Slides and Audio from December 4th Environmental and Energy Law Teleseminar

Year-End Local and Global Climate Change Analysis:
COP 19, California’s November Auction
and Quebec’s December Auction 

On December 4th our lawyers presented the latest Environmental and Energy Law teleseminar with impacting news and updates on GHG regulation globally and in California.

The 19th session of the Conference of the Parties (COP 19) to the United Nations Framework Convention on Climate Change (UNFCCC) took place from November 11-22 at the National Stadium in Warsaw, Poland. Our market-leading UK Climate Change lawyer provided a high-level discussion of COP 19 from London. Developments from California’s November 19th Auction and Quebec's first auction were also presented.

Topics:

  • COP 19 Overview and Observations 
  • California November Auction Update 
  • Quebec December Auction Update 
  • California/Oregon/Washington/British Columbia Pact 
  • AB32 Litigation Update

Speakers: David Wagner (Pittsburgh), Todd Maiden (San Francisco), Jamon Bollock (San Francisco), and Peter Zaman (London). To read more about our speakers, please click the attorney's name.

The slides and audio are available here.

The 19th Conference of the Parties (COP 19) - Daily Alerts

This post was written by Peter Zaman, Pryderi Diebschlag, and Felix Attafuah

A European team of Reed Smith lawyers presented a series of daily alerts from COP 19 which was held from 11 to 22 November 2013 in Warsaw, Poland. An abstract of each alert is set out below, please click the links to read the full entries.

Setting Expectations - The 19th Conference of the Parties (“COP”) to the United Nations Framework Convention on Climate Change (the “Convention”) opens today at the National Stadium in Warsaw, the Republic of Poland. For those who recall COP 14 in Poznań just before the Copenhagen COP, many will feel a strong sense of déjà vu as this COP also is one that is leading up to a more significant COP in Paris in 2015.

Day 1 - The Conference opened yesterday in Warsaw with speeches by the newly elected President of COP 19/CMP 9, His Excellency Marcin Korolec (Poland’s Environment Minister), and Ms. Christiana Figueres (Executive Secretary of the UNFCCC). Cutting through the usual soundbites, a poignant statement was made by the Philippines’ Climate Commissioner, Naderev Sano, who told the Conference that, in light of the destruction caused by typhoon Haiyan, he "will voluntarily refrain from eating food (during the conference) until a meaningful outcome is in sight".

Day 2 - Having completed the formalities of COP 19 on Day 1, Day 2 opened with a plenary meeting of the AWG-DP. Through the course of the day, contact groups, informal consultations, workshops and other events convened under the AWG-DP, SBI and SBSTA. This alert covers some of the issues discussed at these meetings.

Day 3 - Day 3 continued where day 2 left off, with more meetings, contact groups, informal discussions, workshops and other events taking place under the COP, AWG-DP, SBSTA and SBI. Poland’s decision to host a coal industry summit next week on the side lines of COP 19/CMP 9 has put the United Nations in a quandary. One of the purposes of COP 19/CMP 9 is to provide parties with a platform to discuss processes for slowing global warming (usually with a focus on phasing out fossil fuels like coal in favour of renewable energies like solar or wind power). Instead, the focus next week will also be on coal as Poland (a country that generates 90 percent of its electricity from coal) tries to engage COP 19/CMP 9 on a coal debate.

Day 4 - Frantic meeting schedules continued at the Conference against the back drop of news that Japan will announce a reduction in its 2020 greenhouse gases (GHGs) emissions target. Japan is expected to announce today that it will now target a 2020 emissions reduction of 3.8 per cent from its 2005 emissions levels. This new target is in stark contrast to Japan’s previous target of achieving a 25 per cent reduction from its 1990 levels. Furthermore, under the Kyoto Protocol (which Japan has subsequently opted out of), Japan pledged to cut GHGs emissions by 6 per cent a year on average over a five-year period to March 2013. In anticipation of this announcement by Japan, China has been most vocal, with the Chinese lead negotiator expressing his "deep concern" and "dismay".

Day 5, 6 and 7 - As expected, Japan duly announced its intention to cut its greenhouse gas emissions by 3.8% (from 2005 levels) by 2020. By comparison to Japan’s earlier goal of a 25% reduction from 1990 levels by 2020, this new target allows a 3.1% increase in emissions from 1990 levels. Friday’s meetings continued the trend of informal consultations and contacts groups, slowing striving towards substantive progress. The closure of the 39th SBSTA and SBI meetings, and the associated closing plenaries, provided an excellent opportunity to assess precisely how much or how little substantive progress has been achieved thus far.

Day 8 - The second week of the conference began with the COP President calling an informal stocktaking session, aiming to unite and focus the parties ahead of a week of hopefully more productive negotiations as the ministers begin to arrive. Simultaneously, the closing plenary session of the SBI reconvened, determined to conclude its meeting after a long weekend of negotiations.

Day 9 - Tuesday saw the opening ceremony of the high-level segment at COP 19 and CMP 9. As is customary, the curtain raiser began with numerous statements from a variety of heads of state and government ministers. UN Secretary-General Ban Ki-moon set out a number of key objectives for the parties in Warsaw which were substantially echoed by UNFCCC Executive Secretary Christiana Figueres. These include promoting the ratification of the second commitment period under the Kyoto Protocol, increasing ambition levels across mitigation, adaptation and finance, and paving a route forward for an agreement in 2015.

Day 10 -The high-level ministerial discussions continued on Wednesday with a focus on trying to reach a consensus as to scaling up finance to the "magic number"of US$100 billion per year by 2020.The usual array of contact groups, informal consultations and meetings under the COP, CMP and AWG-DP workstreams continued throughout the day, culminating in the COP/CMP President convening another informal stocktaking plenary in the evening.

 

Day 11 - The focus of Thursday’s high-level ministerial discussions turned to the Durban Platform and sought to capitalise on the common ground that was established yesterday in the AWG-DP. As before, the array of contact groups, informal consultations and meetings under the COP, CMP and AWG-DP workstreams continued throughout the day, culminating in the COP/CMP President convening another informal stocktaking plenary session in the evening.

