California Adopts its Cap-and-Trade Program for Greenhouse Gas Emissions
After a full day of testimony and deliberation on December 16, 2010, the California Air Resources Board (ARB) adopted the state’s Cap-and-Trade Program on a 9-to-1 vote. The Program is promulgated under the California Global Warming Solutions Act (A.B. 32) as a market-based compliance mechanism to help achieve reduction of the state’s greenhouse gas (GHG) emissions to 1990 levels by 2020. The 10-hour public hearing on the proposed regulation included more than six hours of public testimony, crisscrossing the broad spectrum of stakeholders with an interest in the Program. The large scope of comments made it clear that there were numerous details that still need to be resolved, and that litigation may be pending.
Indeed, even with the December 16 approval, there will be several modifications to the Cap-and-Trade regulation that was released in early November for public review, based on ARB staff-proposed changes presented at the hearing. These changes and other “conforming modifications” will be released for an abbreviated 15-day comment period. Staff will then continue to revise the fine points of the regulation that do not purportedly require further Board action, with a goal of having all the details of the Program confirmed by July 2011. ARB’s approval also included four protocols for creating offset credits. The Cap-and-Trade Program, which contains numerous convoluted provisions, consists of several major elements.
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If you have any questions about the issues of this update, please contact:
Lee N. Smith at (916) 319-4651 or lnsmith@stoel.com
Allison C. Smith at (916) 319-4759 or acsmith@stoel.com
California's Proposed GHG Cap-and-Trade Program Out for Public Comment
The California Air Resources Board (ARB) has issued its proposed greenhouse gas cap-and-trade program, pursuant to the California Global Warming Solutions Act (AB 32). The proposed regulation builds on the conceptual framework for ARB’s cap-and-trade program, released in November 2009. The 45-day public comment period on the regulation opened yesterday and closes on December 15, 2010. Whether by design or happenstance, ARB released this latest on the cap-and-trade program just before Californians will vote today on whether to suspend AB 32 under ballot box Proposition 23. Proposition 23 would suspend AB 32 until California’s unemployment rate dropped to 5.5% or less, for four consecutive quarters. Given that the state’s current unemployment rate is about 12%, and the unemployment rate has been below 5.5% for four consecutive quarters only three times since 1980, Proposition 23 could halt the implementation of AB 32 indefinitely.
Program Overview
Regulated sources have been reporting GHG emissions for several years now. Using this information, ARB will set a GHG emissions cap in 2012 based on an estimate of actual emissions for that year. The electricity sector, including imports, and large industrial facilities will be the first GHG sources subject to the program in 2012, following by fuel distributors in 2015. Any electrical generator or other stationary source emitting more than 25,000 metric tons of CO2-equivalent gases will be allocated emissions allowances in 2012 based on its emissions reporting. The overall emissions cap will decline 2% to 3% each year, with fewer allowances to be issued on an annual basis, though the overall cap will expand in 2015 with the introduction into the program of providers of transportation fuels and residential and commercial fuels. Together these sources account for 85% of California’s total GHG emissions. The regulation also gives ARB the option of expanding the program to include other emissions sources.
Compliance
A source will be able to use emissions offsets to satisfy up to 8% of its compliance obligations. Under the program as proposed, offsets can be generated by the reduction or removal of GHG emissions from an activity that is not covered by the cap and can be measured, quantified, and verified. Offsets must be real, permanent, verifiable, enforceable, quantifiable, and additional. ARB may accept existing qualified offset projects into the offsets program. It has also proposed compliance offset protocols for ozone depleting substance projects, livestock manure (digester) projects, urban forest projects, and U.S. Forest projects. The proposed regulation also establishes a framework for accepting sector-based offset credits from developing countries.
Initial emission allowances to industry and utilities will be free. ARB will allow emissions allowances to be traded and banked. Sources will have a three-year compliance period to allow for annual variations in output. An emitter that exceeds the emissions threshold in any given year will have a compliance obligation going forward.
Public Meetings
ARB staff will present an overview of the proposed program to the Board at its November 18, 2010 meeting. ARB will hold a public hearing to consider the cap-and-trade program on December 16, 2010 in Sacramento.
DOT, EPA Boost Fuel Economy, Set GHG Emission Limits for Light Vehicles
The U.S. Department of Transportation (“DOT”) and the U.S. Environmental Protection Agency (“EPA”) have established new federal rules for greenhouse gas (“GHG”) emissions standards for all new passenger cars and light trucks sold in the US. The rules improve fuel efficiency, could save the average buyer up to $3,000 over the life of a 2016 model year car, conserve about 1.8 billion barrels of oil, and reduce nearly a billion tons of GHG emissions over the life of a new vehicle.
