Posted on October 30, 2013
Of the 21 separate questions presented in the 9 petitions for writ of certiorari filed in the U.S. Supreme Court in Utility Air Regulatory Group et al. v. Environmental Protection Agency et al., challenging nearly every aspect of the Environmental Protection Agency’s recent greenhouse gas regulations—from the initial “endangerment” finding to the restriction on motor vehicle emissions to the stationary-source permitting requirements—the Court granted review of only a single issue: “[w]hether [EPA’s] regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” Several commentators have interpreted this decision (reported in a prior post by Theodore Garrett) as an implicit affirmation of EPA’s regulatory regime, insofar as the Court chose not to address some of the broader challenges to the agency’s basic authority to regulate greenhouse gas emissions under the Clean Air Act. But, whatever implications might be drawn from the Court’s decision not to grant review of certain issues, far more telling is the Court’s deliberate rewriting of the question presented, narrowly tailored to address the validity of the stationary-source permitting regulations.
Those regulations rest on an exceedingly questionable interpretation of the Clean Air Act. The stationary-source provisions of the Act require any industrial facility that emits an “air pollutant” in “major” amounts—defined by the statute as 250 or more tons of the pollutant per year—to obtain pre-construction and operating permits from the local permitting authority. 42 U.S.C. § 7475. EPA acknowledges that it would be “absurd” to apply these provisions by their terms to sources of greenhouse gas emissions, since nearly every business in the country (including even small commercial enterprises and residential facilities) emit greenhouse gases at more than 250 tons per year, and the agency can offer no reason why the statute should not be interpreted instead to apply only to the large industrial facilities that emit “major” amounts of a pollutant otherwise subject to regulation under the permitting provisions—i.e., one of the so-called “criteria pollutants” for which a national ambient air quality standard has been issued. Nevertheless, EPA has interpreted the statute to apply to sources of greenhouse gas emissions and, to address the acknowledged “absurd results” created thereby, has decided that for these purposes the threshold for a “major” emissions source should be increased from 250 tons per year—as stated in the statute—by 400-fold, to 100,000 tons per year. The agency has, in other words, literally rewritten the express terms of the statute in order to justify its preferred interpretation.
The dissenting judges in the D.C. Circuit severely criticized the result. That is most likely the reason the Supreme Court granted review of the case, to correct the agency’s interpretation of the Act and ensure that neither EPA nor other agencies attempt to redo legislative power in this way in the future. Whether or not the limited nature of the certiorari grant can be viewed as an approval of EPA’s authority to regulate greenhouse gases from mobile sources, it almost certainly reflects suspicion—if not disapproval—of the agency’s stationary-source regulations. The definitive answer should come by June 2014, when the Court is expected to rule.
Posted on October 15, 2013
The Supreme Court agreed today to review the EPA’s authority to regulate emissions of greenhouse gases from stationary sources. The Justices accepted six petitions for review of the D.C. Circuit’s decision in Coalition for Responsible Regulation v. EPA (No., 12-1146 et al.), consolidated them for argument, and limited review to a single question:
“Whether EPA permissibly determined that its regulation of greenhouse gas (GHG) emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.”
The six petitions granted were filed by the Utility Air Regulatory Group, the American Chemistry Council, the Energy-Intensive Manufacturers, the Southeastern Legal Foundation, the U.S. Chamber of Commerce, and a number of states.
EPA’s position, as presented in the DC Circuit and in its opposition to certiorari, is that regulation of greenhouse gas emissions under Title II triggered permitting requirements under the PSD program and Title V of the Act, which apply to stationary sources emitting “any air pollutant” above the statutory threshold. EPA has interpreted “any air pollutant” to mean “any air pollutant regulated under the Clean Air Act,” and thus when the EPA’s regulation of emissions from new motor vehicles took effect in January 2011, the permitting requirements under the PSD program and Title V automatically applied to stationary GHG sources above the statutory threshold.
In its petition, the US Chamber of Commerce noted that EPA acknowledged that its tailoring rule would create a result “so contrary to what Congress had in mind — and that in fact so undermines what Congress attempted to accomplish with the [statute’s] requirements — that it should be avoided under the ‘absurd results’ doctrine.” With respect to the issue upon which cert was granted, the Chamber argued that EPA incorrectly determined that all “air pollutants” regulated by the agency under the Clean Air Act’s motor vehicle emissions provision, 42 U.S.C. § 7421(a)(1), must also be regulated under the Act’s Prevention of Significant Deterioration of Air Quality and Title V programs when emitted from stationary sources.
The Utility Air Regulatory Group petition expressly did not ask the Supreme Court to revisit its holding in Massachusetts v. EPA. However, the UARG petition did ask the Court to consider whether its decision in Massachusetts v. EPA compelled EPA to include GHGs in the PSD and Title V programs when inclusion of GHGs would expand the PSD program to cover a substance that does not deteriorate the quality of the air that people breathe. UARG emphasized EPA’s admission that regulation of GHGs under the Title I and Title V permit programs subjects “an extraordinarily large number of sources” to the Act for the first time, “result[ing] in a program that would have been unrecognizable to the Congress that designed PSD.”
A coalition of environmental groups opposed certiorari, emphasizing that EPA’s endangerment and contribution findings and emissions standards for motor vehicles simply implement the Supreme Court’s mandate in Massachusetts v. EPA. They emphasize that the Petitioners’ arguments ignore the “air pollutant” definition that the Court in Massachusetts v. EPA held “unambiguous[ly]” (549 U.S. at 529) covers greenhouse gases.
It is worth noting that four justices dissented in Massachusetts v. EPA, and the successful petitioners in Coalition for Responsible Regulation argue that Massachusetts does not compel the regulations at issue here. The granting of the petitions for certiorari is sobering news for EPA. Stay tuned.
Posted on May 21, 2013
Climate tort plaintiffs cannot catch a break in the Fifth Circuit Court of Appeals. In a May 14, 2013, decision, the Fifth Circuit found—once again—that a group of Mississippi Gulf Coast property owners is barred from suing energy companies for tortiously emitting greenhouse gases (“GHGs”).
The case, Ned Comer, et al. v. Murphy Oil USA, et al., has a long and twisting history. At one point the case was widely viewed as in the vanguard of a handful of cases with the potential to radically realign the legal framework under which companies emit GHGs.
Comer was originally filed in the Southern District of Mississippi in 2005. Plaintiff coastal property owners alleged that the defendant companies’ emissions exacerbated climate change, which intensified Hurricane Katrina, which in turn damaged the plaintiffs’ property. Invoking the federal courts’ diversity jurisdiction, the plaintiffs sought compensatory and punitive damages, asserting state law claims of nuisance, trespass, and negligence, among other claims. The district court dismissed the claims on the grounds that the plaintiffs lacked standing and that the matter was not justiciable under the political question doctrine.
In November 2009, a Fifth Circuit panel reversed, in part, the district court’s dismissal of the claims. The Fifth Circuit panel found that plaintiffs had standing to bring the state law claims, which the court found did not present political questions.
The Fifth Circuit panel’s decision came in the wake of the Second Circuit’s precedent-setting September 2009 decision in State of Connecticut, et al. v. American Electric Power Company Inc., et al., in which the Second Circuit recognized the validity of federal common law public nuisance claims challenging the emission of GHGs, found that a number of states and private environmental groups had standing to press such claims, and rejected the argument that the claims are nonjusticiable. Together, these cases were viewed as potentially ushering in a new era in which companies emitting GHGs would need to contend not just with EPA’s regulations but also with common law climate tort claims seeking injunctive relief or money damages.
The new era was not to be. As to Comer, before the panel opinion’s mandate issued, a majority of the Fifth Circuit’s active, unrecused judges voted to rehear the case en banc. Under Fifth Circuit rules at the time, this vacated the panel opinion reversing the district court’s dismissal. Before the Fifth Circuit reheard the case en banc, however, another Fifth Circuit judge was recused, leaving the court with only eight active, unrecused judges. Five of the remaining eight judges then determined that, with the additional recusal, the court lacked a quorum to proceed, and the judges issued in May 2010 an order dismissing the plaintiffs’ appeal from the district court’s decision for lack of a quorum.
Plaintiffs petitioned the Supreme Court, seeking review of the Fifth’s Circuit dismissal of their appeal. The Supreme Court denied the petition in January 2011, at which point one might have expected the case to be over.
However, the same group of property owners proceeded to file a new complaint in May 2011 alleging many of the same nuisance, trespass, and negligence claims against the same energy company defendants. The District Court again dismissed the claims, finding them to be barred by res judicata and the applicable statute of limitations, and also to fail to establish proximate causation and be preempted by the Clean Air Act. In addition, as it had in Comer I, the court found that the plaintiffs lacked standing and that the claims raised nonjusticiable political questions.
