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

The US Department of Energy (DOE) announced two items in the last week that, while not related, could both spell large changes in the US energy future and create huge boon to the natural gas industry, if they pan out.

The first is an announcement on Wednesday that the National Energy Technology Laboratory (NETL) has developed a method of freezing natural gas which could both lower the cost of transportation of natural gas and allow access to vast amounts of the world's gas resources. NETL has created a special nozzle technology that rapidly traps natural gas in ice to form methane hydrate -- a process that also occurs in nature, and has foiled some of BP's attempts to plug the Deepwater Horizon well permanently. The technology requires far less pressure and cooling than the creation of liquefied natural gas (LNG) or compressed natural gas (CNG), and, reportedly, forms hydrates in minutes, compared to the current batch process that can take hours or days. NETL researches believe the new process will significantly reduce production, transportation and storage costs associated with current LNG and CNG processes and, potentially allow recovery of natural gas from hydrate deposits in the deep ocean and arctic permafrost.  The announcement reports that these deposits are estimated to contain more organic carbon than the rest of the world's fossil fuel reservoirs combined.  Of course, the politics of pursuing those deposits are likely to be dicey, given that some would argue that carbon is better left in a frozen state, rather than released into the atmosphere.  The announcement does not indicate whether the technology has been tested at any sort of scale, nor a timetable for when it might be rolled out.  

The second is an announcement in the Federal Register August 20th, reported by ClimateWire today, that the DOE is considering revising its energy efficiency calculations to take into account how the electricity powering large appliances like household water heaters is produced. By using a full-fuel-cycle (FFC) approach, the DOE, working with the Federal Trade Commission, would include the point-of-use energy, plus the energy consumed in extracting, processing and transporting the fuels source, plus the energy losses associated with the generation, transmission and distribution of electricity. This information would then be provided to the public in enhanced Energy star labels. In 2005, the National Academy of Science recommended that DOE consider moving to use of an FFC approach for assessment of all energy and environmental impacts, especially levels of greenhouse gas emissions, and to provide the information learned to the public through labels and other means -- DOE says in its announcement that it is working to implement this recommendation.

As ClimateWire highlights, because about half of the country's electricity comes from coal-powered generation, natural gas proponents argue that a switch to FFC measurements will help them, by forcing consumers and utilities to look closer at the differences in fuel sources and efficiency of energy generation.  DOE is requesting comments on the models and programs used to make these proposed calculations, but if they are implemented, FFC may become the DOE's approach of choice in other areas, too.

 

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The BNA reported today that the Massachusetts Office of Technical Assistance and Technology has developed a guidance document identifying considerations for the safe development of engineered nanoparticles, or ENPs. As many of my readers know, I am deeply suspicious of regulatory agency guidance documents. Guidance is often used as a short-cut so that the agency can avoid notice and comment rule-making. Moreover, it’s generally one-sided; agencies refuse to be bound by guidance, because “it’s only guidance,” but street level bureaucrats effectively treat the guidance as regulations, so that the regulated community is effectively deprived of the flexibility that guidance is supposed to provide.

I’m pleased to say, however, that the OTA guidance appears to be a thoughtful, measured approach to safe handling of ENPs. My view is apparently corroborated by the NanoBusiness Alliance, which, according to the BNA, supports the guidance.

In this case, the guidance clearly is not a trick to avoid notice and comment rule-making. It will be issued by the OTA, which has no regulatory authority. Instead, the guidance appears to advance two goals. First, offers a simple compendium of generally reasonable steps to take to minimize the risks associated with the manufacture, handling, use, and disposal of ENPs. Second, it is intended to be a confidence builder. As the OTA notes, “increasing confidence and trust can enhance commercial prospects” for ENPs.

I certainly expect some kind of robust regulatory regime focused on ENPs down the road. However, it’s important, in this nascent state of the technology, that advocates of the precautionary principle not be in a position impose regulations that could stifle the development of a set of technologies that have so much promise in so many fields – including environmental protection. In this context, guidance such as that set forth by the OTA seems an appropriate effort at facilitating appropriate management practices without unduly burdening nanotechnology business.

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Product stewardship is definitely in vogue. The Daily Environment Report has just noted that the United State Conference of Mayors has adopted a resolution calling for “Extended Producer Responsibility For Products.” I understand the arguments in favor of product stewardship. From an economic point of view, the disposal costs associated with products and product packaging can be seen as an externality. Internalizing those costs would give manufacturers and distributors incentives to minimize those costs, through reduced packaging or changes in design/manufacturing that would reduce the costs associated with product disposal.