 

West Coast Governors Announce Ambitious Plan to Coordinate Action on Climate Change

This post was written by Jennifer Smokelin, Jamon Bollock, and Todd Maiden

Once again, the states prove to be the first movers on climate change issues and the incubators for novel climate change policies. On the federal level, climate change bills get stuck in congressional committees. But governors on the West Coast are trying to spur action.

On October 28, 2013, British Columbia, California, Oregon and Washington signed the Pacific Coast Action Plan on Climate & Energy (the "Plan"), a "comprehensive and far-reaching strategic alignment to combat climate change and promote clean energy." (See Pacific Coast Collaborative, Press Release, October 28, 2013, p. 1). According to the statement released by Offices of the Governors of California, Oregon and Washington and the Office of the Premier of British Columbia, the "Action Plan represents the best of what Pacific Coast governments are already doing, and calls on each of us to do more—together—to create jobs by leading in the clean energy economy, and to meet our moral obligation to future generations." (Id.)

The Plan’s broad goals include addressing climate change comprehensively across many segments of the economy. The Plan will touch on the transportation sector, for example, through expanding the use of zero-emission vehicles (with a goal of ten percent of public and private fleet purchases by as early as 2016), adopting low carbon fuel standards, and exploring the development of high-speed rail across the region. (See Plan, Sections II(1), II(2), and II(3).) The Plan will also impact the commercial and residential building sector by transforming the market for energy efficiency and leading the way to "net-zero" buildings. (See Section III(1).) Additionally, the Plan will address the energy sector by focusing on streamlining the permitting of renewable energy infrastructure, supporting strong federal policy on greenhouse gas emissions from power plants, and supporting integration of the region’s electricity grids. (See Sections III(2), III(4), and III(5).)

 

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Slides and Audio for September 30th Joint Seminar with the Environmental Law Institute

President Obama's Climate Action Plan in the Near Term: Expectations, Concerns, and Opportunities

On September 30th our lawyers participated in a joint seminar alongside a panel which discussed the President's priorities and upcoming benchmarks related to climate issues.The rollout of regulations under President Obama's Climate Action Plan has begun, including rules aimed at reducing greenhouse gas emissions. One of the early key dates is September 20, the deadline for a new proposal from EPA for Clean Air Act carbon emissions standards for new or future power plants. The Supreme Court is also expected to decide whether to grant certiorari on challenges to EPA's suite of existing Clean Air Act climate rules by the end of September.

The panel provided their reaction to the Climate Action Plan and identified possible shortcomings and suggested areas to emphasize, including implementation concerns as well as business opportunities and risks.

PANELISTS:

David W. Wagner, Associate, Reed Smith LLP (moderator)
Elliot Diringer, Executive Vice President, Center for Climate and Energy Solutions
Jennifer A. Smokelin, Counsel, Reed Smith LLP
Dan Utech, Deputy Director for Energy and Climate Change, White House Domestic Policy Council

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The slides and audio are available from the Environmental Law Institute website: click here.

Slides and Audio for Reed Smith's August 29th Environmental and Energy Law Resource Teleseminar

On August 29th, Reed Smith's Energy and Natural Resources group presented the latest updates on cap and trade. The primary focus was on the August 16th California GHG allowance auction, where offerings included 2013 current vintage allowances and 2016 future vintage allowances.

The half hour program also surrounded discussion on relevant legislative updates and CARB regulatory updates.

The slides and audio are available here for download.

President Obama's Climate Action Plan and California's Carbon Market

This alert was written by Jennifer A. Smokelin , Tom Galligan (summer associate), Larry Demase, Todd Maiden, David Wagner, and Peter Zaman

In June, President Obama unveiled his Climate Action Plan (the Plan). As we reported in a previous Client Alert, President Obama emphasized three overarching goals: (1) reduce domestic carbon dioxide emissions by 17 percent between 2005 and 2020; (2) prepare the United States for the impacts of climate change; and (3) lead international efforts to combat climate change. While few specifics were offered, to achieve these goals, President Obama's Climate Change Action Plan includes more than 30 new actions, such as efforts to reduce methane emissions from oil and gas development and the expanded use of renewables, and the President's plan directs the U.S. Environmental Protection Agency (USEPA) to work quickly to complete carbon emission standards for new and existing power plants. This Reed Smith client alert will address the Climate Action Plan's possible impact on the nascent California carbon market given (1) the likely increase in opportunities in renewable energy projects, and (2) the effect of federal efforts and regulation of existing power plants.

To read the full entry, please click here.

President Obama To Take Meaningful Steps To Address Climate Change

This post was written by  Lawrence A. Demase, Christopher L. Rissetto, Robert Helland, David W. Wagner

Whether President Obama’s Climate Action Plan is a repackaging of existing efforts, entirely new programs, or something in between, the president has the political advantage because Congress’ possible responses are limited. The rollout of climate-related programs, especially regulations, may take some time, but environmental and energy stakeholders should take notice and consider opportunities to influence the development of federal regulations and policies.

In late June, President Obama emphasized three overarching goals: (1) reduce domestic carbon dioxide emissions by 17 percent between 2005 and 2020; (2) prepare the United States for the impacts of climate change; and (3) lead international efforts to combat climate change.1 While few specifics were offered, the president’s plan directs the U.S. Environmental Protection Agency (USEPA) to work quickly to complete carbon emission standards for new and existing power plants. Underscoring the president’s announcement, the Agency last week sent the White House a draft of a proposed rule related to new or future power plants.

This Reed Smith client alert summarizes the president’s ongoing plan to regulate carbon emissions from new or future power plants, and the new plan to regulate carbon emissions from existing power plants. It then discusses possible Congressional reactions – and their limitations – to any rules related to climate change.

To read the full entry, please click here.

