The number of participants who qualified to bid at the March and June auctions did not differ much -- 49 and 47, respectively -- but the number of participants who actually submitted bids fell sharply, from 36 to 25.  An even more significant difference is the number of allowances that each of these bidders bought.  For instance, while the top two bidders in March bought over 10 million allowances each, the top bidders in June bought just 2.6 million and 1.9 million respectively. 

As yesterday's ClimateWire highlighted, theories about the causes of this surprising drop abound.  My favorite is that companies regulated by RGGI already have most of the allowances they will need to cover their emissions in the compliance period ending in December, and these unsold allowances are primarily due to the excess supply under the RGGI cap.  Other theories cite to New Jersey's recent announcement that it would withdraw from the program by the end of the year as a sign to would-be-buyers that the program is threatened.  But New Jersey's break with RGGI will not be as quick as initially reported.  The official letter from New Jersey's Commissioner of the Department of Environmental Protection outlines that the state will continue to participate in the allowance auctions for calendar year 2011, as it did in the June auction last week, and that regulated power plants in New Jersey are not being relieved of their obligation to hold sufficient allowances to cover their emissions in the initial compliance period, which ends on December 31, 2011. 

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The Regional Greenhouse Gas Initiative (RGGI) took a bit of a blow today when Governor Christie of New Jersey, the second-largest of the 10-state group, announced that the state was leaving the organization.  This comes only a few weeks after the narrow defeat of bills to repeal RGGI in New Hampshire, Delaware and Maine.  However, RGGI announced on its website that the participating states would proceed with their 12th quarterly auction as scheduled on June 8th. 

Despite Governor Christie’s announcement, official withdrawal from RGGI requires legislative action, namely repeal of the provisions of New Jersey’s Global Warming Solutions Fund Statute that established the cap-and-trade program within the state.  Currently pending before the New Jersey legislature is a bill that would repeal these sections and transfer any remaining money from allowances into the state's general fund.

So what happens now?  Will the nine remaining states reduce their own RGGI allowance budgets in order to recognize the NJ allowances already sold?  Or will they proceed as if New Jersey was never part of the program in the first place, and invalidate the allowances? 

In the press release responding to the announcement, the organization said only that “the participating states will evaluate how New Jersey’s proposed withdrawal might affect New Jersey allowances currently in circulation.”   It will be interesting to see if the New Jersey-based power plants which have been buying allowances along the way at quarterly auctions, in preparation for the end of the 3-year compliance period this December, will demand a refund from the state for their potentially worthless allowances. In addition to the loss of significant RGGI-allowance revenue going forward, this could create a problem for this already cash-strapped state.   

In the last two years, New Jersey took in over $113 million from the sale of allowances in the nine auctions in which it participated. This money was divided up in a number of ways – including the Governor’s recent withdrawal of $65.2 million to balance the current state budget.  New Jersey has also already awarded $29.6 million in allowance proceeds to 12 large scale energy efficiency and renewable energy projects through its Clean Energy Solutions Capital Investment Loan/Grant Program. According to New Jersey's statements through the RGGI website, these programs would create enough renewable energy to meet the demands of more than 19,600 New Jersey households each year, and would avoid 1.7 million tons of CO₂ over the lifetime of the projects.  

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Late last week, the Massachusetts Department of Energy Resources (DOER) filed with the Joint Committee on Telecommunications, Utilities, and Energy of the state legislature proposed final amendments to the Renewable Portfolio Standard (RPS) regulations governing the eligibility of woody biomass facilities and fuels to qualify to earn renewable energy credits (RECs).  DOER originally issued a draft of these regulations in September 2010, and made revisions after receiving written comments and holding 2 public hearings.  In addition to the revised regulations, DOER issued a regulatory package containing two sets of guidance in the forms of Excel spreadsheets, the Guideline for the Calculation of Overall Efficiency and Lifecycle GHG Analysis and the Guideline for the Determination of Forest Derived Eligible Biomass Woody Fuel. The Joint Committee has 30 days to review the rules and submit its comments to DOER for additional review. DOER hopes to promulgate the final rules early this summer.