Nonetheless, I’m skeptical of the USCM resolution and wonder about how “producer responsibility” will actually get implemented on the ground. The USCM resolution describes the “costs paid by local governments to manage products,” traditionally seen as a core governmental function, to be “in effect, subsidies to the producers of hazardous products and of products designed for disposal.” Language like this might reasonably lead one to conclude that the Mayors’ concern isn’t product stewardship, but just reducing local DPW budgets.

Taxes on the cost of disposal might cause manufacturers to change their processes to reduce the amount of waste associated with the end of their products’ life, but what if the most efficient way to handle such waste is still through centralized collection and disposal by municipalities? Perhaps one of my more informed readers will tell me how product stewardship can be operationalized to provide the appropriate incentives on manufacturers to reduce the life-cycle cost of their products while still leaving the handling and disposal of waste products where they can still be performed most efficiently. 

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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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With work on financial reform almost complete, Senator Dodd announced this week that his remaining legislative priority is the enactment of the Livable Communities Act, S. 1619. There is a companion house bill, H.R. 4690. A hearing on the Senate bill will be held tomorrow.

It’s hard to be against livable communities and I may just be getting crotchety, but this legislation seems some combination of pointless and misguided. The legislative findings discuss traffic congestion, the percentage of oil used for transportation and CO₂ generated from transportation, and the need to encourage and sustain compact development and historical town centers.  And we’re going to solve this – or even make a dent – by making grants to “micropolitan” statistical areas? I don’t think so.

I agree that sprawl is a problem. I support transit-oriented development. However, there are reasons why we see development where we sit it in the United States. People still like the freedom and flexibility of personal automobile use. If we think that all that driving causes externalities – and I do – I’ve got two words for you: carbon tax. Until we make people internalize the cost of their living choices, they will continue to make those same choices and money spent on encouraging livable communities will be largely wasted. If we can’t summon the political will to tax carbon, we shouldn’t pretend that we’re solving the problem by spending money on micropolitan areas.

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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, the Massachusetts Executive Office of Energy and Environmental Affairs released its Revised MEPA Greenhouse Gas Emissions Policy and Protocol. For those who cannot get enough of this stuff, they also released a summary of revisions to the policy and a response to comments. On the whole, EEA took an appropriately moderate, incremental approach to revising the GHG policy. Indeed, it’s telling that the very first “change” identified by EEA in its summary is not a change at all – it’s EEA’s decision to retain the current case-by-case approach to determining appropriate performance standards and mitigation requirements. EEA decided not to establish numerical GHG emissions limits or emissions reductions targets.

Some of the other noteworthy aspects of the revised policy include:

Establishment of the state building code in effect at the time the ENF is filed to determine the project baseline

Elimination of the requirement to include a formal analysis of a separate “better” alternative. Although EEA said it was in some circumstances unrealistic to propose something “better” than the preferred alternative, to me it was simply that the MEPA process for the analysis of mitigation is the appropriate avenue for determining GHG improvements. That mitigation process was already in place, is always what MEPA has been about, and works well. Thus, the separate alternative was inappropriate.

No requirement to analyze life-cycle emissions. EEA was pushed to require full life-cycle analysis, including such components as emissions associated with construction, waste generation, water use, and wastewater generation. However, EEA concluded that such analyses would not be cost-effective: “the effort and cost associated with making these calculations may outweigh their usefulness….”

Retention of the self-certification process for verifying mitigation efforts. The policy does require that agencies include the self-certification requirement in Section 61 findings for permits.

An updated list of mitigation measures.

As EEA noted, the MEPA program has never been about standards; it is about project-specific analysis of impacts and potential mitigation measures to address those impacts. Particularly inthe GHG arena, where both technology and science are changing so rapidly, it makes even more sense to maintain the case-by-case approach, rather than adopt overly prescriptive standards. The devil is in the details regarding how MEPA implements the policy, but given the legislative mandate in the Global Warming Solutions Act, the policy continues to provide an appropriate framework for integrating GHG analysis into MEPA.