Reed Smith Attends International Carbon Conference

This post was written by Peter Zaman, Nicholas Rock, Jennifer Smokelin and Laith Najjar

Last week, Reed Smith attorneys attended CarbonExpo 2013. For those unfamiliar with CarbonExpo, it is the largest carbon market event of the year. Although there are now US and Asian events of a similar format, the European event (hosted in Cologne and Barcelona in alternate years) is the largest and most widely attended. According to the organizers, last year, there were 1800 attendees, this year there were 2070 attendees. This no doubt reflects the end results of the market consolidation process that took place between 2010-2012 and suggests that there is probably room for some growth in the market following that consolidation. This was the first year that Reed Smith was represented, in force, at CarbonExpo. There were attendees from Reed Smith’s Energy and Natural Resources Practice Group: Peter Zaman, Nick Rock and Laith Najjar (all London) and Jennifer Smokelin (Pittsburgh). Reed Smith were one of the only two law firms exhibiting at CarbonExpo.

We noticed a strong positive interest in the California market. Price indicators per ton have been promising and offsets are expected to be at a premium, triggering interest in legal advice on the California market. Also, on the margins of CarbonExpo, the International Emissions Trading Association (IETA) organized a meeting of its California Drafting Working Group which is presently tasked with the drafting of a standard emissions master trading agreement for the California market. Reed Smith is involved in this drafting effort and can report that significant progress was made on the draft agreement.

On the international side, the recent positive notes from China about adopting a cap on their emissions and the beginning of its own domestic voluntary scheme seems to have increased optimism for progress towards an international global agreement by 2015 to replace the Kyoto Protocol. The EU Emission Trading Scheme (EU ETS) remains in the doldrums until such time there is a fix for the excess allocation in Phase 3. We understand that legislative proposals from the European Commission are due in July 2013. On a final note, these positive sentiments did move EU ETS price up for the highest they have been in the last 14 weeks.

If you would like to discuss opportunities in the California carbon market or the international market, please contact your Reed Smith environmental team contact.
 

Understanding the Basics of Transacting in Offsets under AB 32

This post was written by Jennifer Smokelin and Jamon Bollock

This client alert serves as an executive summary for a supplementary white paper, The Basics of Transacting in Offsets under AB 32, and will assist clients in addressing offset transaction risks.

The white paper offers an in-depth discussion of the following:

  • "Primary" vs. "Secondary" markets for offsets
  • Options and strategies for buying offset credits
  • Benefits and challenges of buying offset credits

To access the white paper, please click here.

To read the full client alert, please click here.

Understanding the EU Emissions Trading laws

This post was written by Peter Zaman

Unlike most traded commodity markets, the market for trading carbon credits or emissions allowances in the EU is not one based on its utility, usage or consumption. A carbon credit is not used in manufacturing processes or consumed like power or grain. Its market is entirely an invention of policy as implemented through legislation and regulation with a view to reducing the carbon emissions in the EU. Any demand for a carbon credit or emission allowance (“allowances”), is also therefore a creation of those legislative and regulatory processes. That process has left the EU Emissions Trading Scheme (“EU ETS”), today in its third phase, moribund with an over-supply of allowances.

To read the full entry, please click here.

California Court Denies Challenge to California's Offsets Program, Challenge to Carbon Auction Remains

This post was written by Phillip H. Babich, Todd O. Maiden, Jennifer A. Smokelin, and Jamon L. Bollock

California’s climate change initiative, AB 32, has weathered a few legal challenges over the past several months. Most recently a California court found that the California Air Resources Board (ARB) has authority under AB 32 to establish Offset Protocols, a set of rules that determine which carbon-reduction programs qualify for offset credits. The court also found that the protocols themselves were valid. However, not all of the challenges have run their course. For example, a state court case is still pending that challenges ARB’s authority to raise revenues through the cap-and-trade auction, and a federal appellate court has yet to issue a decision on whether the State’s low carbon fuel standard is constitutional. Nonetheless, the ruling on ARB’s offset protocols is significant because affirming ARB’s authority to regulate offset credits may create more certainty in California’s carbon market as ARB’s second carbon auction approaches later this month.

The challenge to ARB’s Offset Protocols, brought by Citizens Climate Lobby (CCL) and Our Children’s Earth Foundation against the California Air Resources Board (ARB), sought to invalidate ARB’s authority to set standards for determining whether greenhouse gas-reduction programs qualify for carbon offset credits. Offset credits may be purchased by entities subject to AB 32, such as power plants and manufacturers, and used as part of their compliance with the cap-and-trade program. An offset credit is also a tradable compliance instrument. Invalidation of those protocols would have had the potential to increase compliance costs for covered entities. San Francisco Superior Court Judge Ernest H. Goldsmith denied the challenge (January 25, 2013), preserving a vital component of the State’s climate change initiative to reduce greenhouse gas (GHG) emissions.
 

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Conventional and Unconventional Operators: Know your Rights re GHG Reporting

This post was written by Jennifer Smokelin, Lou Naugle, and Lawrence Demase

If you are a conventional or unconventional oil and gas operator in Pennsylvania, you have likely received a recent letter from DEP requiring, for the first time, reporting of your greenhouse gas (GHG) emissions. In requiring GHG reporting, DEP may be exceeding its statutory and regulatory authority. Oil and gas operators may wish to explore their options in responding to the letter, which could include a legal challenge, responding with the requested information but with a reservation of rights to object to DEP’s authority in the future, or other action/inaction. If a legal challenge is considered, it must be brought within 30 days of the date of the operator’s receipt of the letter.

To read the full text, please click here.

Day 12 & 13: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

The plenary sessions of the AWG-LCA and AWG-DP finally closed in the late afternoon of Friday 7 December 2012, leaving many issues to be put to the COP for resolution.1 With the COP meeting only opening for discussions at 11:30pm on Friday night, COP President Al-Attiyah announced a suspension of talks until Saturday morning.

When the talks were reconvened, the COP President released draft texts for the AWG-KP, AWG-LCA and AWG-DP for discussion. The closing day of the conference had its usual share of excitement with numerous clarifying statements, expressions of concern and an acrimonious procedural objection from Russia that involved the delegate’s name plate being repeatedly slammed on the table. Despite this, with the Qatari hosts playing a robust role, the parties finally achieved a deal of sorts in the shape of “The Doha Climate Gateway”.