At a time when the EPA appears to be favoring biomass a fuel (with actions like exempting it from the tailoring rule for 3 years), Massachusetts is making it very difficult to qualify “electricity only” biomass as renewable and eligible for RECs, as the rules strongly favor combined heat and power uses.   While the proposed changes to the regulation do not ban the development of biomass facilities in Massachusetts, they do set a very high bar to qualify for renewable energy credits under the RPS – so high that many believe that large scale biomass units may not be viable absent significant technological advances. Under the regulation, the term Eligible Biomass Fuel will include things like woody pellets, agricultural waste and by-products, food or vegetative material, algae and biogases, but officially excludes Construction and Demolition Waste.

Eligible Biomass Woody Fuel, the largest subset of eligible fuels, is now limited to forest-derived residues from timber operations, limited thinnings and invasive growth; forest salvage from storms or pest infestations; non-forest derived residues from lumber mills and woodworking shops, trees removed in converting forests to agricultural, residential or commercial uses (so long as all other permits have been obtained), yard wastes, and maintenance of parks and rights of way. The final category of Eligible Biomass Woody Fuel is “dedicated energy crops” which includes wood (but not cellulosic fuel) that has been purposefully grown to produce fuel, but contains a remarkably broad restriction that the trees may not have been grown in a place that “sequestered significant amounts of carbon” such as a forest, or on land that has the potential to support crops grown for human consumption as food. 

Biomass units are required to provide to DOER in their applications a lifecycle analysis of greenhouse gas emissions (GHG) and demonstrate emission reductions of at least 50% over 20 years compared to a new, combined-cycle natural gas generator using the most efficient commercially available technology. DOER will provide a standard analytical methodology in another set of guidance to accompany the Statement of Qualification Application. Under both the proposed regulations and Guidance #1 on GHG lifecycle analysis, facilities must account for direct emissions from production of the fuel stock and delivery to the biomass facility, as well as indirect emissions from land use changes, and temporal changes in forest carbon sequestration and emissions resulting from biomass harvests, regrowth, and avoided decomposition.

One new provision added since the September draft requires that the amount of forest-derived biomass material eligible to be removed be limited based on soil types and as set forth in Guidance #2 on Forest-Derived Fuel.  The regulation and guidance set a cap by percentage of weight of the total amount of material harvested from the site, ranging from zero (for very poor quality soils) to 40% (for highly productive soils) – the rest of the biomass harvested must be left in the forest for soil nutrient retention. To effectuate this requirement, foresters will have to develop a soil map for each harvest area and determine the maximum eligible biomass tonnage that can be removed. The September draft had set this cap at 15% across the board.

Both the September draft and this week’s proposed final rules require that biomass units meet a minimum overall efficiency rate of 40%, determined based on the biomass input heat content of the fuel, and accounting for GHG emissions associated with fuel refining and processing.  If operating at that level of efficiency, the unit will receive one-half REC for each MWh of generation. Units operating at an overall efficiency of 60% and above would receive a whole REC credit for each MWh they generate, and units between 40 and 60% would receive a proportional fraction of a REC.

Under the revised regulations, electricity generated by a unit that is used on-site (“behind-the-meter”) is included in the calculations of the unit’s overall efficiency. “Merchantable bio-products” (chemicals like additives and lubricants) created from the woody fuels at an on-site bio-refinery will also be netted out in calculating overall efficiency.  Finally, and perhaps most significantly, productive use of the large quantities of heat generated by the biomass facilities, so long as it falls within the defined term “useful thermal energy” under the regulation, will also be included in the overall efficiency calculation.  However, the revised regulation clarifies that any thermal energy used to dry or refine green woody biomass for use as a fuel will not count towards overall efficiency.  

Biomass generating units that have already secured their Statement of Qualifications will also have to demonstrate compliance with the new regulation. They must prove use of Eligible Biomass Woody Fuel by 2013, and comply with all provisions, including the requirement for overall efficiency, by 2015.

 

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Thursday afternoon, EPA and the Tennessee Valley Authority announced one of the largest pollution reduction consent decrees in US history – resulting in between $3 to $5 billion of investment in air pollution controls, and retirement of almost one-third of TVA’s coal-fired generating units within the next few years.  Over the next decade, it will reduce TVA's total emissions of nitrogen oxides by 69% and sulfur dioxide by 67%.  Although the agreement provides a timely victory for EPA amid the current backlash against it in Congress, the settlement actually relates to a New Source Review (NSR) suit commenced by EPA during the Clinton Administration in 1999.  The consent decree resolves all alleged past preconstruction violations, as well as alleged violations of the New Source Performance Standards and Title V regulations.