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Now that the SEC has indicated that public companies should be considering climate change in evaluating financial risks, the pressing questions include what should be evaluated and how it should be reported.  ASTM's newly released standard on Financial Disclosures Attributed to Climate Change, E2718-10 may be just the thing.  The standard, which has been under development for the last 2 years, provides guidance on processes for identifying, quantifying and disclosing potential material impacts related to climate change, both the benefits and liabilities. 

As with much in financial disclosures, the trick is to find the right balance.  ASTM notes that it will not be possible to eliminate uncertainty regarding the financial impacts of climate change, and cautions that subsequent disclosures should not be used to criticize previous disclosures, which hindsight and new standards may paint with an unfairly harsh light.  ASTM has also acknowledged that the costs to obtain information about the financial impacts of climate change should not outweigh the benefits of the information, but that it is important to use all of the relevant and reasonably ascertainable information a company can access.

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Some stories are just to much fun to ignore. Late last week, the GAO issued a report on the joint EPA/DOE Energy Star program. The sub-head says it all: “Covert Testing Shows the Energy Star Program Certification Process Is Vulnerable to Fraud and Abuse.” GAO found that it was able to obtain Energy Star certifications for 15 out of 20 bogus products for which it had sought certification, including a gasoline-powered alarm clock and a room air cleaner for which GAO submitted a picture of a space heater with a feather duster attached.

What significance, if any, does this story have with respect to broader debates about environmental regulation and the effectiveness of EPA? To be fair, not very much. On the other hand, for those with concerns about bureaucracy, the GAO investigation provides legitimate grist for the mill. If EPA and DOE can’t effectively manage a relatively small program such as Energy Star, how can they be expected to manage the many-headed monster that will be climate change and energy legislation?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reduce VMT by 30% from 2008 levels

Recover 90% of all waste generated

Reduce consumption of carbon-intensive foods

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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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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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As we previously noted, last fall Massachusetts proposed sweeping new regulations designed to reduce phosphorus discharges in stormwater. In response to a very large number of comments, MassDEP is taking a second look at the regulations, though the bookies in Las Vegas are laying odds against there being any significant changes made when the regulations reappear.

Now Maryland is also getting into the act, although it is taking a slightly different approach. Under a statute enacted in 2007, developers in Maryland must incorporate the concept of “environmental site design” into their plans. ESD means

using small-scale stormwater management practices, nonstructural techniques, and better site planning to mimic natural hydrologic runoff characteristics and minimize the impact of land development on water resources.

The Maryland statute will be enforced by counties and municipalities. Therefore, the Maryland Department of the Environment has released a Model Stormwater Management Ordinance for use by local governments in implementing the statute.

As one of the contentious issues in the Massachusetts debate has been when redevelopment would subject a property to the requirements of the regulations, it is notable that the Maryland ordinance defines redevelopment as

any construction, alteration, or improvement performed on sites where existing land use is commercial, industrial, institutional, or multifamily residential and existing site impervious area exceeds 40 percent. [Emphasis added.]

To that, I can only say, uh-oh.

One final note on stormwater – Oregon just enacted legislation limiting the phosphorus content of certain soaps.  This is not significant in its own right. However, in Massachusetts, many of the comments from developers and industrial interests noted that the types of stormwater controls proposed by MassDEP may not be the most cost-effective way to reduce nutrient loading to water bodies, and specifically suggested that programs targeted at consumers using products containing nutrients might be a better way to attack the problem in the first instance.

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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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I know it’s hard to believe, but some of you may not have realized that today is World Oceans Day. In connection with World Oceans Day, Senator Jay Rockefeller has written a letter to the White House in support of the concept of “ocean zoning.” Senator Rockefeller will also be holding hearings on the issue tomorrow. Among those testifying will be Deerin Babb-Brott, who is the Assistant Secretary in the Massachusetts Executive Office of Environmental Affairs and is in charge of Massachusetts’ first in the nation ocean zoning effort.

The Massachusetts effort is based on the Oceans Act of 2008, which called for development of a comprehensive ocean management plan. In other words, ocean zoning. Since enactment of the Act, EOEEA has been working on developing the required plan, with assistance from the Ocean Advisory Commission, which was created by the Act to help guide EOEEA’s development of the plan. The plan has yet to issue and, based on recent documents from EOEEA, it may be some time before the final plan sees the light of day.