Definitions of terms used in this and our previous daily Doha conference reports can be found at the link in the left-hand margin.

The Doha Conference: Concluding Weekend At the opening ceremony of the high-level segment on Day 9 of the conference, UN Secretary General Ban Ki-moon listed five key deliverables for the conference. Broadly, these were:

  1. the adoption of a ratifiable second commitment period of the Kyoto Protocol;
  2. progress on long-term climate finance to mobilize US $100 billion per year by 2020;
  3. fully equipping the GCF and Climate Technology Centre and Network in order to support developing countries’ adaptation and mitigation efforts; 
  4. a demonstration that negotiations for a global and legally binding instrument remain on track for signature in 2015; and
  5. closing the gap between the parties’ mitigation pledges and the target of preventing a rise in global temperatures of more than 2˚C.

We discuss the outcomes of the conference below the heads provided by the UN Secretary General

To read the full text, please click here.

California Trial Court Hears Challenge to California's Carbon Offsets Program

This post was written by Phillip H. Babich.

San Francisco Superior Court Judge Ernest H. Goldsmith heard arguments on December 7, 2012 in a lawsuit challenging the carbon offset program in California. (Case No. CGC-12-519554). The lawsuit is aimed at invalidating the offset program, but it has the potential to increase compliance costs (perhaps significantly) for California’s Cap-and-Trade Program, a greenhouse gas emission-reduction program. Judge Goldsmith’s court room was filled to capacity.

Under California’s climate change legislation, the Global Warming Solutions Act of 2006, known as AB 32, the state’s Air Resources Board (ARB) has the goal of getting power plants, manufacturers, and other industries to reduce GHG emissions to 1990 levels by 2020, a 17-percent reduction. The primary mechanism for achieving the required reductions is a carbon auction system, and the state held its first carbon allowances auction last month. The offset program is a vital part of the state’s overall effort and is intended to provide flexibility and cost-effective compliance with the reductions mandated by AB 32.

ARB only accepts offset credits from emission-reduction projects that qualify for an established Offset Protocol. An Offset Protocol is a detailed set of requirements that include standardized methods for quantifying emission reductions from an offset project. The state is currently accepting carbon offset credits from four types of projects: (1) forestry/timber management; (2) urban forestry; (3) livestock operations, and, (4) destruction of ozone-depleting substances. Entities that are covered by AB 32 and are required to reduce GHG emissions, such as power plants, may purchase and use offset credits to achieve up to 8 percent of their compliance obligation. Offsets are expected to cost less than allowances under the program, thus reducing the overall cost of compliance for covered entities.

Petitioners in the offset lawsuit, Citizen’s Climate Lobby and Our Children’s Earth Foundation, allege that ARB has exceeded its regulatory authority by promulgating rules that allow for offsets that are not "in addition to any greenhouse gas emission reduction that otherwise would occur," as required under AB 32. In essence, Petitioners contend that ARB, through its Offset Protocols, could issue offset credits for projects that would not actually create additional reductions in greenhouse gas emissions. "Additionality" is a significant component of any offset program from a policy standpoint, one that assures the offsets produce GHG reductions that help the overall cap-and-trade program achieve its emission-reduction goals.

At last week’s hearing Judge Goldsmith asked George Hays, Petitioners’ counsel, for an example of a project that could receive credit without providing "additional" emissions reductions. Mr. Hays described a livestock operation that uses a methane gas digester to reduce GHG emissions. As part of answering the judge’s hypothetical, Mr. Hays added that the methane gas digester, even though it was an expensive investment in the livestock operation, would actually allow the operation to be more profitable. Because the methane gas digester would make the operation more profitable, Mr. Hays argued that the reductions in GHG emissions would not be additional. The livestock operator likely would invest in the digester in order to make more money.

Judge Goldsmith did not appear to be impressed with the argument. "Tisk, tisk, they made money," he said. "What’s wrong with that?"

Judge Goldsmith also appeared to have trouble accepting Petitioners’ premise that the Court should undertake a de novo review of ARB’s regulations implementing the offset provisions of AB 32, rather than give deference to ARB’s admittedly broad authority to implement the climate change legislation. Robert Wyman, counsel for a coalition of business interests that has intervened on the side of ARB, told the Court that the standard of review for the offset regulations is deferential, noting that the state legislature, in passing AB 32, instructed ARB to, among other things, seek advice from other governmental bodies and international agencies in crafting its GHG reduction programs. Judge Goldsmith appeared ready to side with this point of view, moving the parties to another issue even though Mr. Hays clearly had more to say on the standard of review.

Instead, what Judge Goldsmith wanted to hear from Mr. Hays was whether Petitioners’ position was to force ARB to do away with the entire set of Offset Protocols or instruct the agency to make changes. Mr. Hays conceded that he wanted to do away with the whole offsets program. Judge Goldsmith then wanted to know what Mr. Hays proposed should replace the program. Mr. Hays suggested a project-by-project assessment of GHG reduction projects to determine whether the projects would result in real, additional GHG reductions, rather than the standardized approach embodied in the agency’s Offset Protocols. Judge Goldsmith noted that that idea had already been tried under the Kyoto Protocol and it was a disaster.

It is not clear when Judge Goldsmith will issue his decision.

Day 11: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

The AWG-KP closed on Thursday 6 December 2012 amidst on-going discussions in the other Working Groups. The atmosphere is beginning to become tense as delegates see the end of the conference approaching with two Working Groups still active.

The Doha Conference: Day Eleven

Meetings continued throughout the day with draft papers slowly taking form around the conference, sentence by sentence, square bracket by square bracket.

The revised draft conclusions paper, proposed by the Chair of the AWG-KP is impressive in the scope of the optionality that is still available. However, the COP is scheduled to finish on Friday 7 December 2012 and with so many choices on the table, at this stage it looks implausible that substantive decisions will have been made before the weekend, if at all. As has become the “norm” at these conferences, it looks like discussions will extend into the weekend. 

To read the full text, please click here. 