The TVA operates 59 coal-fired boilers at 11 plants in Alabama, Kentucky and Tennessee, and supplies power to around 9 million people in its service area that spans most of the southeastern US. The settlement involves all 11 plants, and includes an obligation to address 92% of TVA’s coal-fired system between 2011 and 2018 by either installing state of the art pollution controls like SCRs and FGD or repowering with renewable biomass. Another 18 coal-fired units, about 16% of TVA’s coal-fired generating system, totaling 2,700 MW of capacity, will be permanently retired – the largest retirement commitment seen under EPA’s Coal-Fired Power Plan initiative, which has settled 22 such NSR cases so far.  However, Greenwire reports that, even before today's announcement, TVA was already planning to retire about 1,000 MW of coal-fired capacity.

I found the option to repower the units with renewable biomass to be particularly interesting, especially given EPA’s current proposal to continue studying biomass emissions for three years before requiring Clean Air Act permits for greenhouse gas emissions from biomass sources.  In the agreement, “Renewable Biomass” is defined very broadly, with no time-frames or extensive restrictions. Instead, it includes, in part, organic matter that comes from forests or grasslands, as well as residues and byproducts from agriculture, forestry and paper industry. Under the agreement, the repowered units would be deemed “new” emission units, themselves subject to New Source Review and other permitting requirements.

The settlement also includes $10 million in penalties -- $8 million paid to EPA, $1 million paid to Tennessee and $500,000 each paid to Alabama and Kentucky -- as well as $350 million in environmental mitigation projects, including $240 million to be spent on TVA-run energy efficiency projects and $60 million to be divided among Alabama, Kentucky, North Carolina and Tennessee for the states to implement projects of their choosing, so long as they're within the categories specified in the consent decree.

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Justice Brandeis famously suggested that states may “serve as a laboratory” for the rest of the country. If this is so, I think it is fair to say that U.S. EPA has not accepted the results of the biomass experiment conducted in Massachusetts. Last year, following receipt of a study regarding the GHG emission implications of various types of biomass fuels, Massachusetts decided to severely restrict the circumstances in which biomass would be considered a renewable fuel.

Earlier this week, EPA decided not to go along with the restrictive approach taken by Massachusetts, and granted a petition to stay application of GHG permitting to biomass facilities, while EPA further studies the issue. Specifically, EPA promised to amend the tailoring rule to exempt biomass facilities for three years. In a letter EPA Administrator Lisa Jackson sent to Senator Stabenow as part of the announcement, Jackson stated that:

biomass can be part of a national strategy to reduce dependence on fossil fuels, and efforts are underway to foster the expansion of renewable resources and promote biomass as ways of addressing climate change and enhancing forest management.

It’s one thing for a state to differ from the federal government or other states on matters of policy. However, my guess is that the federal EPA and the great Commonwealth of Massachusetts have pretty much the same policy goal – reduction of greenhouse gas emissions. This is really a question of science. Does use of biomass help reduce GHG emissions? Shouldn’t the answer be the same everywhere?

I’m not a scientist and cannot comment on the reliability of the Massachusetts biomass study. (And I should disclose that our firm has represented the proponent of one of the biomass plants in Massachusetts.) However, it does seem to me that this is one area in which a uniform national policy is the right approach. Let’s give EPA the three years that it apparently needs to sort out the issue, and then have one policy applicable nationwide.

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With everyone in agreement that cap-and-trade legislation is dead in Congress for the near term, attention is now turning to whether Congress might be able to pass some kind of renewable or clean energy standard. In fact, even Thomas Donahue, President of the U.S. Chamber of Commerce, sworn foe of cap-and-trade legislation, is saying that the Chamber could support some kind of climate change legislation – presumably a CES including nuclear power – as long as the legislation precludes EPA regulation of GHG under existing authority. 

For those who are taking the half a loaf approach to climate legislation, I recommend this post by Rob Stavins at Harvard and Dick Schmalensee at MIT, which compares cap-and-trade legislation with CES legislation. The piece is a remarkably cogent short analysis of the issue, so I hate to excerpt something which can be read in a few minutes. Nonetheless, for the lazy among my readers, the bottom line is that:

Carbon cap-and-trade has been killed in the Senate, presumably because of its costs. Renewable electricity standards or clean energy standards would accomplish considerably less and would impose much higher costs per ton of emissions reduction than cap-and-trade would. This does not sound like a step forward.