Notwithstanding the complexities of the issue – or perhaps because of them – Senator Rockefeller apparently believes that federal ocean zoning would be appropriate. He may be right. Issues such as renewable energy and deepwater aquaculture may be of local concern, but do we really want a patchwork of local laws and regulations dictating policy on issues of broad national concern?  If we go that route, it won’t be very long before there is a yet more complicated set of exemptions and preemptions.

I’m sure that Deerin will not be advocating federal preemption of local ocean zoning efforts, but there is a part of me that hopes that Deerin’s testimony is so effective that he talks himself out of a job.

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

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

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

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

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

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

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

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

Some interesting highlights of the finding include:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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This week, the practice of mountaintop removal – chopping the tops off mountains in order extract the coal – received two blows: one from EPA and one from Congress. First, EPA offices Region 3 and Region 4 announced that they plans to assess the Central Appalachia Mining's Big Branch project in Pike County, Ky., and the Highland Mining Company's Reylas mine in Logan County, W.Va., before permits are issued for those projects. 

Although the broad brush is important here, so are some of the details. First, both letters raise concerns about the cumulative impacts of multiple mountaintop removal projects. Second, the Region 3 letter raises the possibility that EPA might use its authority under section 404(c) of the Clean Water Act to prohibit issuance of the required permit, noting that the “extensive cumulative and other impacts give this proposed project high potential” for action under § 404(c).  

The second blow was the introduction in Congress of legislation that would prohibit mountaintop removal. Of course, introduction doesn’t guarantee passage, but it does seem notable that one of the two sponsors is Lamar Alexander, both a Republican and a Senator from a coal mining state. Senator Alexander’s support suggests that a tipping point may have been reached on this issue.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let the fun begin.

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

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

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

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

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

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

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

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

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

Your thoughts?

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Foley Hoag is excited to launch the Law and the Environment Blog. In today’s fast changing world, almost all of us get our news—including our news about developments in environmental law and policy—electronically. This blog is not intended to be a substitute for the BNA™, or Greenwire™, or Google™, although we do hope that we will be able on occasion to let you know about issues that haven’t yet come to your attention.

What we really want to accomplish is to provide some perspective on those developments. We’ll try to tell you which developments may matter to you. And why they matter. And how they matter. Whether you’re a manufacturer or a power plant developer, whether you’re a renewable energy developer or hoping to be a renewable energy consumer, whether you are a municipality or public agency or university, we want to comment on current issues in a way that is useful to you in your business. We’ll cover climate change, renewable energy, hazardous and solid waste, clean air and water, sustainability and green design. You name it, if it’s got an acronym attached to it, we’ll cover it.

As the headline indicates, we want to inform, update, comment, and discuss. In other words, while we’re going to enjoy posting, we’ll enjoy the blog more—and its usefulness will increase—when we hear from you. Please comment on the blog entries. Let us know about developments we missed or implications of our discussions that we did not consider. Let us know, even if you disagree.

We look forward to the conversation.

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The new Determination of Need Guidelines for Environmental and Human Health Impact adopted by the Massachusetts Department of Public Health are further evidence that sustainability and green development are much more than just buzzwords in Massachusetts. It appears that this administration is serious about incorporating green development principles into all executive branch decision-making.

In brief, the Guidelines require a health care facility applying for a Determination of Need (“DoN”) for new construction or gut renovation to meet LEED-HC “silver level” green building standards. The scope of the Guidelines’ impacts could not be broader, implicating site selection, water and electricity use, and choice of construction materials. And because the Guidelines take effect as soon as January 1, 2009, it is likely that projects already under consideration will need to meet the new standards.

I look at the Guidelines as just one example of how the “green” movement is reaching into all corners of our economy. In the past, environmental regulation was concentrated on industries such as mining, agriculture, manufacturing, and power generation. This is changing. Today, government is taking steps to ensure that businesses in a wide variety of industries take cognizance of their water use, energy efficiency, and greenhouse gas impacts. It certainly appears that any types of facility subject to government funding or approval should be thinking about green development in general and LEED certification in particular. If health care facilities must meet LEED standards, why not affordable housing or education institutions funded by the Commonwealth? Why not municipal facilities? Indeed, more than a dozen municipalities in the greater Boston area already incorporate LEED or similar green building standards into their zoning bylaws. 

While this changing regulatory landscape is certain to impose up-front costs in complying with these standards, there may also be business opportunities for organizations that are proactive in addressing these issues. Companies and organizations that get out ahead of the curve will be well-positioned to take competitive advantage of the real push for green development.

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