The joint issue of rules allows automakers to comply with one set of rules, instead of three different sets (DOT, EPA, and a state standard).
NHTSA and EPA believe automakers can meet the new standards by adopting existing efficiency technologies such as lighter materials, more efficient engines, transmissions, tires, and air conditioning systems.
For more information, see the DOT press release, the final rule (PDF 6.93 MB), and the Web page for the EPA climate regulations.
EPA Delays Regulation of GHGs as Stationary Source Emissions
From Stoel Rives partners Lee Smith and Krista McIntyre:
In response to a letter drafted by eight democratic senators and general industry adverse reactions, the EPA announced on February 22, 2010 that there would be delays to implementation of the regulation of green house gases as stationary source emissions under the Clean Air Act, and included additional conditions to the implementation. It is expected that the EPA will phase in permit requirements and regulation of GHG for large stationary sources beginning in calendar year 2011.
The additional conditions include only requiring facilities that are applying for air permits for non-greenhouse gas emissions to be permitted under the new GHG permitting system in the first half of 2011, and permitting at a level higher than the 25,000 ton level originally proposed, for the latter half of 2011 through 2013. The letter can be found here.
SEC Adopts Interpretive Guidance on Disclosure Regarding Climate Change
As described in a previous alert, the Securities and Exchange Commission ("SEC") voted on Wednesday, January 27, 2010 to adopt an interpretive release to provide guidance on existing public company disclosure requirements as they apply to business or legal developments relating to climate change. The SEC has now distributed the interpretive release itself, which can be found here. The interpretive release indicates that its purpose is to provide guidance on how to interpret existing SEC disclosure rules and requirements as applied to business and legal developments associated with climate change. For our detailed alert on the subject, click here.
SEC Issues Interpretive Guidance on Greenhouse Gases
My partner Tom Wood circulated this preliminary alert this afternoon:
"Earlier today the U.S. Securities & Exchange Commission (SEC) approved interpretive guidance intended to inform public companies how climate change must be taken into account when applying existing disclosure requirements. Specifically, the SEC's interpretative guidance highlights the following areas as examples of where climate change must be considered in crafting disclosures:
· The direct effects of existing and pending environmental regulation, legislation and international accords and treaties on the company’s business, its operations, risk factors and in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A);
· The indirect effects of climate change legislation and regulation on a company’s business—this could include new opportunities or risks posed by legal, technological, political and scientific developments related to climate change; and
· The actual and potential effect on a company’s business and operations resulting from physical changes to the planet resulting from climate change.
"The interpretive guidance specifies that public companies must have adequate knowledge of their greenhouse gas emissions—a requirement that is consistent with recent EPA regulations requiring many (but not all) significant greenhouse gas emitters report their direct emissions starting in calendar year 2010. The SEC stated “management should ensure that it has sufficient information regarding the registrant’s greenhouse gas emissions and other operational matters to evaluate the likelihood of a material effect arising from the subject legislation or regulation.”
Unsurprisingly, the SEC said that registrants must weigh whether climate change related information is material or not. In doing so, they said that if it was a close question, the company should decide in favor of disclosure."
The complete language of the interpretive guidance has not yet been released. Corporate securities partners C. J. Voss and Ron McFall are reviewing the issue and will be issuing an Energy Law Alert on the topic. If you'd like to sign up for our Energy Law Alerts, click here.
EPA Announces "Endangerment" and "Cause or Contribute" Findings
Stoel Rives partner Tom Wood reports:
Minutes ago EPA announced its long awaited “endangerment” and “cause or contribute” findings in relation to six key greenhouse gases – carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride. While technically this announcement is of limited significance (applying only to motor vehicle emissions), the policy import of these determinations is tremendous.
In 2007, the U.S. Supreme Court held that greenhouse gases are air pollutants covered by the Clean Air Act in the Massachusetts v. EPA decision. This case arose in relation to EPA’s choice not to regulate carbon dioxide emissions from new motor vehicles. The Court held that EPA must determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision.
Earlier this year EPA proposed to issue the two part finding required to commence regulation of greenhouse gas emissions from new motor vehicles. This required first a finding that greenhouse gas emissions endanger public health and welfare and a second finding that emissions from new motor vehicle engines cause or contribute to greenhouse gas air pollution. The comment period for these proposed findings ended June 23, 2009 and EPA received over 380,000 public comments. Today, Lisa Jackson (EPA Administrator) signed final findings that greenhouse gases endanger both the public health and the public welfare of current and future generations and that the combined emissions of these greenhouse gases from new motor vehicles and new motor vehicle engines contribute to the greenhouse gas air pollution that endangers public health and welfare.