The Fifth Circuit’s May 2013 decision in Comer II upholds the district court’s dismissal of the climate tort claims. The Fifth Circuit agreed the case is barred by res judicata, and did not address the district court’s other grounds for dismissal. Despite the procedural quirks of Comer I, the Fifth Circuit found the district court’s decision in that case to represent a final judgment, never modified on appeal. In addition, the Fifth Circuit found the district court’s final judgment to be on the merits because it adjudicated the jurisdictional issues of standing and justiciability.
Fall of 2009 may turn out to have been an apogee of sorts for climate tort claims. In June 2011, the Supreme Court issued a decision in Connecticut v. American Electric Power, holding that the Clean Air Act and the EPA actions it authorizes displace any federal common law right to seek abatement of GHG emissions. Climate tort plaintiffs in a third case, Native Village of Kivalina v. Exxon Mobil Corp., et al., were also on the losing end of a September 2012 Ninth Circuit panel decision which found the plaintiffs’ claims that climate change would result in erosion and flooding of the island where they live to be a matter that should be left to the legislative and executive branches of government. The Kivalina plaintiffs petitioned the Supreme Court in February for a writ of certiorari.
As GHG levels in the atmosphere approach their highest levels in hundreds of thousands of years or longer, the prospects for new legislative or executive branch action are uncertain. Although California recently implemented an economy-wide GHG cap and trade scheme, which began imposing compliance obligations earlier this year, that program is being challenged in the courts and there appears to be little appetite for comprehensive federal climate change legislation. EPA proposed in April 2012 a GHG performance standard for new power plants pursuant to its Clean Air Act authority, but the timing for action with respect to existing power plants and other emitting sectors is unclear. In light of the uncertainty on the regulatory and legislative fronts, and given the massive alleged harms involved, it may be too early to say if the climate tort is essentially finished or will in the future be resuscitated in a new and more potent guise.
Posted on May 14, 2013
Cheap gas prices driven by a boom in new shale gas development, coupled with more stringent emissions controls for coal fired plants, are causing a shift from coal to natural gas as the primary source of electric power in the United States. In the short term, most welcome this shift because natural gas produces significantly fewer greenhouse gas (“GHG”) emissions. But it appears increasingly certain that in the long run, this shift will result in decreased energy grid reliability and significantly higher electricity costs due to natural gas price volatility.
A recent Duke University study concludes that the cost of compliance with new emissions standards could make almost two-thirds of existing coal fired plants “as expensive as natural gas even if natural gas prices rise.” This combination of low gas prices and the high cost of coal emissions compliance already has resulted in replacement of many coal plants instead of retro-fitting them with expensive environmental controls. Add to that the uncertainty of potential future GHG emissions standards, and construction of new coal fired power plants is at a near standstill.
The Rocky Mountain Coal Mining Institute (“RMCMI”) estimates that these factors will combine to force closure of up to 100 gigawatts of coal plant capacity, or approximately one third of the coal-fired fleet, resulting in a net increase of 32 gigawatts of gas capacity in the next three years. By 2020, RMCMI estimates that gas generating capacity will exceed that of coal, nuclear, and hydroelectric combined. The RMCMI further projects that the shift to natural gas generation will cause the demand for natural gas to exceed even the most rosy new shale gas production predictions, causing volatile natural gas price swings.
Grid reliability problems and gas price volatility were highlighted by Gordon van Welie, the head of New England’s power grid, during recent testimony before Congress. He observed that more than half of New England's electricity is generated from natural gas, which has displaced a more diversified mix of oil, coal, gas and nuclear power over the past ten years.
He testified that even though natural gas generally is plentiful, New England’s inadequate gas pipeline capacity limits supplies during peak usage. For example, during a recent extreme cold snap in New England, “natural gas prices in late January spiked to $34/MMBtu, in contrast to prices below $4/MMBtu across most of the country.” The high gas prices caused wholesale electricity price spikes of more than 100% in January and 300% in February 2013 compared with 2012. There also were “multiple instances where generators could not get fuel to run,” including one instance when more than 6,000 MW were offline due to fuel shortages. Testimony at 7. To avoid even worse problems in the future, he urges increased construction of pipeline infrastructure, but construction of gas pipelines will take time. In the short and intermediate term, he predicts continued price volatility and grid reliability problems during peak usage.
In addition to pressures from increased usage of natural gas in the United States, there also is increasing support within the Obama Administration to side with those seeking to export liquefied natural gas because prices in foreign markets are much higher. If the export of natural gas becomes a reality, then domestic gas prices likely will increase even more.
Although the vast shale gas reserves are fueling a shift to natural gas power generation with a corresponding reduction in GHGs, over-reliance on natural gas will almost certainly have the unintended consequence of causing grid reliability problems and volatile price spikes. This likelihood argues for a more balanced energy portfolio with a broad mix of power from renewable, hydropower, coal, oil, nuclear, and natural gas. To insure future stable energy prices and reliable energy production, electric utilities and state and federal regulators should take a long term view when deciding whether to shift to natural gas generation and decommission existing coal and nuclear plants.
Posted on May 10, 2013
Proposals to export liquefied natural gas (“LNG”) produced in large part from shale gas recovered by hydraulic fracturing techniques or “fracing” continue the public debate about the desirability of exports of other energy resources. This political, regulatory, environmental and trade debate engages powerful politicians, lobbyists, environmental groups, trade associations, developers, producers, state regulatory authorities, consultants, academics, and landowners, and a broad spectrum of the press and public.
On its face, the notion of substantial exports of LNG to both countries with which the U.S. has free trade agreements (FTA) in place and those it does not, seems highly attractive. Such exports would improve the balance of trade deficits, create new jobs associated with the production; and produce tax revenue. And, from the broad environmental perspective, LNG exports would lower greenhouse gas emissions (GHG) in countries with heavy reliance now and in the future on coal or oil for electric generation, or in countries with need for replacement of nuclear facilities.
Query then, what are the factors that engender the impassioned debate on energy resource export policy? Key are: (1) fears of massive development of “frac” gas, freighted with concern over impacts on water, air, and use. Analogous to the Keystone XL battle, another concern is development of the unconventional gas for the benefit of foreign interests, particularly those without an FTA in place with the U.S. (export to those countries with FTA agreements with the U.S. is deemed by law to be in the public interest). (2) A second issue in contention on LNG is the impact on domestic energy prices if significant LNG exports limit availability of natural gas for domestic industrial and other uses. (This issue harkens back to the energy crises of the 1970s when natural gas availability was tight and energy prices sky high.)
So, although not explicitly an environmental-based objection, such opponents of LNG exports find friendly bedfellows with the environmental objectors and the commercial interests concerned about their ability to rely upon and benefit from increased gas supply. Industrial interests argue that stopping exports to non-FTA countries, particularly the insatiable Asian markets, will result in an industrial renaissance with jobs and development growing significantly. And, some opponents of LNG exports to non-FTA countries ironically, (to this blogger at least) express little regard for overall environmental benefit to potential importing countries and thus the globe. Rather, the impact on the United States from development of unconventionally sourced gas supply has been their focus point. Yet, LNG is only part of the energy export debate.
Further complicating this analysis is the parallel potential increase in the export of U.S. coal to energy hungry nations, particularly in Asia. As noted above, there is a broader questioning on the entire topic of U.S. energy resources exports: LNG, oil or refined products and coal. In addition to the Keystone XL pipeline standoff, many environmentally oriented players (e.g., the Sierra Club) and political leaders have expressed reservations about the export of U.S. coal for two primary reasons – the impact on the U.S. of new infrastructure for storage, transportation and increased mining activities, and the increase in GHG emissions worldwide as a result of heavier coal-fired electric generation. And in the past months, several proposed coal export projects have been scrapped. This energy export issue makes for a complicated stew of federal, local and regional politics. What makes the entire public war of words (and the behind the scenes maneuvering) so fascinating is the question of who or what decides where and with what restrictions U.S. energy resources are to be marketed to the world – the federal agencies, the state and local governmental entities, or the market? The next few months may provide guidance on LNG and perhaps the Keystone XL pipeline, however, the national and international implications of these decisions are so important that it is unlikely that peace will settle on these matters for decades.
Posted on December 19, 2012
The attached article will be published in the upcoming issue of the Lewis & Clark Law School Environmental Law Review. The article is among the first to integrate current climate change science, particularly ongoing impacts and predicted impacts, with a detailed roadmap for substantial reform of our environmental processes for reviewing proposed renewable energy projects.