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In what might not be an overstatement, Seth has described Massachusetts' Global Warming Solutions Act (GWSA), as "the future of everything".  If so, welcome to the future of the future of everything.  The GWSA requires the Executive Office of Energy and Environmental Affairs (EEA) to set a 2020 goal for state-wide reductions of greenhouse gas emissions, and, before January 1, 2011, to create a plan outlining how to get there.  Just in time, EEA yesterday released the Clean Energy and Climate Plan for 2020, which sets the 2020 emissions goal at 25% below 1990 levels (the maximum reductions authorized by the GWSA) and outlines how the Commonwealth will comply with that limit. 

The 2020 Plan announces a portfolio of policies in five categories – buildings, electricity, transportation, non-energy emissions, and cross-cutting policies (essentially agency procedures that do not fit into the other categories) – representing the suite of policies that the Patrick-Murray administration is committed to pursuing over the next four years, to work toward the 2020 emissions limit.  Together, the policies could result in as much as a 33% reduction of greenhouse gases below 1990 levels, and set the groundwork for the 80% reductions required by 2050 under the GWSA.  EEA also predicts that these policies will reduce Massachusetts’ reliance on imports of energy and fuels, and create or maintain 42,000 to 48,000 jobs in Massachusetts in 2020.

For a summary of specific points included in the 2020 Plan, keep reading after the jump.
 

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The cap in the nation's first mandatory cap-and-trade system is probably set too high.  As reported by ClimateWire this morning, it seems increasingly likely that participants in the Regional Greenhouse Gas Initiative (RGGI) will easily meet and beat RGGI's ultimate goal, even without any changes or reductions actually caused by the program.

RGGI's initial aim was to cut CO₂ emissions from large power plants in the 10-state region to 10% below 2005 levels by 2018.  This plan involved two stages: one with the cap stabilized at 180 million tons CO_2e from 2009-2014, and the second, from 2015-2018, with a cap declining by 2.5% each year.   However, in the two years that the program has been in action, emissions have already declined to 33% below 2005-levels.   Although the decline has been commonly attributed to the economic downturn, NYSERDA found that fuel switching by power suppliers from coal and petroleum to natural gas (cheaper than it was in 2005) has in fact had the greatest impact, contributing 31.2% of the decline. 

At a meeting on November 12, RGGI, stakeholders gathered to hear briefings on projections for future emissions, why the carbon footprint was overestimated thus far, and what changes need to be made to RGGI going forward.  Consultant IGF International reported that although emissions in the region are predicted to grow steadily into the future, they will stay well below RGGI's initial reduction target through 2030, even without additional reductions caused by the energy efficiency and renewable energy programs funded by RGGI itself.  Their data suggests that the RGGI cap would have to be tightened from 10% reductions by 2018 to 22% or higher, for the cap-and-trade system to have any impact at all. 

The RGGI member states are currently involved in evaluating the program, and could make changes to the cap, as well as the rest of the program, before the second compliance phase begins in 2012. It will be interesting to see what decisions they make over the next year.

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A recent amendment to the EPA’s Mandatory Reporting of Greenhouse Gases Rule (40 CFR part 98) requires companies that report their emissions to also provide information on corporate ownership,  North American Industry Classification System (NAICS) codes, and whether any of the emissions come from a cogeneration unit. The goal behind collecting this information is to gain a better understanding of the aggregate greenhouse gas (GHG) emissions from corporations and specific industry sectors, and identify potential differences in emissions between otherwise similar facilities due to cogeneration. Such information can be used to guide future GHG regulations and mitigation strategies. The rule was signed by Administrator Jackson last week and is to be published the Federal Register shortly. 

The final rule requires facilities and suppliers reporting GHG emissions (large industrial facilities that emit 25,000 metric tons or more per year, plus suppliers of fossil fuels and industrial gases, and a few others) to include, in their first annual GHG emission report due on March 31, 2011,  the name and address of each US parent company and a breakdown of the percentage share that each parent owns. It also requires the facilities to report any NAICS codes that apply to the facility – both the primary code as well as any others that are appropriate.