Slides and Audio from Reed Smith's December 6 Environmental and Energy Law Resource Teleseminar

On December 6, 2012 Reed Smith proided an update and discussion on the California Cap and Trade auction with insight from guest speakers from the California Manufacturers & Technology Association (CMTA) and Noble Americas Corp.

Topics included:

  • Auction Comments
  • Price Containment
  • Resource Shuffling
  • Offset Update

The slides and audio are available for download.

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.

Day 10: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

The high-level segment continued on Wednesday 5 December 2012, slowly drawing together the threads of agreement. A further stocktaking plenary session was held in the evening to assess progress, but the mood of optimism is beginning to wane.

The Doha Conference: Day Ten

After ten days the negotiations appear to have stalled. Although discussions continue, the sense of urgency and real-world importance underscored by the news of hurricane Bopha in the Philippines has not yet translated into binding decisions. As a result, this report today has limited news to report.

To read the full text, please click here.

Day 9: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

The high-level segment of the conference opened on Tuesday 4 December 2012, sandwiched between further contact group meetings and informal consultations. The buzz from Monday continues to permeate the atmosphere in Doha, with strong statements from many heads of State and heads of government.

The Doha Conference: Day Nine

 Let us be under no illusion. This is a crisis” stated UN Secretary General Ban Ki-moon in his opening remarks to COP 18, “I urge all parties to work with a spirit of compromise – to take the long view and avoid getting bogged down in minutiae.” It was almost as though the Secretary General had been listening on Monday when comments were heard discussing whether text should be italicised.

Despite the distraction of (arguably important) political rhetoric, the productivity of discussions appears to be increasing and consultations continued late into the day with papers beginning to take form around the conference. The conference has now reached a stage where the issues have been spread so widely, to informal sub-groups of a variety of descriptions, that actual definitive progress is difficult to gauge.

To read the full text, please click here.

Day 8: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

“It must be understood that what we are negotiating here is a complete transformation of the economic structure of the world. This cannot happen overnight…” said Christiana Figueres, the head of the UN climate secretariat, in a press conference on Monday 3 December 2012. Ms. Figueres does not appear to underestimate the ramifications of the decisions taken in Doha, but with government ministers and some heads of state arriving in Doha and anticipation increasing, her statement appears to be one of expectation management.

The Doha Conference: Day Eight

Given the closure of the SBI and SBSTA, the focus has now turned to the Ad Hoc Working Groups ahead of their planned closure on Wednesday. There is much still to be decided before this can happen, but it is hoped that the arrival of the more senior delegates will give the working groups sufficient drive to overcome their current stalemate. The arrival of UN Secretary General Ban Ki-moon on Tuesday 4 December 2012 (day 9) for the High Level Segment of the conference may well provide further momentum to the discussions.

To read the full text, please click here.

Days 5, 6, & 7: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

 Introduction

The prospect of having nothing clearly agreed after a week of negotiations seemed to hang over proceedings on Friday 30 November 2012. However, as the sun set on Saturday 1 December 2012, the delegates’ motivation began to increase and the early hours of Sunday morning saw genuine progress made before the delegates enjoyed a break on Sunday 2 December 2012.

Definitions of terms used in this and our previous daily Doha conference reports can be found at the link in the left-hand margin.

The Doha Conference: Day Five and Six Friday and Saturday both began with the usual array of contact group meetings and spin-off sessions, although the evenings were marked by informal round-up sessions at which the Chairs of each working group updated the parties on their progress to date. In plenary session the parties were encouraged to reflect on the progress, or lack thereof, during the past few days. The effects of this exercise are reflected in the generally productive outcomes from the SBI and SBSTA work streams which closed following Saturday's session.

To read the full text, please click here.

Day 4: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

With finance at the top of the agenda on “Youth Day” Thursday 29 November 2012 there was broad concern to avoiding falling down a “climate finance cliff” as the European Commission’s lead climate negotiator, Artur Runge-Metzger, described it. Whilst little was decided, there was finally a sense of real work being done as the parties sat down to do some serious talking.

The Doha Conference: Day Four

Yesterday saw a plethora of further meetings of the COP, CMP and Ad Hoc work streams’ contact groups, plus numerous informal consultations, roundtables and workshops. In the spirit of the COP, there were of course many "decisions to make decisions", but with a shorter time frame that saw many groups agreeing to produce draft texts for discussion during today and tomorrow. There is little substantive progress to report, so we will keep this paper short.

To read the full text, please click here

Day 3: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

The discussions continued on Wednesday 28 November 2012 against the backdrop of protests by the Youth Group, demonstrating for an increase in the parties’ ambitions.

The Doha Conference: Day Three

Yesterday saw the second meeting of the Conference of the Parties ("COP") and of the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol ("CMP"). Discussions also continued from Tuesday’s KP, LCA and DP working group meetings in numerous contact groups, informal consultations and other meetings on the side-lines.

However, yesterday was one of those days familiar to regular attendees, where much was said, little was done and after the novelty and enthusiasm of the first two days, grim reality set in.

To read the full text, please click here.

Day 2: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Introduction

With the opening speeches and administrative proceedings complete, the delegates were free to concentrate on the job at hand and the conference opened on “Gender Day” Tuesday 27 November 2012 with a new air of purpose.

In addition to resuming the plenary session of the Subsidiary Body for Implementation (“SBI”), the delegates met for the opening sessions of the three prime working groups, on Further Commitments for Annex 1 Parties under the Kyoto Protocol (“AWG-KP”), on Long-term Cooperative Action under the Convention (“AWG-LCA”) and on the Durban Platform for Enhanced Action (“AWG-DP”).

To read the full text, please click here.

 

Day 1: Reed Smith Report on the 18th Conference of the Parties of the UNFCCC

This post was written by Peter Zaman, Nicholas Rock and Pryderi Diebschlag

Note: This is the first of a series of Reed Smith daily alerts providing information on the UN Climate Change Conference which is taking place for the next two weeks in Doha.