Most existing articles either focus only on climate science or on minor modifications to the regulatory system. Using offshore wind power as a case study, this article demonstrates how, in an increasingly carbon-constrained world, our existing environmental laws and regulatory process no longer achieve their underlying goals of long-term ecosystem conservation. To the contrary, these laws and regulations are supporting a system with increasing greenhouse gas emissions that is annually costing trillions of dollars.
We have little time left to create a practical path to achieving an 80% reduction in greenhouse gases by 2050—with failure resulting in average global temperatures rising more than the internationally-agreed targeted ceiling of 2°C. After examining the obstacles confronting a potential developer of offshore wind, this article clearly lays out why and how the existing regulatory process should be quickly reformed so that offshore wind and other clean renewable energy sources can help us escape the escalating consequences of our carbon-intensive economic system.
Posted on November 16, 2012
Massachusetts’ ambitious plan to address greenhouse gas emissions on a state-wide basis attracted private money last month to measure its success and costs. Boston-based Barr Foundation’s grant of $230,000 will establish a “performance management tool” to track and measure the success of initiatives undertaken under Massachusetts’ Global Warming Solutions Act (“GWSA”). Supporters expect it to “serve as a national and regional model that other states can adopt to analyze” their own greenhouse gas reduction efforts. The GWSA, enacted in 2008, requires extremely ambitious reductions in greenhouse gas emissions within Massachusetts in the coming decades: an 80% emissions reduction goal by 2050 and 10-25% by 2020 from a 1990 emissions baseline The act directed the Secretary of Energy and Environmental Affairs to set the 2020 reductions and adopt a plan for achieving them.
The planning and regulatory documents issued since enactment recognize that the success of a single state’s effort to address the causes of climate change cannot be measured by the impact of its own reductions in greenhouse gas emissions in effecting changes in the global climate. The effect will simply be too small to measure. Instead, the state’s plan touts the beneficial effects of spurring economic development through the encouragement of green energy and other high tech businesses, the reduction of localized pollution, and the stabilization of energy prices. The success of the program in “bending the curve” of rising greenhouse gas emissions, however, rests entirely on its ability to serve as an example to other political entities – states mainly but, ultimately, geopolitical entities through broader global participation.
In December 2010, the Secretary of Energy and Environmental Affairs released the Massachusetts Clean Energy and Climate Plan for 2020 setting the reduction target at 25% below 1990 baseline. The Executive Summary summarizes reductions anticipated from existing and expected programs (table at page 6). Policies relating to Buildings (9.8% or more than one third of the 25% reduction), Electricity (7.7%) and Transportation (7.6%) account for the vast majority of the reductions. Within each sector, reductions are characterized as either “Existing Policy” (e.g., Federal and California vehicle efficiency and GHC standards – 2.6% reduction), “Expanded Policy” (e.g., advanced building energy codes – 1.6% reduction), or “New Policy” (e.g., Green DOT, the Massachusetts’ transportation agencies fulfillment of their sustainability commitment – 1.2% reduction). The Barr Foundation’s grant will help create the “dashboard” that presumably will take into account the likelihood of adoption of new programs or the expansion of existing ones and the ultimate efficacy of any of the programs, as it tracks the progress of the Massachusetts program.
Efforts to track the success of the Massachusetts program will build on the work done by MassINC, a Boston-based “independent think tank” that earlier this year released a book-length report titled “Rising to the Challenge/Assessing the Massachusetts Response to Climate Change.” This very thoughtful work looks specifically at Massachusetts’ progress to date and likely future success in emission reductions in various sectors; it provides useful capsule descriptions of other state’s programs and of regional and foreign initiatives. And it discusses the crucial issue of the economic costs and benefits of the program, as that will be a prime determinant of the program’s ability to be a role model for other jurisdictions.
The MassINC report recognizes that data on the subject of economic costs and benefits are subject to extremely complex and differing interpretations. The report notes there is general agreement in Massachusetts that “it is desirable to reduce greenhouse gases and develop clean energy [,] it is more difficult to reach consensus when the subject turns to the cost of addressing climate change ….” Id. at 75. Nonetheless, a convincing explanation of the specific costs and benefits of various courses of action is a necessary component of any successful program because the ultimate effectiveness of a state’s program rests on its attractiveness as a model for other jurisdictions – including those with different views of the appropriate tradeoffs between environmental protection and economic development.
Posted on November 16, 2012
Sunday’s New York Times had an op-ed piece by Cass Sunstein, recently departed head of the Office of Information and Regulatory Affairs, advocating for sensible measures to address global climate change. Sunstein’s argument is that
"Economists of diverse viewpoints concur that if the international community entered into a sensible agreement to reduce greenhouse gas emissions, the economic benefits would greatly outweigh the costs."
I don’t disagree with anything he says; I only wonder whether anyone is paying attention. On one hand, while Sunstein notes that President Obama supports cost-benefit analysis, Democrats in Congress – and many environmentalists – have long been skeptical, treating environmental questions as moral issues that should not be subject to something as crass as cost-benefit analysis.
Republicans used to support cost-benefit analysis. Indeed, Sunstein opens the op-ed with a discussion of the Reagan administration’s support of the Montreal Protocol on ozone-depleting chemicals. However, for the past ten years or so, Republicans have abandoned cost-benefit analysis for something much simpler – cost analysis. Today, if regulations cost too much – whatever that means – then they are “job-killers” and thus bad, even if the benefits exceed costs, sometimes by several multiples.
Maybe four years at MIT brainwashed me into blind acceptance of quantitative analysis, but this stuff doesn’t seem that hard to me. It is profoundly depressing that a significant number of environmentalists look only to the benefits of environmental regulation, while a similar percentage of conservatives now only look at its costs.
Somehow, we’ve got to get the twain to meet.
Posted on October 17, 2012
By Deborah Jennings and Andrew Schatz
If California regulators approve a proposed AES combined-cycle natural gas-fired peaking power plant, it could blur the standard for Best Available Control Technology (BACT) for greenhouse gas (GHG) emissions from gas-fired electric generating facilities. EPA expressly excluded simple cycle peaking units from its recently proposed New Source Performance Standards (NSPS) for GHGs because combined cycle units, which are GHG lower-emitting, were presumed not to be useable as peakers. By virtue of AES’s proposed combined-cycle peaking plant, EPA may be moved to change its view. Low-emitting combined cycle may set the BACT standard for future, gas-fired peaking units as a result.
AES is proposing to use a combined-cycle system in a peaking capacity at its Huntington Beach Energy Project (HBEP) in Huntington Beach, California. See AES Southland Development, LLC, BACT Determination for the Huntington Beach Energy Project (June 2012). The HBEP will consist of two combined cycle power blocks with a net capacity of 939 MW to be used for peaking and supplying local capacity. AES’s proposal to use combined-cycle for a peaking unit is notable because typically peakers have been simple cycle systems. The combined-cycle system is more efficient than simple cycle systems and has lower GHG emission rates. Whereas simple cycle systems combust natural gas to generate electricity, combined cycle-systems also capture lost heat from the combustion process to generate additional electricity through a steam turbine (i.e. a heat recovery steam generator). Accordingly, BACT for GHG emissions at the HBEP project results in an GHG emissions rate of 1,082 pounds of CO2 per megawatt-hour (lbs CO2/MWh). In contrast, a recent BACT determination for the simple cycle “peaking” power plant at the Pio Pico Energy Center in San Diego was 1,181 lbs CO2/MWh.
Regulatory agencies have struggled to determine what constitutes GHG BACT for natural gas (and other fossil-fuel) fired power plants. Regulatory authorities have declined to require natural gas-fired power plant projects to consider GHG lower emitting combined-cycle technologies in a BACT analysis. For example, in June 2012, Wisconsin authorities declined EPA Region V’s request to consider the use of combined-cycle gas turbines in a GHG permit for a wastewater utility fuelled by landfill gas.
EPA has sent conflicting signals on the issue. In the past, EPA has suggested from time to time that combined cycle be considered in the BACT analysis for natural gas plants. However, in drafting its New Source Performance Standards (NSPS) for GHG Emissions for New Stationary Sources: Electric Utility Generating Units (EGUs), EPA concluded that it cannot require proposed simple cycle facilities to meet the NSPS designed for combined-cycle natural gas facilities based on functional differences in peaking plants. 77 Fed. Reg. 22392 (April 13, 2012).