The third requirement takes the form of a checkbox indicating whether the report includes emissions from a cogeneration unit, defined by EPA as “a unit that produces electrical energy and useful thermal energy for industrial, commercial, or heating or cooling purposes, through the sequential or simultaneous use of the original fuel energy.”  In the final rule, EPA notes that there are no current programs that require facilities to identify whether they have cogeneration units – EPA’s Combined Heat and Power Partnership is only a voluntary program, and while the Energy Information Administration collects information on cogeneration from power generators greater than 1 megawatt, this program likely does not cover all of the facilities and suppliers subject to 40 CFR part 98.

The information collected on cogeneration through this rule is just a start, and useful primarily to merely identify the facilities using cogeneration. As EPA correctly notes, the information likely will not be sufficient to determine the quantity of GHG emissions occurring from particular NAICS sectors or cogeneration units within an individual reporting facility, or the degree to which cogeneration emissions at the applicable facilities displace onsite use of fossil fuel or other emissions from centralized electric generation. Nonetheless, information on the types and characteristics of facilities that use cogeneration could be important to the future development of GHG mitigation strategies.

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Discussion of the Smart Grid usually focuses on efficiencies that may be achieved by a system that responds to real time information about energy production, distribution and consumption. But the development of this advanced digital infrastructure, with two-way capabilities for communicating information, controlling equipment, and distributing energy, also presents some legitimate information security and privacy concerns. For example, a disgruntled employee or a terrorist with the right computer skills could penetrate a network and alter load conditions to destabilize the grid in unpredictable ways. The grid may also be compromised by inadvertent events such as equipment failures and natural disasters. 

On the privacy side, the Smart Grid will greatly expand the amount of data that can be monitored, collected, aggregated and analyzed. For example, information about specific appliances and generators used by consumers can be tracked from the electric information “signatures” they produce. The driver of an electric vehicle will also leave an electrical roadmap of her travels. 

In response to these concerns, the National Institute of Standards and Technology (NIST) released guidance earlier this month entitled Smart Grid Cyber Security Strategy and Requirements. The three-volume guidance document is intended for “Smart Grid stakeholders” including vendors of energy information and management services, equipment manufacturers, utilities, system operators, network specialists and regulators. 

• Volume 1 presents a risk assessment framework and describes high-level security requirements;
• Volume 2 focuses on privacy issues in personal dwellings and recommends how entities that participate in the Smart Grid might address these issues; and
• Volume 3 is a compilation of supporting analyses and references.

Kudos to anyone who can decipher the NIST’s “Logical Reference Model” pictured below. Nevertheless, the guidance provides a useful framework for addressing these complex issues.

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The Regional Greenhouse Gas Initiative (RGGI) auction program celebrated its second birthday this week by holding the 9th regional auction of CO₂ allowances.  As today's report highlights, the auction brought a bittersweet first for the 10-state program: unsold allowances from both the current and future regulatory periods.  Bidders bought only 75% of the 45.6 million 2010-vintage allowances offered and just 61% of the 2013-vintage allowances, with both auctions closing at the mandatory floor price of $1.86.   Not surprisingly, given these results, participation in the auction was down -- the 2010 auction garnered bids from 45 entities, 92% of whom were regulated generators or their affiliates, down from March's relatively robust participation of 51 bidders.   According to today's report, regulated entities have purchased 84% of all allowances sold in Auctions 1-9, and through trading on the secondary market, will hold 95% of the allowances in circulation, once the allowances sold in Auction 9 are distributed.

Under the RGGI rules, the leftover allowances from this week's auctions may be sold at a future date, or a state may choose to retire them.  Since many people believe RGGI allowances to be over-subscribed, retiring some or all of these leftover allowances might be one way for the RGGI states to re-balance the market and encourage further reductions in emissions. 

Even at the floor price, the RGGI proceeds keep growing.  In the last 2 years, the auctions have brought in $729, 281,959 for the 10 states, who are collectively investing 80% of the funds in state-based energy programs: 60% in energy efficiency programs, 10% to accelerate deployment of renewable energy technologies, and 10% to direct consumer benefit programs, such as assistance to low-income ratepayers.  RGGI, Inc. noted in its press release accompanying the market monitor report the hopes that this "auction and invest" design will be a model for a national program as well as other regional programs like the Western Climate Initiative and the Midwest Greenhouse Gas Reduction Accord. Since regional programs are likely to be the model for the foreseeable future, this certainly seems like a possibility.