As a legal matter, today’s findings relate only to vehicle emissions. However, the precedent that they create will almost certainly result in substantial regulation for other source categories. It is no coincidence that this finding was announced on the first day of the Copenhagen talks on climate change. The Obama administration both wanted to show that some progress was being made in the U.S. and it wants to leverage this progress into further statutory or regulatory requirements.
Towards this goal, one of the more interesting things to come out of the determinations is the formal establishment of the new pollutant: “Well-Mixed Greenhouse Gases.” This term is now officially entered into EPA’s regulatory lexicon as a pollutant to be regulated. Well-Mixed Greenhouse Gases consists of the 6 Kyoto gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride) but introduces the grouping now as a regulatory unit. It is noteworthy that vehicles are not material sources of all of these greenhouse gases and so the use of this term should be seen as setting the stage for future regulation.
Also of interest is an EPA restatement in a footnote that at this time it does not consider greenhouse gases to be a regulated air pollutant. This is of tremendous significance to stationary sources of greenhouse gases as the moment that greenhouse gases become regulated, there is the potential argument that they are subject to Title V and major new source review permitting. At the risk of understating the issue, that would be a mess of biblical proportions.
For those wishing to read all 284 pages of the findings document, it can be found at: http://www.epa.gov/climatechange/endangerment/downloads/FinalFindings.pdf
The findings are not valid until 30 days after they are published in the Federal Register. Expect publication to occur later this month.
EPA Aims to Limit Greenhouse Gas Regulations to Large Facilities
The U.S. Environmental Protection Agency (EPA) is proposing a rule that would limit future greenhouse gas (GHG) regulations under the Clean Air Act to large industrial facilities emitting the equivalent of 25,000 tons or more of carbon dioxide annually. Effectively, the application of GHG regulations will be confined to facilities such as power plants, refineries, and factories, which produce nearly 70% of U.S. GHGs. This proposal lets relatively small GHG emitters off the hook. The EPA was apparently alarmed at predicitions that the application of GHG regulations to low emitters would cause state permitting authorities to be inundated with more paperwork than they could handle with existing resources.
Under the proposed rule, 3,000 GHG emitters - mostly municipal landfills - will now be required to file for a GHG permit. The proposed rule, announced by the EPA on September 30, will be open for public comment for 60 days once it has been published in the Federal Register - which had not happened as of yesterday.
Major emitters of GHGs will also have to apply for a permit when they increase their GHG emissions by between 10,000 and 25,000 tons of carbon dioxide, although the EPA is seeking input on those levels.
Obama Administration Invests $300 Million in a Green Federal Fleet
The Obama Administration has met its goal to invest $300 million from the American Recovery and Reinvestment Act on fuel-efficient vehicles for the federal fleet. The U.S. General Services Administration (GSA) announced that it has ordered :
· 3,100 fuel-efficient hybrid vehicles for $77 million;
· 14,105 fuel-efficient vehicles including alternative-fuel and hybrid vehicles, for $210 million; and
· 35 hybrid electric buses, and one hybrid electric car for $12.4 million.
Most of the new vehicles will be in use by the end of this month, replacing older, less-efficient models in the federal fleet. By increasing the fuel efficiency of its fleet, the new vehicles will save an estimated 16.7 million gallons of fuel over the next seven years, which translates to 334 million less pounds of greenhouse gases emitted and a savings to taxpayers of at least $40 million in fuel costs.
US and China Co-Host First Electric Vehicle Forum
140 U.S. and Chinese officials met in Beijing at the first U.S.-China Electric Vehicle Forum to discuss progress in the electric vehicle industry and opportunities, concluded October The meeting highlighted the rapidly growing electric vehicle industry in China and the US (which are two largest auto markets and energy consumers, and together emit more than 40% of the world's greenhouse gases).
The meeting is the result of from growing U.S.-China collaboration on clean energy technologies. In July, the United States and China announced plans to develop a U.S.-China Clean Energy Research Center (CERC) that will facilitate joint R&D on clean energy by bringing together teams of scientists and engineers and providing an information clearing house to help researchers in both countries. The CERC has identified clean vehicles as a priority for joint projects.