Specifically, EPA declined to include simple cycle facilities as an affected source in the proposed 40 CFR part 60, subpart TTTT for GHG emissions from new facilities governing combined-cycle plants and coal-fired plants. Id. at 22411. In its NSPS proposal, EPA required new fossil fuel-fired EGUs greater than 25 MW to meet an output-based standard of 1,000 lb CO2/MWh, representing the performance of widely used natural gas combined cycle technology. Id. at 22392. (Interestingly, in setting the NSPS at 1,000 lb CO2/MWh, EPA proposes a more stringent threshold for GHG emissions from new facilities than even HBEP). In choosing to exclude simple-cycle facilities from this standard, EPA reasoned that unlike combined-cycle plants (which are typically designed to provide baseload power and are able to emit CO2 at similar levels), simple-cycle plants are typically designed to provide peaking power, operate less, and “it would be much more expensive to lower their emission profile to that of a combined cycle power plant.” Id. at 22411.
In proposing a relatively lower emitting combined-cycle for a peaking unit, the AES project casts doubt on EPA’s conclusion that simple cycle is different. Accordingly, EPA may come to impose combined-cycle BACT limits on future natural gas combustion peaking facilities.
Posted on October 8, 2012
The full import of the pivotal American Electric Power Co., Inc. v. Connecticut, 131 S. Ct. 2527 (2011), decision holding that federal common law claims for injunctive relief were displaced by federal regulation of GHGs under the CAA remain to be decided. The Ninth Circuit Court of Appeals has now upheld the dismissal of a federal nuisance action filed in 2008 against Exxon Mobil et al., seeking damages for flooding attributable to climate change. Native Village of Kivalina v. Exxon-Mobil Corp., No. 09-17490 (Sept. 21, 2012). Damage estimates approached $400 million. The suit was dismissed by the District Court in 2009 on the grounds the regulation of greenhouse gases was a legislative matter rather than a judicial controversy and for lack of standing.
The Supreme Court in AEP held only that the plaintiff was not entitled to injunctive relief. Relying on AEP, the Ninth Circuit held that the federal Clean Air Act displaces climate change-related federal common law public nuisance claims for both injunctive relief and damages. In a concurring opinion, Judge Pro wrote that he would have dismissed for lack of standing as the plaintiff had failed to prove its injuries were directly attributable to the defendants.
In AEP, the Supreme Court held that the CAA would bar state common law nuisance claims if such claims were preempted, but the Court did not decide if the CAA in fact preempted state common law nuisance claims. In Kivalina, the district court dismissed the state common law nuisance claims without prejudice. The Ninth Circuit did not rule on the validity of these claims. Since the plaintiff’s state common law claims are undisturbed by this decision, it remains to be seen whether Kivalina or other will pursue such claims.
Posted on September 21, 2012
The August 2012 preliminary results from the European Space Agency’s CryoSat-2 probe indicate that 900 cubic kilometers of summer sea ice has disappeared from the Arctic ocean over the past year. This rate of loss is 50% higher than most scenarios from historic information outlined by polar scientists. The summer figures provide a real shock. In 2004 there were about 13,000 cubic kilometers of summer sea ice in the Arctic -- now only 7,000 cubic kilometers were measured. If the current annual loss of around 900 cubic kilometers continues, summer ice coverage could disappear in about a decade in the Arctic.
The new sea ice measurement was set on August 26, 2012, a full three weeks before the usual end of the melting season, according to the National Snow and Ice Data Center. So more melt in 2012 is predicted. Every major scientific institution that tracks Arctic sea ice agrees that new records for low ice area, extent, and volume have been set. These organizations include the University of Washington Polar Science Center (a new record for low ice volume), the Nansen Environmental & Remote Sensing Center in Norway, and the University of Illinois Cryosphere Today.
The consequences of losing the Arctic’s sea ice coverage, even for only part of the year, could be profound. Without the cap’s white brilliance to reflect sunlight back into space, the region will heat up even more than at present. As a result, ocean temperatures will rise and methane deposits on the ocean floor could melt, evaporate and bubble into the atmosphere. Scientists have recently reported evidence that methane plumes are now appearing in many areas. Methane is a particularly powerful greenhouse gas and rising levels of it in the atmosphere are only likely to accelerate global warming. And, with the disappearance of sea ice around the shores of Greenland, its glaciers will melt faster and raise sea levels even more rapidly than previously predicted.
Posted on August 20, 2012
Co-Authored by: Beth A. Coombs, Gibson Dunn & Crutcher LLP
California’s recently approved regulations establishing a Cap-and-Trade Program for the reduction of greenhouse gas (“GHG”) emissions are already under attack in California court. In March 2012, two citizen groups filed a petition challenging the California Air Resources Board’s (“CARB’s”) regulations that allow entities to quantify GHG emission reductions and take credit for those reductions while, at the same time, making such reductions available to other GHG emitters to purchase as an “offset” to their own greenhouse gas emissions. The case, Citizens Climate Lobby and Our Children’s Earth Foundation v. California Air Resources Board, Case No. CGC-12-519554, filed in San Francisco County Superior Court, represents the first major legal challenge to California’s landmark Cap-and-Trade Program.
The Cap-and-Trade program is part of the Global Warming Solutions Act of 2006, which the California legislature adopted in 2006 under Assembly Bill 32. The bill required statewide GHG emissions to be reduced to their prior 1990 levels by 2020. Cal. Health & Saf. Code § 38550. As part of its overall statutory scheme, AB 32 vested the CARB with the discretion to decide whether to adopt regulations employing “market based compliance mechanisms.” Health & Safety Code §38570. Exercising that discretion, CARB, through a multi-year process involving extensive public comment, promulgated regulations establishing offset credits through protocols specific to certain industries or business operations. It is these offset protocols that are now under attack.
Petitioners claim that the protocols adopted by the CARB allow GHG emission reductions that are not “additional.” This, they say, violates AB 32’s mandate that offsets must be “in addition to any greenhouse gas emission reduction otherwise required by law or regulation, and any other greenhouse gas emission reduction that otherwise would occur.” Cal. Health & Saf. Code § 38562(d)(emphasis supplied). However, Petitioners’ interpretation of “additionality” is inappropriately and prohibitively narrow. For example, under Petitioners’ view of AB 32’s requirements, the offset protocol for the use of anaerobic digesters that reduce GHG emissions (primarily methane) by treating manure at dairies and hog farms allows in “non-additional” projects because some farms within the United States already use digesters—despite the fact that (1) farms currently using digesters would not be credited under the program, (2) the use of digesters on farms is still rare, and (3) most digesters currently in use were installed under grants for increasing energy efficiency. As another example, Petitioners argue that the offset protocol for the destruction of ozone depleting substances (“ODS”) allows crediting for projects that otherwise would occur because while less than 1.5% of recoverable U.S. sourced ODS is currently being destroyed, there are still ‘business reasons” aside from offset incentives for destroying ODS. And they point to the General Electric Company as an example of a company that gains “goodwill” with the consumer public by voluntarily destroying ODS.
This prohibitively narrow view of AB 32’s offset requirements for “additionality” effectively nullifies the California legislature’s grant of regulatory authority to CARB to create an offset program, because no such program could comply with the strictures laid out by Petitioners. Indeed, it is Petitioners’ philosophical disagreement with the legislature’s decision to allow an offset program that underlies this litigation. Two members of one of the groups challenging the offsets long ago advised CARB that, “[i]t is critically important for ARB to resist the temptation to make offsets part of California’s cap-and-trade program.” Laurie Williams & Allan Zabel, Comment on Proposed GHG Offset Protocols, 9, Dec. 13, 2010, Comment 521 for California Cap-and-Trade Program. But this fundamental disagreement about whether offsets should be part of a government greenhouse gas reduction program is necessarily a policy decision – not one that should be decided by the courts – and the legislature clearly gave CARB the discretion to adopt the protocols.
The legal problem with Petitioners’ attack is that they sidestep the critical definition of “additional” that CARB adopted as part of the same regulatory package that contains the offset protocols. That definition provides that:
"in the context of offset credits, [GHG] emission reductions or removals that exceed any [GHG] reduction or removals otherwise required by law, regulation or legally binding mandate, and that exceed any [GHG] reductions or removals that would otherwise occur in a conservative business-as-usual scenario.” Cal. Code of Regs. tit. 17, Section 95802(a)(3).
The four protocols challenged by the litigation – livestock (digestors), ozone depleting substances, forests and urban forests – were all developed through a lengthy and thorough public process involving stakeholders from all perspectives on the political spectrum. In each case, data and research were devoted to determining what “business as usual” meant with respect to GHG emissions reductions. And where there were clear additional steps that very few, or almost none, of the industry was taking regarding GHG emissions reductions, then protocols were developed to recognize such steps as potentially qualifying for offsets. There seems little doubt that the protocols easily meet the CARB definition of “additional” and that may be why Petitioners chose to avoid a challenge of the regulatory definition, and instead simply to claim that the protocols violate the statute. But their failure to challenge the definition in the same regulatory package seems like a transparent attempt to avoid the more lenient “arbitrary and capricious” standard of review for the adoption of most regulatory programs in California, and to try for the more rigorous “de novo” standard of review.