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The Cape Wind project cleared another important hurdle yesterday with a 4-2 ruling by the Massachusetts Supreme Judicial Court, holding that the state Energy Facilities Siting Board (EFSB) can authorize local construction permits for the project’s transmission lines. The decision in Alliance to Protect Nantucket Sound Inc. v. Energy Facilities Siting Board is particularly significant because it means that the renewable energy project has all of the state and local permits it needs to move forward.  

In late 2007, after the Cape Cod Commission denied its proposed Development of Regional Impact (DRI), Cape Wind applied to the EFSB for a “certificate of environmental impact and public interest” -- a composite of all of the individual state and local permits required for the construction of the 18.4 miles of transmission lines that will connect the wind farm to the regional power grid. This suit, brought by the Cape Cod Commission, the town of Barnstable, and the Alliance to Protect Nantucket Sound, challenged the EFSB’s May 2009 decision granting the certificate to Cape Wind. In short, the SJC held that the EFSB had the authority to grant the certificate and upheld the Board’s substantive findings, which balance the environmental impacts of the transmission lines with the need for the project. 

A key aspect of the decision is the SJC's rejection of the petitioners' arguments that the EFSB should have reviewed “in-State” impacts of the wind farm, which is permitted exclusively by Federal authorities, rather than focusing solely on the impacts of the transmission lines, which require state and local permits.  Essentially, if the project is built in federal waters, the EFSB can trust the feds to get it right, the majority said.

Chief Justice Marshall (joined by Justice Spina) dissented, issuing a stern warning:

The stakes are high.  As we have recently seen in the Gulf of Mexico, the failure to take into account in-State consequences of federally-authorized energy projects in federal waters can have catastrophic effects on state tidelands and coastal areas, and all who depend on them. 

The decision also includes a lively debate about the implications of the public trust doctrine and the Chapter 91 licensing scheme in this context.

Writing for the majority, Justice Botsford concluded that the statute which authorizes the EFSB to issue certificates of environmental impact and public interest provides

an express legislative directive to the siting board to stand in the shoes of any and all State and local agencies with permitting authority over a proposed "facility"-- that is, a directive to assume all the powers and obligations of such an agency with respect to the decision whether to grant the authorization that is within the agency's jurisdiction, with regulatory enforcement thereafter returned to that agency.

Again, Chief Justice Marshall disagreed.  Reflecting on the SJC’s recent decisions in Moot v. Department of Envtl. Protection, (2007) and Arno v. Commonwealth, (2010), she reasoned that even in this case -- which has to do with the administration rather than the relinquishment of public trust rights -- the Legislature must act expressly. Here, Justice Marshall concluded,

the siting board has purported to act as the protector of the public's long-standing rights under the public trust doctrine without the necessary express legislative authority to do so.

Of course, underlying this debate is the important policy question of which picture of Nantucket Sound is more protective of the public trust?  The state, and now the SJC, have chosen.

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As the Massachusetts legislative session wound down, there was the usual last-minute scramble – heightened, this time, by the Legislature’s focus on casino gambling. Notwithstanding the preoccupation with gambling, the Legislature did manage to enact the Permit Extension Act, which developers have been pushing for some time. Briefly, permits in effect at any time between August 15, 2008 and August 15, 2010, will be extended for two years. To read more, check out our client alert.

The Legislature was not able to get wind siting legislation enacted. The House passed the bill at midnight on the last day, but it died in the Senate. Presumably, those legislators who will defend home rule with their dying breath think that the 8 years Cape Wind has spent in permitting (yes, I know that Cape Wind would not have been affected by the wind siting legislation) and the 7 years that the Hoosac wind project has spent in permitting demonstrate that our permitting system works well and needs no improvement.

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Not surprisingly, the secondary market price for Regional Greenhouse Gas Initiative (RGGI) allowances fell for the 4th quarter of 2009, as noted by RGGI Market Monitor Potomac Economics in their recent report.  Trading in RGGI allowances futures declined from 319 million allowances in the third quarter of 2009 to 127 million in the fourth quarter, despite the number of firms participating remaining the same.  Futures prices also declined 8% -- from $2.45 to $2.25.   Even so, futures prices remain notably higher than the clearing prices of the RGGI auctions, which were $2.19 and $2.05, respectively, in the September and December 2009 auctions.