EPA Issues Final GHG Reporting Rule
On the topic of Greenhouse Gas reporting, my partner Tom Wood recently circulated this "heads up" about EPA's final rule:
On September 22, 2009, EPA issued its final rule on greenhouse gas (GHG) reporting. Fossil fuel and industrial GHG suppliers, motor vehicle and engine manufacturers, and facilities that emit 25,000 metric tons or more of CO2 equivalent per year will be required to report GHG emissions data to EPA annually.
Recordkeeping obligations commence on January 1, 2010 with the first report due in 2011 (for 2010 emissions). Relaxed requirements will apply for reporting year 2010 as EPA recognizes that not all monitoring can be implemented in the weeks remaining in this year.
In a blow to the consulting industry, third party verification is not being required; sources will be able to self-certify their emissions. EPA says that its program does not preempt state reporting programs, but our hope is that with a final rule the state and regional efforts will conform to EPA’s lead.
Look for more details as Tom gives the rule a more thorough review.
Show me the Money: $10 million for Climate Showcase Communities
On June 16, 2009, the Environmental Protection Agency ("EPA") issued a request for applications ("RFA") for its Climate Showcase Communities Grant Program. The RFA provides $10 million for programs to help lower green house gas ("GHG") emissions through energy and resource management.
Eligible activities are those that reduce GHG emissions in the following priority areas:
- Use or supply of green power products, on-site renewables, and other clean energy supply options;
- Energy performance in municipal operations (including municipal energy, water, and waste-water utilities);
- Energy performance in residential, commercial, agricultural, aqua-culture, and/or industrial buildings;
- Land use, transportation, or community master planning;
- Reduction of vehicle miles traveled;
- Solid waste management;
- Agricultural, aqua-cultural, and natural resource management;
- Heat island management;
- Removal of barriers for greenhouse gas management, through the development of effective programs, policies, or outreach; or
- Other innovative activities which generate measurable reductions of greenhouse gases
The EPA expects to award up to 30 cooperative agreements. Individual awards can be as high as $500,000, but most awards will range in value from $300,000 to $500,000. Eligible entities include local governments, Indian tribes, and intertribal consortiums.
Applicants must submit an informal notice of Intent to Apply by July 1, 2009 and full applications are due July 22, 2009 at 4:00 p.m. EDT.
U.S. EPA Holds Public Hearings in California on Proposed Mandatory Greenhouse Gas Reporting Rule
U.S. EPA is holding a public hearing in Sacramento, California today on the agency's proposed rule on mandatory greenhouse gas emissions reporting. EPA held public hearings on the new rule in the Washington D.C. area earlier this month.
Over 13,000 facilities nationwide, accounting for about 85% to 90% of GHGs emitted in the U.S., will be required to report their emissions under the rule. Reporting will largely be done on a facility-level, with the threshold for mandatory annual reporting based on facility capacity, rather than emissions. Where a capacity threshold is not feasible or appropriate, facilities that emit 25,000 metric tons or more of GHGs per year will be required to submit annual emissions reports. Data collection will begin January 2010, the first reports due in March 2011. EPA estimates that the cost to all industries to comply with the new reporting requirements would be $160 million in the first year, and $127 million annually in subsequent years.
The rule was published in the Federal Register on April 10, and comments on the rule are due to EPA no later than June 9, 2009.
Dingell Unseated; Waxman to Head House Energy and Commerce Committee
In a move that could have a significant impact on the energy sector (and create a buzz among political science departments) nationwide, Representative Henry Waxman (D-CA) has dethroned Representative John Dingell (D-MI) in his nearly 28-year post as chairman of the influential Committee on Energy and Commerce. The 137-122 secret vote has shaken up the seniority system that has driven the caucus for decades. It also replaces a long-time friend of the auto industry with someone who has been championed by environmentalists for his positions on clean air and global warming.
Waxman’s ascension to the Energy and Commerce Committee chairmanship is particularly significant because the committee shepherds legislation on climate change, energy, and health care—all of which are key priorities of the Obama Administration. Waxman (who also has a strong leadership record on health care issues) has pushed for aggressive targets for carbon emissions reductions, more stringent auto emissions standards, and a national cap-and-trade program. Although Dingell recently proposed legislation that would impose gradual reductions in greenhouse gas emissions, Waxman has put forth much more ambitious climate change legislation.
Also of note is Obama’s recent appointment of Philip Schiliro, a longtime aide to Waxman, as the new White House director of Congressional relations. This appointment is considered to be significant in that it provides Waxman with a direct channel to the White House. Congressional insiders have also noted that House Speaker Nancy Pelosi is a close ally of Waxman’s. This web of connections underscores the potential for the Obama Administration and Congress to work closely together to usher in major changes to U.S. climate change policy.