All of these issues are laid out in the briefs that have been filed by Petitioners, CARB, and the interveners which include the Climate Action Registry (the original developer of the protocols), a business interveners group which includes many of the large utilities (Southern California Edison, for example, is a member), and the Environmental Defense Fund. The Nature Conservancy has also submitted an amicus brief. It is certainly telling that a coalition of major utilities, the Environmental Defense Fund, and The Nature Conservancy have all lined up to take the same position of defending CARB’s adoption of the four offset protocols.
The Court has scheduled November 6, 2012 as the date to hear the matter.
Posted on July 30, 2012
Based on a doctrine going back to Roman times – the “Public Trust Doctrine,” a consortium of national and state environmental organizations have brought a series of lawsuits, naming minors as plaintiffs, seeking declarations that federal and state governments have an independent, fiduciary responsibility to protect the quality of air as a public natural resource and to do so by regulating GHGs. Though generally unsuccessful, they have obtained two recent rulings that have lent some credence to their efforts. These rulings raise fundamental questions regarding the bases for government regulation to protect the environment.
On July 9, 2012, a Travis County district court judge, in response to the plea to the jurisdiction of the Defendant Texas Commission on Environmental Quality (TCEQ), found that the agency’s “conclusion that the public trust doctrine is exclusively limited to the conservation of water is legally invalid.” Bonser-Lain v. Texas Commission on Environmental Quality, Case No. D-1-GN-11-002194 (201st Dist. Ct., Travis County, Tex.). According to the court, the doctrine includes all the natural resources of the state. The court, however, also found that the agency’s refusal to exercise its authority, based on current litigation by TCEQ against EPA regarding the ability of EPA to regulate GHGs, was a reasonable exercise of discretion. The plaintiffs had filed a petition for rulemaking with the agency, which the agency had denied, that would have required, among other things, that GHG emissions from fossil fuels be frozen at 2012 levels and that a plan be developed to implement the corresponding reductions.
On June 29, 2012, a New Mexico district court judge, without much explanation, denied in part that state’s motion to dismiss a similar lawsuit, which sought a declaration that the state had failed to comply with its public trust obligation to protect the atmosphere. Sanders-Reed v. Martinez, Case No. D-101-CV-2011-01514 (Santa Fe County First Judicial District Court, NM). The court’s ruling allowed the law suit to go forward.
This series of suits and the decisions in these two cases raise fundamental questions about the bases for governmental regulation to protect the environment. First, should the atmosphere be considered a public trust resource? Although air is included in the definition of a natural resource under Superfund, it is different than other natural resources, e.g., land, fish, wildlife, biota, water, groundwater, and drinking water supplies, in that it is not something that can be captured and conserved or its use managed. Even assuming air is properly categorized as a public trust resource, should an independent common law duty be imposed on states requiring them to take action to protect it? As a practical matter, all states do have extensive regulatory schemes to protect air quality. What additional benefit does the imposition of a common law duty create? If a duty is to be imposed, should it be translated into specific requirements to compel a specific result, and, if so, based on what guidance. Are the specifics of air quality protection better left to federal and state legislatures and the agencies that implement their legislation? Finally, with regard to GHG emissions, in addition to concerns about identifying appropriate requirements, are they better managed on the federal and international level because, unlike traditional air pollutants, their impact is global rather than regional? These questions all appear to be political ones, better handled in forums other than the courts.
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Posted on June 29, 2012
The body of caselaw rejecting climate change tort claims seeking judicially-imposed restrictions on greenhouse gas emissions, which I reviewed in a prior post on January 3, 2012, continues to grow. That post predicted that (i) none of these suits were likely to succeed, given the U.S. Supreme Court’s holding last year in Connecticut et al. v. American Electric Power Co. et al. (“AEP”) that common law “nuisance” claims seeking such restrictions are displaced by the Clean Air Act, but nevertheless (ii) plaintiffs would continue to repackage and pursue the claims in different courts under different common law labels. Both predications have proved accurate.
Two of the cases summarized in that post, Comer et al. v. Murphy Oil USA et al. and Alec L. et al. v. Jackson et al., have since been dismissed by the presiding district courts. In Comer, where a group of Mississippi landowners sued scores of national electric utilities and other companies for damages caused by Hurricane Katrina, claiming that the defendants’ greenhouse gas emissions constituted a common law “nuisance,” the court held that the claims were preempted by the Clean Air Act and, further, that they presented non-justiciable political questions and plaintiffs lacked standing. In Alec L., where a group of plaintiffs sued several federal agencies under the “public trust” doctrine, seeking an order mandating greenhouse gas regulations, the court likewise held that the claims could not be recognized as a matter of federal law and, in any event, would be displaced by the Clean Air Act. A third case, Native Village of Kivalina v. ExxonMobil Corp. et al., remains pending before the Ninth Circuit, following the district court’s dismissal of the complaint on grounds that the “nuisance” claims were non-justiciable and plaintiffs lacked standing.
In addition, “public trust” claims have now been filed in nearly all fifty states. Some of these take the form, like Alec L., of common law tort litigation, with non-profit groups and individuals suing state officials and agencies in state courts, seeking injunctive orders directing the promulgation of greenhouse gas regulations. Several of these cases have already been dismissed, including in Alaska and Oregon (both on political question and justiciability grounds); none has proceeded past the pleading stage. Other claims take the form of administrative petitions, asking the relevant state agencies to issue greenhouse has regulations. Many of these petitions, in more than 30 states so far, have already been denied; none has been granted.
The unanimous rejection of these claims should presumably, at some time, begin to deter the filing of further climate change litigation. But that tipping point does not seem yet to have occurred. At least for the immediate future, it appears likely that plaintiffs will continue to use – and, to many minds, distort – the common law tort system to pursue the political goal of greenhouse gas regulation.
Posted on June 28, 2012
Late in the fall of 2011, the California Air Resources Board adopted its groundbreaking cap-and-trade rules (CTR) for greenhouse gasses. ARB faced stiff headwinds at every step. This month, one lingering legal tempest subsided while a new legal gale appeared on the horizon. Each involves novel environmental justice claims and could snuff out CTR and similar programs in other states.
First, balmier breezes for CTR: in a decision filed June 19, 2012, the California Court of Appeals rejected a 2009 mandamus petition filed by the Association of Irritated Residents (AIR) and other groups and upheld ARB’s climate plan under the “California Global Warming Solutions Act of 2006” (Cal. Health & Safety Code §38500 et seq., also known as “AB 32”). The court recognized the magnitude of ARB’s challenge under AB 32 and held: “After reviewing the record before us, we are satisfied that the [ARB] has approached its difficult task in conformity with [AB 32], and that the [GHG] measures that it has recommended reflect the exercise of sound judgment based upon substantial evidence. Further research and experience likely will suggest modifications to the blueprint drawn in the [ARB] scoping plan, but the plan‘s adoption in 2009 was in no respect arbitrary or capricious.” (p. 22).
In its 2009 mandamus petition, AIR et al. had challenged ARB’s overall plan to implement AB32, partly on the grounds that the plan’s CTR element did not adequately protect already overburdened local communities. The petitioners preferred “direct regulation” of GHGs at sources, another major element of ARB’s plan. They asserted that the full benefits of AB 32 to communities surrounding major sources could only be obtained by controlling GHG emissions at each GHG source, rather than by adopting the CTR. CTR would allow GHG sources to acquire and trade GHG allowances and/or GHG offsets resulting from GHG reductions in other communities, states, provinces or countries.
Now, a new tempest: earlier this month, AIR et al. filed a new complaint with EPA under title VI of the federal Civil Rights Act alleging that ARB had discriminated against African/American, Latino and Asian/Pacific Islander residents throughout California by adopting and implementing CTR. The title 6 complainants ask EPA to require, as a condition of continuing to provide federal financial assistance to ARB, that ARB reverse its decision to approve the CTR and adopt less discriminatory alternatives. It is impossible to say how or when EPA will respond.
Forecast: ARB will continue to try to implement CTR on schedule in spite of all legal flurries.
A lot is at stake now. Under the CTR, ARB plans to conduct its first auction of GHG allowances in November of this year, which could raise tens of millions of dollars. Starting January 1, 2013, refineries, power plants and other major GHG sources throughout California must properly account for all of their GHG emissions and later surrender qualifying GHG allowances and/or GHG offsets to ARB for every ton of GHGs emitted during the first compliance period (2013-14). Later this month, ARB plans to link its CTR to a similar program in the Canadian Province of Québec. Please see the June 11, 2012 ARB Notice.