One reason for the continuing decrease in RGGI allowance prices, both through auction and on the secondary market, is the steep decline in CO₂ emissions from the RGGI-subject power plants.   As highlighted in a recent report by Environment Northeast, due to the economic crisis, fuel switching energy efficiency programs, and renewable energy, emissions from those plants have fallen 34% since the start of the program, to just above 120 million tons of CO₂.  This is well below the current RGGI cap of 188 million tons, and even below RGGI's ultimate 2018 goal of 10% reductions from 2005 levels. As such, RGGI allowances will likely remain a surplus commodity well into the future. 

Even given these facts, though, RGGI allowances are far from worthless.  Particularly given that the House-passed ACES bill, as well as all of the front-runner energy and climate bills possibly considered by the Senate have contained provisions for the exchange of federal allowances for RGGI allowances, even the RGGI allowances that might not be needed by RGGI-covered entities could still be worth their weight in federal CO₂ credits sometime in the future.

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It has long been understood that Massachusetts that the Commonwealth cannot meet its renewable energy goals with solar power alone. Solar is great, but really ratcheting up the percentage of energy supplied by renewable sources is going to take a big commitment to wind. In fact, Governor Patrick announced a goal of 2,000 MW of wind on- and off-shore in Massachusetts by 2020. There are currently 17 MW of wind power in Massachusetts.

Everyone knows the permitting travails – now, hopefully, over – that Cape Wind has faced. It is less known that on-shore wind has not been any easier to develop in Massachusetts. Yesterday, in Ten Local Citizen Group v. New England Wind, the Supreme Judicial Court released a major on-shore wind project from permitting appeal purgatory. The New England Wind project (perhaps still better known as Hoosac Wind) in Florida and Monroe, Massachusetts, was proposed in 2003. Not uncommonly for projects of this sort, the appeal that delayed project implementation had nothing to do with the merits of on-shore wind. It was an appeal over wetlands approvals needed for a gravel access road. By the time MassDEP issued a Superseding Order of Conditions, the opponents requested an adjudicatory hearing, the hearing was held, the ALJ issued a 78-page recommended decision rejecting the permit, the Commissioner issued a 31-page final decision affirming the permit and rejecting the ALJ’s recommended decision, the Superior Court affirmed the Commissioner, and the SJC affirmed the Superior Court, it was July 6, 2010.

I don’t know about you, but I’m out of breath just typing this history. There has to be a better way. It’s certainly safe to say that if wind projects – wherever located – take 7 or 8 years to permit, it’s going to be 2120, not 2020, before we have 2,000 MW of wind in Massachusetts. As some readers will be aware, the Administration has been supporting legislation to facilitate siting of wind power facilities in Massachusetts, but it hasn’t been enacted yet and the forces that make it difficult to obtain final permits in Massachusetts go far beyond the issues that would be addressed by the wind siting legislation. 

For the lawyers among my readers, the decision breaks little ground. Yes, the Commissioner of DEP has considerable discretion in interpreting her own regulations. No, the ALJs who hear adjudicatory appeals and make recommended decisions are not entitled to any deference. 

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In the Regional Greenhouse Gas Initiative's (RGGI) eighth auction of CO₂ credits on June 9th, the clearing prices were the lowest yet – $1.88 for 2009-2011 credits and the auction floor of $1.86 for 2012-2014 allowances.  Despite these low prices, the auctions still brought in some $80 million.  In total, cumulative RGGI proceeds to be used by the 10 participating states for renewable energy, energy efficiency and low-income energy assistance programs now total $662.8 million.

RGGI's announcement of the auction results highlights some of the specific programs in which the states have invested, and the returns we are already seeing from these investments.  For example, in Connecticut, electric and gas energy efficiency programs, funded in part by RGGI proceeds, are producing more than $4 for every $1 invested.  New York reports a return greater than 8 to 1 for its investments in renewable energy systems.  And the predictions are even larger:  Massachusetts reports that energy efficiency programs, funded in part by RGGI, will generate roughly $6 billion in consumer energy savings in Massachusetts over the next 3 years. 