INTRODUCTION

The 18th Conference of the Parties (“COP”) to the United Nations Framework Convention on Climate Change (the “Convention”) opened in the vast new conference centre in Doha, Qatar, yesterday to the words “the draft documents before you are not final, but they are familiar.” Another year, another city (albeit one with the world’s highest per capita greenhouse gas emissions): arguably, these words might have been used to open any number of the recent COPs, but will 2012 be different?

The Conference officially runs until Friday, 7 December 2012, but in reality, and based on past experience of this annual event, it is likely that high-level ministerial negotiations will continue throughout much of the weekend of 8/9 December 2012. Any key agreements are likely only to be reached in those concluding hours.

So vast have these conferences become, so complex and controversial the issues and so numerous the interlocking work streams that the opening day is typically – and unsurprisingly - long on energy sapping set-piece opening statements and short on surprises. Yesterday was no exception.

In the coming days we will provide short daily updates on the key developments in Doha. For today’s purposes, given the traditionally slow start we will focus on describing the key issues due to be debated and, hopefully in some cases, resolved, over the coming two weeks.

To read the full text, please click here

Up in the Air - the Suspension of the Aviation EU ETS for Non-EU Airlines

This post was written by Peter Zaman, Nicholas Rock and Shariq Gilani

A few days ago, the EU Commission’s announcement that it would "stop the clock" on the implementation of the international aspects of the EU Emissions Trading System ("EU ETS") as it applies to the aviation sector came as a surprise to the market. Although the Commission has been facing regular international and commercial demands to abandon the application of the EU ETS aviation scheme to non-EU aircraft operators for some time now, this latest announcement following on the back of the council meeting of the International Civil Aviation Organization ("ICAO") still comes as a surprise. This surprise is because no alternative scheme has yet been agreed by the ICAO or its members, and certainly no alternative scheme is going to be in place for a few years yet, even if one was to assume such an agreement was reached in the next annual ICAO assembly in 2013. Thus, the proposal to "stop the clock" for the EU ETS aviation scheme raises a lot of questions and this Reed Smith Client Alert tries to answer some of them with the caveat that, at present, most answers will be merely speculative.

California Chamber of Commerce Sues to Invalidate California's Cap-and-Trade System

This post was written by Phillip Babich.

Yesterday, the California Chamber of Commerce filed suit against the California Air Resources Board (CARB) challenging CARB’s authority to generate revenues through the cap-and-trade auction system. The Chamber claims that CARB exceeded the authority granted by the state’s climate change initiative (AB 32) because CARB “allocates to itself an increasing percentage of each year’s authorized emissions allowances and sells them at auction or through reserve sales to the highest bidder.” The Chamber also claims that revenues from the auction sales would result in an unconstitutional tax. The Chamber is not challenging any other provision of the law or the science behind climate change.

The California state legislature passed AB 32 in September 2006 requiring the state to reduce greenhouse gases emissions to 1990 levels by 2020, a 17 percent reduction. By 2050, there must be an 80 percent reduction. To reduce greenhouse gas (GHG) emissions in the state, AB 32 authorizes CARB to establish a “market-based compliance mechanism.” The law also authorizes CARB to adopt a “schedule of fees to be paid by the sources of greenhouse gas emissions regulated by” AB 32 to cover the costs of its market-based system.

The Chamber alleges that the auction is not a “‘fee schedule" authorized by AB 32 nor are the auction’s revenues designated for the purpose of regulating GHG emissions. Nothing in AB 32, nor its legislative history, confers on CARB the authority to allocate to itself emission allowances and become an active participant in the cap and trade program for the purpose of generating revenues to the state of up to $70+ billion over the period 2013–2020.”

The lawsuit further alleges that even if AB 32 authorizes CARB to allocate to itself GHG allowances and sell them off, such regulations would be unconstitutional because they would impose a tax that was not authorized by a two-thirds vote in the California legislature

GHG allowances will go on sale for the first time today at 10:00 a.m. Pacific Time. According to the Chamber of Commerce law suit, CARB will allocate to itself and sell off approximately half of all the GHG allowances that will ever be put into circulation as part of the cap and trade program.”

The lawsuit does not seek an immediate halt to the cap-and-trade auction. It does, however, ask the court (Sacramento County Superior Court) to prohibit CARB from allocating to itself and the state a portion of the GHG emission allowances and selling them off to raise revenues.

A CARB spokesperson told Bloomberg news yesterday that “[w]e are reviewing the lawsuit, but are confident that the cap-and-trade program will withstand any court challenge.” The spokesperson also said, “This market-based approach to cutting greenhouse emissions gives businesses the flexibility to best decide how to reduce their emissions. We are going forward with [the] auction.”  

California's AB 32 and Offset Basics

This post was written by Jennifer Smokelin, Jamon BollockNick Rock, Peter Zaman, Larry Demase and Todd Maiden.

To keep you updated on exciting developments in California’s groundbreaking cap-and-trade program, this final Reed Smith Client Alert in a three-part series focuses on offsets, another important element of the carbon trading system. Offsets will help regulated entities reduce the potentially enormous cost of complying with California’s cap-and-trade program. As intended by the California Air Resources Board (ARB), entities subject to limits on greenhouse gas (GHG) emissions may cushion the transition to expensive emission-reducing technologies by purchasing offset credits through the Compliance Offset Program. As a result, offsets could significantly impact a company’s ability to comply with the new program, due to begin on January 1, 2013. Additionally, rules governing offsets will likely shape compliance strategies. Our previous two Alerts in this series explained the fundamental features of the California Cap-and-Trade Program and the rules of the soon-to-be-launched auction system. To further understand cap and trade in California, this Alert will discuss the basic elements of the offset program and how offset credits will work in the cap-and-trade system.

California's AB 32 and GHG Market and Auction Basics

This post was written by Jennifer Smokelin, Nick Rock, Peter Zaman, Larry Demase and Todd Maiden.