But all regulated and other interested parties are left with new questions about how these legal winds may affect:
• The willingness of regulated companies and GHG traders to bid tens of millions or more for GHG allowances at ARB auctions.
• The willingness of other states to adopt cap-and-trade programs and link them to the ARB CTR. U.S. states are now vulnerable to federal title VI complaints as soon as they adopt their own cap-and-trade programs.
• The ability of ARB to contain the costs of AB 32 and minimize leakage by adopting the CTR and linking it to other cap-and-trade programs, as provided by AB 32.
• The continued ability of California to maintain its own climate program and achieve its climate goals.
It surely looks like more westerlies are approaching the CTR on the legal radar.
Posted on April 17, 2012
On February 28 and 29, 2012, the U.S. Court of Appeals for the District of Columbia Circuit heard oral argument in Coalition for Responsible Regulation v. EPA, No. 09-1322 et. al., consolidated challenges to the U.S. Environmental Protection Agency (EPA) ’s greenhouse gas (GHG) regulations. These regulations are being challenged by a coalition of industry groups and some states (the Coalition). The Coalition argues that the EPA does not have the authority to regulate GHGs from stationary sources under the Clean Air Act (CAA)’s Prevention of Significant Deterioration (PSD) permitting program without Congress amending the law.
The Coalition is asking the Court to vacate EPA’s rules regulating greenhouse gases, including the so-called Tailpipe and Tailoring Rules, on the grounds that they are contrary to the Clean Air Act and deviate from the explicit emission permitting thresholds in the CAA. As Peter Keisler, a lawyer for the National Association of Manufacturers (NAM) argued, “the agency crossed the line from stationary interpretation to statutory revision” and violated the law by raising the emissions thresholds far above those provided for by Congress in the CAA in order to avoid issuance of an unmanageable number of PSD permits in the short term .
The PSD program applies to new major sources or major modifications at existing sources for pollutants where the area the source is located is in attainment or unclassifiable with the National Ambient Air Quality Standards (NAAQS). As Keisler explained to the court, 83% of the GHG emissions from stationary sources would be regulated if EPA addressed greenhouse gas emissions solely in permits for the larger sources already subject to PSD requirements based on their emissions of criteria pollutants.
As Keisler then explained, under EPA’s Tailoring Rule which requires permits based solely on greenhouse gas emissions, 86% of the GHG emissions from stationary sources would be regulated – “a very tiny increment of difference, but a huge difference” in the number of sources that would now be regulated. And this increment of difference between 83% to 86% would translate into stationary sources never before regulated and now required to meet all PSD requirements, including implementation of costly best available control technology (BACT).
A decision by the Court is expected this summer.
Having participated in oral argument preparation and having observed both days of the oral arguments, it is my impression that the NAM arguments against EPA's Tailoring Rule provide the Coalition with the best chance for victory. NAM’s sound interpretation of the CAA and Congressional intent, coupled with the "avoidance of absurd results" doctrine, would blunt EPA's quantum leap through the CAA to create non-statutory GHG emission thresholds capturing only an additional 3% of stationary sources that were previously unregulated and would now have to bear crippling air pollution control costs for no real environmental benefit. This is the real absurdity of EPA's Tailoring Rule that I hope the court's decision will remedy.
Posted on April 13, 2012
By Daniel Riesel and Vicki Shiah, Sive Paget & Riesel, PC
On March 27, the U.S. Environmental Protection Agency proposed a rule limiting carbon dioxide (“CO2”) emissions
from new power plants fired by fossil fuels such as coal or natural gas. The rule applies to new fossil fuel-fired electric utility generating units in the continental United States; they do not apply to existing units or new “transitional” units that already have received preconstruction air emission permits and that start construction within 12 months of the proposed rule’s publication in the Federal Register.
Covered power plants would be required to meet an output-based standard of 1,000 pounds of CO2 per megawatt-hour. This standard favors natural gas over coal. EPA states that “[n]ew natural gas combined cycle power plant units should be able to meet the proposed standard
without add-on controls.” By contrast, coal-fired power plants would not be able to meet this standard without carbon capture and storage technology
, which is still under development and is expected to be quite costly – though EPA expects that the cost of such technology will decrease over time.
It is not clear whether the proposed regulation will have a significant effect on the energy industry, as the standard appears to reinforce current trends rather than require radical changes. In the preamble
to the proposed rule, EPA notes that, at present, “the industry generally is not building” coal-fired power plants and is not expected to do so “for the foreseeable future,” while natural gas is becoming more common as an energy source. According to EPA, the 1,000 lb/MWh standard is already being met by 95% of natural gas-fired combined cycle power plants that commenced operation between 2006 and 2010.
The proposed rule (a New Source Performance Standard
under Section 111 of the Clean Air Act) results from a settlement
between EPA and a group of states and environmental groups. These plaintiffs sued EPA in opposition to the agency’s refusal, in 2006, to establish greenhouse gas emission standards for new and modified power plants. EPA was required to revisit this decision in the aftermath of the U.S. Supreme Court’s landmark decision in Massachusetts v. EPA,
which affirmed EPA’s statutory authority under the Clean Air Act to regulate greenhouse gas emissions.
Under the settlement
giving rise to the standard proposed last week, EPA had also agreed to establish CO2 emissions guidelines for existing fossil fuel power plants. EPA has yet to propose such standards, and the time frame for its doing so is uncertain; EPA Administrator Lisa Jackson recently stated
, "[w]e don't have plans to address existing plants."
The full text of the proposed rule is available here
. Public comments are being accepted under Docket ID No. EPA‐HQ‐OAR‐2011‐0660 at www.regulations.gov
for 60 days after the proposed rule’s publication in the Federal Register.
Posted on June 30, 2011
By: Bob Wyman and Aron Potash, Latham & Watkins LLP
The ultimate fate of California's greenhouse gas (GHG) cap and trade program is firmly in the hands of the judiciary and, for now, the program may continue. On June 3, 2011, the California Court of Appeal for the First Appellate District temporarily stayed a writ of mandate enjoining California from further work on its program until the State more fully analyzes the environmental impacts of alternatives to cap and trade. The writ of mandate was first issued in Association of Irritated Residents v. California Air Resources Board following the California Air Resources Board's (CARB) petition to the court for a writ of supersedeas. CARB's petition asks the court to both declare the trial court's writ of mandate automatically stayed upon CARB's June 1 appeal and, failing that, to issue a discretionary stay of the writ of mandate pending CARB's appeal. The June 3 ruling granted CARB a stay, although only a temporary one. The Association of Irritated Residents and other appellees have until June 20 to file a brief opposing CARB's petition for a writ of supersedeas. Perhaps unaware that the writ of mandate had been temporarily stayed, the court that issued the writ issued another order on June 6 declaring both that the writ was not automatically stayed upon CARB's appeal and that CARB violated the writ by continuing cap and trade implementation activities. Nonetheless, given the temporary stay, CARB is in the clear to continue implementation activities for now. For how much longer is a question that will be resolved as CARB's appeal and petition for a writ of supersedeas wind their way through the appellate court.
Posted on May 12, 2011
Although even casual observers will have noted the fanfare surrounding the U. S. Securities Exchange Commission (SEC)'s release last year of guidance to public companies on disclosures regarding climate change and its consequences under federal securities laws and regulations, far less attention has been given to other developments in the carbon disclosure milieu that should inform corporate strategy. While the debate over regulation of greenhouse gas (GHG) emissions remains a hot topic in the courts, stakeholder pressure for greater transparency regarding GHG emissions management continues unabated, as illustrated by the evolving agendas of key stakeholders in the U.S. and abroad, two of which are highlighted briefly below.