On the whole, the RGGI states are investing around 60% of the proceeds from the auctions in energy efficiency.  Energy efficiency measures such as building retrofits, heating system replacements and appliance upgrades are predicted to shave 20 to 30% off consumers' utility bills over the next few years. States are also investing in large-scale renewable energy development as well as programs to deploy distributed generation, such as solar energy and hot water systems on  homes, schools, and businesses.

Although participation and prices were both down for this second auction of 2010, all 2010 vintage and 2013 vintage allowances available for purchase were sold – a change from the previous two auctions, in which supply for allowances to be used in the 2012-2014 compliance period outpaced demand.   Perhaps due to the drop in the number of entities participating, electric generators subject to RGGI purchased 92% of the 2010 vintage allowances – up from 85% in March's auction – and 100% of the 2013 vintage allowances.

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So, Kerry Lieberman (Graham?), also known as the American Power Act, is here. What does it mean?

My immediate reaction is that, in a big picture sense, they got it just about right. The fundamental issue, which was previously acknowledged by Senator Graham (can we start calling him “he who must not be named?”), is that we’re not going to solve the energy independence or climate change problems unless we put a price on carbon. This bill does that.

Frankly, the rest of the issues really only matter either to particularly constituencies or, as a related concern, to particular members of Congress. What are some of these other issues and how would they be handled in this bill? We’ll be getting a more detailed client alert out shortly, and if you can't wait, you can review the short summary or the section by section analysis, but here’s the very quick version.

Basic cap-and-trade provisions –

Goal is to reduce CO₂e by 4.75 percent of 2005 levels by 2013 and 83% by 2050, with interim targets in 2020 and 2030

EPA administrator will set allowance numbers to reach those targets

Only facilities emitting >25,000 tpy CO₂e will be subject to the program

Generating facilities are subject to the program in 2013; manufacturing facilities will not be subject until 2016.

Initial price floor of $12/ton and price ceiling of $25/ton

Limits on who can participate in the carbon market to avoid market manipulation

Allowances used primarily to cushion consumers from energy price increases, but also to support various industries

Includes a “WTO-consistent border adjustment mechanism.” In the absence of a global agreement, tariffs will be imposed on countries without similar GHG controls

Nuclear power – lots of help for the nuclear industry

Off-shore drilling – Provides substantial revenue sharing to certain coastal states, but allows states to prohibit leasing within 75 miles of their coastline

Coal – significant support for carbon capture and sequestration

Renewable energy – Does not include a national renewable energy standard, or RES, though does provide for federal assistance to encourage development of renewable energy technology

Preemption – preempts state cap-and-trade programs, but not other state regulation of GHG. Precludes EPA regulation:

No listing of GHG as criteria pollutants based on climate change impacts

No listing as hazardous air pollutants based on climate change impacts

Limitation – but not complete preemption – of GHG regulation under existing NSR authority

Don’t yell at me if this list does not include your favorite provision. This is a blog, not a treatise. As to the big political picture, I still think that, if Senator Graham can be brought back on board, there is a reasonable chance that this bill passes. If not, then I’m pretty skeptical. 

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Yesterday’s New York Times had a very interesting article regarding the use of advanced municipal waste combustor technology in Europe. As the article notes, such plants are relatively commonplace in Europe, whereas literally no new waste-to-energy plants are being built in the United States. Ian Bowles, our own Secretary of Energy and Environmental Affairs – and someone who has generally been a very successful promoter of renewable energy technology – acknowledged that “Europe has gotten out ahead with this newest technology.” 

This shouldn’t be surprising given that states such as Massachusetts have moratoria on new municipal waste combustors. It’s difficult to keep up with Europe when you order people not to try. In fairness to Secretary Bowles, the article pretty much makes clear why it is that Massachusetts has a moratorium in place and why we’ve fallen behind Europe. Laura Haight, at New York PIRG said that

Incinerators really are the devil.

Glad that there’s no rhetorical excess at NY PIRG. In any case, it’s difficult for regulators to move forward when one of their prime constituencies thinks that the technology is the devil.

Is it possible that the U.S. environmental community is letting the perfect be the enemy of the good on this issue? NY PIRG wants to get to a “zero waste” economy. I think we’ll get to a zero carbon economy before we get to a zero waste economy.

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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. 

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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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