On August 30, 2012, the California Air Resources Board (CARB) and about 150 market participants held a test auction for the purchase and sale of California carbon allowances. The California state legislature passed Assembly Bill 32 (AB 32) in September 2006 requiring the state to reduce greenhouse gases emissions to 1990 levels by 2020, a 17 percent reduction. California’s auction is part of a cap and trade program designed by CARB. California’s cap and trade program is just one piece in California’s efforts to meet the 17 percent reduction required under AB 32 by 2020. In sum, a carbon allowance allocation and the emissions offset program under AB 32 create the largest North American carbon market – but elements of the California program, such as specific auction rules, unlimited banking, limited use of offsets, and certain cost containment measures, will undoubtedly shape trading strategies different from those in existing carbon markets. In this Reed Smith Client Alert, we explain the auction and the auction rules.

California's AB 32 and Cap and Trade Design Basics

This post was written by Jennifer Smokelin, Todd Maiden, Larry Demase, Peter Zaman, and Nicholas Rock

California, the world’s fifth-largest economy and 18th in total carbon emissions if it were a separate country, is rapidly moving forward with the development of its cap and trade program scheduled to be implemented in 2013. This has drawn a lot of attention from businesses generating high quantities of carbon emissions or who consume large amounts of energy or fuel. Carbon futures linked to Californian’s cap and trade program slipped recently, but after a test auction in late August 2012, news articles reported that major banks are weighing whether to wade into the California carbon market, which experts believe could grow into a $40 billion-a-year market by 2020. The California state legislature passed Assembly Bill 32 (AB 32) in September 2006 requiring the state to reduce greenhouse gases emissions to 1990 levels by 2020, a 17 percent reduction—and eventually to an 80 percent reduction by 2050. There are complications to the California cap and trade system that do not exist in other cap and trade programs to date. For example, California’s program covers all six “Kyoto” GHGs—a multi-gas-wrinkle that the EU-ETS will only be tackling in this, its third compliance period. Further, the California Air Resources Board (CARB) retains the ability to reverse trades of carbon offsets or credits in order to enforce holding limits under the CARB regulations. These will present unique challenges to compliance entities, as well as to the brokers, traders, suppliers, and others trying to create a new carbon market. To understand the basic underpinnings of the California cap and trade system, this Reed Smith Client Alert sets forth design elements of the system: the “what, who, when, and hows” of cap and trade under AB 32.
 

Rescued Down Under: The Linking of the EU ETS with the Australian CPM

This post was written by Peter Zaman and Nicholas Rock.

Late last month, it was announced that the EU Emissions Trading Scheme would link with the Australian Carbon Price Mechanism. According to the announcement, the linkage will occur in two stages: a partial one-way unilateral link allowing transfers of EU allowances (EUAs) to and use the use of EUAs by Australian compliance entities commencing on 1 July 2015 and a full two-way bilateral link providing for full mutual recognition of each other's units commencing on 1 July 2018. The unilateral link will not require further legislative approval from the respective government legislatures but the bilateral one will need approval both in the EU and Australia. This Reed Smith client alert explores some of the potential issues and questions arising from these proposals.

FAQs on the New European Union Registry for Carbon Credits

This post was written by Peter Zaman

A new world order for carbon trading in the EU Emissions Trading Scheme (the EU ETS) was ushered in on 20 June 2012 by the migration of the carbon trading account and registry system from separate Member State registries to a single Union Registry. These changes are borne out from a number of regulatory developments and market issues, such as the VAT fraud and the theft of carbon credits through cyber-phishing or hacking. The migration comes at the end of process whereby access to accounts were suspended on 3 June 2012 and reopened on 20 June 2012. A number of issues have already arisen with respect to the new registry infrastructure that were not anticipated. For instance, we now know that a significant number of account users across all Member State registries have failed to nominate an Additional Authorised Representative (AAR) ahead of the suspension. This means that under the new regulations, without such AARs being in place, it is not possible to now make a transfer from an account in the Union Registry. This has the potential to impact delivery obligations that are due in the immediacy of the lifting of the suspensions.

Similarly, there have been other "unknowns" prior to the migration of which we now know more. Although some "unknowns" remain, this Reed Smith Client Alert answers the frequently asked questions regarding the Union Registry.

Global Carbon Market Total Reaches Record US $176 Billion

This post was written by Peter Zaman

The total value of the carbon market grew by 11 percent in 2011, to US $176 billion, and transaction volumes reached a new high of 10.3 billion tons of carbon dioxide equivalent (CO2e) according to a new report from the World Bank. According to the State and Trends of the Carbon Market 2012 this growth took place in the face of economic turbulence, growing long-term oversupply in the EU Emissions Trading Scheme (EU ETS) and plummeting carbon prices. Despite these challenges, legislation with both domestic and regional market mechanisms to mitigate climate change has been passed in Australia, California, Quebec, Mexico and South Korea.

The World Bank’s report, released at this week’s the CarbonExpo in Cologne, Germany, describes how even as prices declined, the value of the global carbon market increased in 2011, driven predominantly by a significant growth in financially motivated transactions. By far, the largest segment of the carbon market was that of EU Allowances (EUAs), valued at $148 billion. There was also a substantial increase in the volume of secondary Kyoto Protocol offsets (which grew by 43 percent, to 1.8 billion tons of CO2e, valued at US $23 billion) fueled by increased liquidity in the Certified Emission Reduction market and in the secondary Emission Reduction Unit market. Following the same pattern observed in previous years, the global carbon market in 2011 was primarily driven by the EU ETS.

It is also noteworthy that the market is starting to look beyond 2012 as the post-2012 primary Clean Development Mechanism market increased by 63 percent, to US $2 billion, despite depressed prices and limited long-term-visibility.

The World Bank’s report also features an article I wrote entitled "Trading around the risk of receiving stolen allowances" (see page 27 in the report) at the World Bank's request summarising the issues faced by market participants during the last two years from cyber thefts in the EU ETS. The article also reflects some thoughts on the effectiveness of the solutions proposed by the EU Commission.

California Assembly Passes Greenhouse Gas Bill

This post was written by Todd Maiden and Phillip Babich

On May 29 the California Assembly passed legislation that would direct funds generated in the state’s cap-and-trade auctions to programs intended to promote clean technology. Assembly Bill (AB) 1532 would apply to an estimated $1 billion that lawmakers expect to be raised in auctions this year and next. The bill is now in the state senate.