Carbon Disclosure Project
The Carbon Disclosure Project (“CDP”) is a non-profit initiative launched in London in 2000 “to collect and distribute high quality information that motivates investors, corporations and governments to take action to prevent dangerous climate change.” Approximately 2,500 organizations in over 60 countries now measure and disclose GHG emissions and climate change strategies through CDP. Data is made available for use by institutional investors, corporations, policymakers and their advisors, public sector organizations, government bodies, academics and the public, including via channels on both Bloomberg and Google Finance. Investor CDP requests information on GHG emissions and climate change strategies on behalf of 534 institutional investors with a combined $64 trillion in assets under management and provides climate change data from thousands of the world’s largest corporations. Other notable initiatives include CDP Supply Chain, through which 60 corporate members encourage suppliers to measure and disclose climate change information. CDP's Public Procurement initiative, through which national and local governments can question suppliers about energy use, GHG emissions and related risks, is a beginning to have an impact, including at the US General Services Administration, where work is underway on a project analyzing the costs and benefits of disclosing through CDP. CDP has launched a new product for investors with FTSE and ENDS Carbon called the FTSE CDP Carbon Strategy Index. It has launched initially with two UK indices; the FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index. Both indices have been designed in response to growing awareness of the significant potential impact of climate change on investment returns. Post Copenhagen, governments across the globe have been working towards holding emissions below levels that would increase global temperatures by 2ºC. Achieving these levels will require increased costs for carbon emissions. The FTSE CDP Carbon Strategy Index Series reflects this carbon risk in its initial offering of ‘carbon-tilted’ versions of the UK’s FTSE All-Share and FTSE 350 indices. The indices feature the same constituents with a variation of weightings based on their exposure to carbon risk, relative to their sector peers. The index series is based on future-oriented criteria rather than past emissions data. It is the first index series to offer a long term forward-looking investment tool that closely tracks established UK benchmarks while supporting the reduction of climate change risks across investment portfolios. This means retail and institutional investors, such as pension funds, can achieve broad and diversified market exposure as well as manage the impact of climate change on their investment. One can gain considerable insight into the state of the art of carbon disclosure from a review of responses to CDP, as well as the cross-cutting analyses compiled by the organization and its partners. To access the most current and archived reports, click here.
Climate Disclosure Standards Board
The Climate Disclosure Standards Board ("CDSB") is an initiative convened by the World Economic Forum at its annual meeting in 2007 and hosted by the CDP as Secretariat in response to increasing demands for standardized reporting of climate change information in “mainstream” reports. The term "mainstream reports“ is used to describe annual reports in which corporations are required to deliver audited financial results under the corporate, compliance or securities laws. CDSB released a Reporting Framework in September of 2010. In connection with its work, CDSB has also compiled a database of global developments on legislation that directly or indirectly affects the way in which GHG emissions are calculated and/or the way in which risks are disclosed in corporate and securities filings. CDSB is in the process of upgrading the format to a new platform called “Interactive Standards” where the public and others will be able to see and contribute to the database. Other plans for 2011 center around engagement with corporations, investors and regulators through structured programs designed to align further the needs of preparers and users of climate change-related information.
Posted on March 28, 2011
Despite a House Republican agenda to eviscerate EPA’s GHG authority, EPA is pushing forward with workable greenhouse gas reduction solutions. EPA’s gradual phasing in of GHG permitting requirements for new facilities has provoked a vicious response from both heavy industry and political partisans, despite the requirements’ limited scope on only the largest pollution sources in the country – those that emit the equivalent of a burning railroad car of coal a day – and the common-sense requirements that these new facilities install the most efficient cost-effective technology available.
EPA has moved cautiously in deployingpotentially more important regulatory tool: New Source Performance Standards (NSPS). Starting with the two largest sectors of emitters in the U.S., electricity generators and refineries, NSPS can create a “floor” of minimum standards for new and modified facilities, as well as create a flexible, state-based system to drive steady reductions from existing sources. Importantly, reinvented NSPSstandards can capture the benefits of and build upon existing state GHG reduction programs, encourage other states to pursue or join in broader clean energy solutions, and produce greater environmental benefits (GHG reductions) than traditional NSPS.
In part to exploreand flesh out its new approach to NSPS, EPA held several “listening sessions” to hear from industry, air pollution control agencies, NGOs, and others in February and March of this year. A recurring theme throughout these sessions was flexibility. The most common stakeholder response has been thatEPA should set reasonably stringent 111(b) standards for new and modified sources. At the same time, EPA should build upon its experience in allowing state emissions averaging and trading to propose guidelines for states to regulate existing sources. These guidelines should include astraightforward method for states to show that alternative existing or proposed programs – whether or not they include individual numeric standards for individual NSPS sources– would achieve equivalent or greater emission reductions to traditional NSPS, individually applied.
Several states, including California, were quite vocal in these listening sessions, and for good reason. As Seth Jaffe pointed out in his blog, emissions trading programs such as California’s cap-and-trade program under Assembly Bill 32 clearly provide the most cost-effective emission reductions. Other states could propose clean energy programs, that achieve local economic development and energy security objectives, as well as emissions reductions, or they could be attracted to join existing regional initiatives. Rather than adopt a one-size fits all NSPS, EPA can establish a stringent NSPS that allows states, their industries, and other stakeholders to work together to innovate and create unique solutions that serve multiple goals.
Posted on March 7, 2011
In its first acts since GHG limits took effect under Prevention of Significant Deterioration (PSD) regulations, EPA has tried to walk a fine line between imposing stringent controls and not overplaying its hand in the face of Congressional reluctance.
In response to the first state-issued PSD permit with GHG controls since GHG limits went into effect January 2, EPA Region VI officials are seeking stronger GHG limits than Louisiana is requiring. The Louisiana Department of Environmental Quality (DEQ) recently finalized a PSD permit for a new iron and steel facility by Nucor Corp. on January 27, but declined to make any changes to GHG limits in the draft permit, including those suggested by EPA. It is unclear whether EPA will object to the permit’s issuance, but EPA was clearly dissatisfied with the permit for failing to establish a mass or CO2-equivalent limit, instead proposing a limit of “good combustion practices” based on an efficiency limit. “When determining a PSD permit limit, a permitting authority must establish a numeric emissions limitation that reflects the maximum degree of reduction achievable for each pollutant subject to BACT,” EPA stated in its January 7 letter to LDEQ. EPA also faulted the permit for failing to: include adequate monitoring for CO2 control; evaluate carbon capture and sequestration as an available technology; include a BACT analysis explaining how the control technology was selected; and provide baseline GHG emissions rates from the plant. Essentially EPA’s comments largely follow the agency’s position that GHG permitting should not differ from other air pollutants.
While EPA sought to send a strong message to Louisiana, it has taken a lighter approach on stalled permits, exempting several of them from the new GHG limits. In response to several PSD permit applications that have languished with EPA, the agency noticed its intent to exempt several permits that have yet to be issued from complying with emissions limits that took effect after the permit application date. The proposed new policy arose, as stated in EPA’s January 31 declaration in Avenal Power LLC v. EPA, exempting Avenal’s proposed 600 MW natural gas combined cycle power plant from GHG limits, the new SO2 hourly NAAQs (effective Aug. 23, 2010), and new hourly NO2 limits. The decision was made after Avenal applied for a permit in 2007 and sued EPA for failing to comply with PSD regulations requiring the agency to act on the permit within one-year of the application. EPA will issue a public notice requesting comment on the proposed policy. If the final policy is consistent with EPA’s declaration, several similarly situated entities whose permits have been delayed by EPA inaction could find themselves free from GHG limits in their newly issued permits.
Posted on January 5, 2011
As goes California, so goes the rest of the nation? That could be the case with respect to climate change and the regulation of greenhouse gas (GHG) emissions. Climate change and the implications of California’s Global Warming Solutions Act of 2006 (also known as AB 32) continue to remain a topic of great debate and speculation nationwide, as well as in California. AB 32 recently survived an initiative challenge during California’s November 2010 election cycle, and deadlines established in AB 32 to meet greenhouse gas reduction goals continue to loom. Recently, Governor Arnold Schwarzenegger, who just left office a few days ago, gave remarks at a California Air Resources Board meeting and acknowledged the “great, great benefits” from the creation of green jobs and venture capital being provided to GHG reduction projects. However, the Governor’s excitement for the benefits of AB 32 and climate change initiatives were tempered by California’s economic reality. According to the Governor:
We have to be sensitive because it is an economic downturn and this Air Resources Board knows that they have to be sensitive. But we have to reach our goal by 2020, our reductions of 25 percent and we’ve got to go and have our 33 percent of renewables by 2020. There are no two ways about that.
So what does this mean as we look forward to 2011 with a new Governor and lingering fiscal issues?
One area of law where climate change is bound to remain an active topic of discussion, and likely litigation and regulatory development, is with respect to the California Environmental Quality Act (CEQA). At the time AB 32 was adopted, there was uncertainty about the type of greenhouse gas emissions analysis that would be required under CEQA, and opponents of development projects filed several lawsuits to challenge projects on that basis. The early California State superior court decisions after passage of AB 32 ran the gamut from not requiring climate change analysis or a discussion of AB 32 , to finding an environmental impact report inadequate for failing to make a meaningful attempt to determine the project’s effect on global warming simply because it was “speculative”. In 2007, California adopted SB 97, which directed the Governor’s Office of Planning and Research (OPR) to develop recommended amendments to the State CEQA Guidelines for addressing greenhouse gas emissions , with the goal of creating a coordinated policy – instead of a “piecemeal approach dictated by litigation .” The amendments became effective in March 2010.
Despite the adoption of the CEQA guidelines amendments, how state and local agencies should analyze and, when necessary, mitigate greenhouse gas emissions still remain somewhat of a mystery, because the amended guidelines and most local governing bodies have fallen short of providing a clear threshold as to what constitutes a significant impact under CEQA, and what should be done to mitigate the impact. However, what we can anticipate for 2011 is that project applicants must “do something” – business as usual (i.e. developing projects without evaluating and, as necessary, reducing GHG emissions) will likely not suffice. The amended guidelines have been adopted, models for quantifying GHG emissions are available, and state and local agencies such as the Attorney General’s Office ) and various air quality management districts have provided recommended mitigation measures and performance-based and numeric thresholds related to climate change. The California Court of Appeal also weighed in on the “do something” mantra in April 2010 in concluding that an environmental impact report was inadequate because it improperly deferred an evaluation of GHG mitigation measures. It held that, “[d]ifficulties caused by evolving technologies and scientific protocols do not justify a lead agency’s failure to meet its responsibilities under CEQA by not even attempting to formulate a legally adequate mitigation plan.”
All in all, with AB 32 left intact, the adoption of the new CEQA Guidelines, and the CARB regulatory package for implementation of AB 32 likely to be put in place, 2011 promises to be an active year in California’s legal and regulatory environment – one that the nation will continue to closely monitor as California takes the lead.
Posted on December 28, 2010
By James R. Farrell
Butler, Snow, O’Mara, Stevens & Cannada, PLLC (www.butlersnow.com)
Regulation of greenhouse gas (GHG) emissions has become a reality. Although the Supreme Court’s 2007 ruling in Massachusetts v. EPA deserves much of the credit for EPA’s aggressive response to global warming, congressional inaction on comprehensive climate change legislation ultimately set in motion the agency-driven agenda that has led our country to an historic yet extremely controversial crossroads in environmental regulation. The Supreme Court’s conclusion that GHGs constitute air pollutants as defined by the Clean Air Act required EPA to determine whether GHG emissions from motor vehicles cause or contribute to climate change that is reasonably anticipated to endanger the public health or welfare; however, the Court’s requirement for regulatory action did not preclude the possibility of a legislative response.
Despite the dim prospects for comprehensive climate change legislation today in the wake of the turbulent 2010 mid-year elections, the political landscape appeared far more favorable little more than eighteen months ago. On June 26, 2009, the House had narrowly passed the American Clean Energy and Security Act of 2009 (the “Waxman-Markey Bill”) by a vote of 219-212. The Waxman-Markey Bill featured a cap and trade component to regulate GHG emissions, and the bill would have required a seventeen percent reduction in GHG emissions from 2005 levels by 2020 and an eighty percent reduction by 2050.
In the Senate, Senators John Kerry (D-MA), Joseph Lieberman (I-CT), and Lindsay Graham (R-SC) had been hard at work on a comparable climate change bill dubbed the American Power Act. In early 2010, the bill appeared to have bipartisan support due in large part to its provision for expanded offshore drilling, an early and significant concession by the bill’s sponsors. But when the Deepwater Horizon exploded on April 20th, everything changed. As public outrage at the offshore drilling industry grew daily in response to the unprecedented magnitude of the oil spill, it triggered a proportional decrease in political will for comprehensive climate change legislation. By the time the American Power Act was introduced on May 12th, Senator Graham had already withdrawn his support insisting that the ongoing and more immediate threat posed by the Gulf oil spill had “made it extremely difficult for transformational legislation in the area of energy and climate to garner bipartisan support . . . .”
In the end, the legislative response to climate change that had once appeared likely – if not imminent – never materialized. In contrast, EPA has wasted no time since Massachusetts v. EPA engaging in regulation-making intended to address climate change. The culmination and cornerstone of this fervent EPA activity is EPA’s Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule (the “Tailoring Rule”), which will usher in a new and hotly contested era of GHG regulation on January 2, 2011. The Tailoring Rule’s phased-in approach to regulation means that the regulatory net it casts will gradually widen with time, initially targeting those stationary sources known to be the largest emitters of GHG emissions but eventually encompassing some smaller sources as well.
Whether or not you’ll be ringing in the new year this year likely depends on your political persuasion. For many environmental groups who have lobbied tirelessly for greenhouse gas regulation, 2011 is a long-awaited (and soon to be much-celebrated) new year. For many in industry, however, 2011 is likely to be a year of nostalgia filled with no less than 365 opportunities to remember fondly the less regulated days of yesteryear. Happy New Year!
Butler, Snow, O’Mara, Stevens & Cannada, PLLC (www.butlersnow.com)
· John A. Crawford
· Michael D. Caples
· James I. Palmer, Jr.
Posted on November 23, 2010
Earlier this month, the State of New Mexico adopted a rule designed to cap greenhouse gas (“GHG”) emissions in New Mexico and implement the State’s participation in a cap and trade market based on the design guidelines of the Western Climate Initiative (“WCI”). But it is too soon to tell how the New Mexico GHG rule will shake out. The future of cap and trade in New Mexico depends on many developments that range from the election of a new governor who will take office in January 2011, the fate of California’s cap and trade program, and the potential that the New Mexico GHG rulemaking will be appealed. An additional New Mexico only greenhouse gas cap and reduction proposal will also be considered by the New Mexico Environmental Improvement Board (“EIB”) in early December.
On November 2, 2010, after lengthy and contentious debate, EIB narrowly adopted the GHG rule that was proposed by the New Mexico Environment Department (“NMED”) last spring. The rule provides for a cap and trade program for certain GHG emissions in New Mexico that could start as early as 2012. The program would not be initiated without participation of other states with GHG emissions sufficient to provide a base of at least 100 million metric tons of CO2 equivalent emissions. This requirement is designed to avoid the State’s implementing a trading program alone. For all practical purposes, because the trigger for implementation is a base of at least 100 million tons, the New Mexico cap and trade program will not be able to move forward without implementation of the California program. Of the 7 initial participating WCI states, only New Mexico and California are moving forward at this time to implement a cap and trade program.
The New Mexico GHG rule would apply to about 63 large industrial facilities that emit GHGs in the State. The affected facilities include primarily power plants and large oil and gas operations. After the rule becomes effective, the affected facilities would be required to reduce emissions by 2% annually until 2020 or be required to acquire offset credits for emissions from other jurisdictions or external trading programs. The State would initially provide allocations for baseline emissions for those currently existing regulated facilities without charge.
Also in November, the EIB adopted mandatory reporting and verification rules. The rules require sources emitting more than 10,000 metric tons of CO2e emissions to report emissions. Those sources with greater than 25,000 metric tons of CO2 equivalent emissions are required to obtain third-party verification of emissions. This rule is scheduled to go into effect on January 1, 2011, regardless of whether the cap and trade rule goes into effect. NMED estimates that 130 to 150 sources will be affected by the reporting rule.
Challenges to New Mexico’s GHG rule are likely. The margin of the EIB vote on the rule was narrow, four to three in favor. Moreover, on the day EIB adopted the rule, the New Mexico voters elected a new governor, Susanna Martinez. The Republican governor-elect’s campaign positions included opposition to WCI and the GHC initiatives of the current Democratic governor, Bill Richardson. It seems likely that the new GHC rule will not meet with favor in a Martinez administration. The change of administration is particularly important because to date, Governor Richardson’s support for New Mexico GHG initiatives has been critical to their adoption. New Mexico’s participation in WCI was initiated by Executive Order, and NMED’s efforts to implement the WCI cap and trade program in the state legislature have been unsuccessful.
In addition to the recently adopted GHC cap and trade and reporting and verification rules that were proposed by NMED, an additional petition by The New Energy Economy that would put a cap on GHG emissions in New Mexico is scheduled for decision by the EIB in early December. The New Energy Economy petition asks EIB to mandate that large facilities emitting greenhouse gases must reduce their emissions by 3% every year from 2010 levels, regardless of the development of a cap and trade market in the region. If adopted, the program would sunset in 2020, and also be suspended in any year that a source begins reducing GHG emissions pursuant to a multi-jurisdictional or national GHG reduction program.
The future will tell us which of the two votes taken on November 2 will prove most important. Some key opponents to the New Mexico GHC rule have expressed support for a federal cap and trade effort, but other very significant concerns remain, particularly regarding GHG proposals that are merely state or regional. In New Mexico, as in the rest of the country, the GHG trading market is far from open.
Posted on November 4, 2010
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.