AB 1532 is a companion bill to the California Global Warming Solutions Act of 2006, more commonly known as on “AB32.” AB32 set up the framework for the State’s auctioning of greenhouse gas (GHG) emission credits. AB 1532 is meant to “establish[ ] procedures for deposit and expenditure of regulatory fee revenues derived from the auction of GHG allowances pursuant to the cap and trade program adopted by the Air Resources Board (ARB),” according to the bill’s summary.

AB 1532 authorizes the ARB to allocate funds from the cap-and-trade auctions to investments in, among other things, “[i]ndustrial and manufacturing facilities to reduce GHG emissions [through] energy efficiency, energy storage, and clean and renewable energy projects,” ‘[w]aste reduction and low-carbon recycled-content processing and manufacturing,” “low-carbon transportation and infrastructure,” “natural resource protection,” “ and “research and development, and deployment of innovative technologies[.]” AB 1532 also requires the ARB to adopt guidelines for funding criteria and seek input from other departments and agencies of the state government.

As AB 1532 makes its way through the California legislature, much is at stake for companies doing business in California. The annual estimated revenue from the auction of GHG emission allowances will range from $2 billion to $5 billion in 2013, and will further increase to between $17 billion and $67 billion in later years, according to the ARB. There is significant debate over where this money will be spent and who will benefit from this wealth transfer. As background, AB 32 is still the subject of great criticism, even though it was passed 6 years ago. The opposition, including the California Chamber of Commerce, is now challenging the cap-and-trade system proposed under AB 1532 as a means to blunt or stop AB 32.

Despite the slow start up for cap and trade in California, cap-and-trade markets are on the rise elsewhere. The World Bank reported yesterday in its annual publication, the “State and Trends of the Carbon Markets 2012,” that carbon market trading reached a record value of $176 billion in 2011, an 11% rise, and transaction volumes reached a new high of 10.3 billion tons of carbon dioxide equivalent (CO2e). The World Bank also indicated that emerging cap-and-trade schemes in California and Quebec—the state’s partner in the Western Climate Initiative—may contribute to future growth in the global carbon trade market.

Regardless as to whether a business supports or opposes California’s cap and trade program, businesses will need to understand the law and develop trading strategies to remain not just in compliance with the new law but competitive and profitable. The state is holding a “practice auction” in August so that businesses can understand the trading process. The first cap-and-trade auction is slated to occur in November, paving the way for a cap-and-trade program compliance start date of January 1, 2013 for most entities covered by the regulation.

 

Potential Outcomes Following Oral Argument in the Court Challenge to USEPA's Greenhouse Gas Rulemakings

This post was written by Jennifer Smokelin

The U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) heard arguments in late February on judicial review of the U.S. Environmental Protection Agency’s (USEPA) greenhouse gas (GHG) regulatory program. In the case Coalition for Responsible Regulation v. EPA, the petitioners – a coalition of oil and gas, manufacturing, construction and other industry groups and states – are challenging USEPA’s authority under the Clean Air Act to regulate GHG emissions under four rules: (1) the Endangerment Finding; (2) the Tailpipe Rule; (3) the application of GHG permitting requirements to the existing federal Prevention of Significant Deterioration (PSD) program (referred to as the "Grounds Arising After" case); and (4) "Tailoring" and "Timing" rules.

Oral argument was heard over two days before a very hot bench. Although tea leaves are very hard to read in any case, especially in this particular case where the judges seemed to leave all avenues open, here is a brief synopsis of the issues and potential outcomes:

 

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Upcoming in 2012: 10 Environmental and Energy Issues to Watch in the United States

This post was written by Lawrence Demase, Douglas Everette, Robert Frank, Arnold Grant, Todd Maiden, Jennifer Smokelin, Robert Vilter and David Wagner.

As we look forward to 2012, the environmental and energy attorneys at Reed Smith will be on top of a range of issues, and offer the following analysis of what we view, in no particular order, to be 10 key issues likely to affect you and your business in 2012. This post is based on input and analysis from Reed Smith attorneys across the United States. The 10 issues to watch are:

  1. Offshore wind power generation
  2. Renewable energy incentive programs
  3. Hydraulic fracturing regulation
  4. Aggregation
  5. Greenhouse gas litigation
  6. California's cap-and-trade program
  7. California's Green Chemistry program
  8. New mercury standards for coal and oil-burning power plants
  9. Fallout from CERCLA decision in Burlington Northern and Santa Fe Railway Co. v. U.S.
  10. Conflict minerals and disclosure requirements

Please return to blog regularly and participate in our quarterly teleseminar to get updates and analysis on these and many other environmental and energy issues.

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Slides and Audio from Reed Smith's January 25 Environmental and Energy Law Resource Teleseminar

On Wednesday, Reed Smith held its quarterly environmental and energy law resource teleseminar and the slides and audio are available for download. We were ambitious and discussed 10 key issues likely to affect you and your business in 2012. Our high level discussion was on the following:

  1. Offshore wind power generation
  2. Renewable energy incentive programs
  3. Hydraulic fracturing regulation
  4. Aggregation
  5. Greenhouse gas litigation
  6. California's cap-and-trade program
  7. California's Green Chemistry program
  8. New mercury standards for coal and oil-burning power plants
  9. Fallout from CERCLA decision in Burlington Northern and Santa Fe Railway Co. v. U.S.
  10. Conflict minerals and disclosure requirements

Be sure that we will monitor and analyze these issues and many other environmental and energy issues through the year on our blog and in future teleseminars.

What to Make of the Durban Climate Change Agreement?

This post was written by Jennifer Smokelin.

The crowning achievement of COP 17 is the Durban Agreement. But is it a significant step toward implementing climate change policy in the global arena or basically an "agreement to do nothing for now"? The answer is, well, both.

Optimists herald the great achievement that’s been made in COP 17, the Durban Agreement. As quoted in a press release from the UN Framework Convention on Climate Change: "Countries meeting in Durban, South Africa, have delivered a breakthrough on the future of the international community’s response to climate change, whilst recognizing the urgent need to raise their collective level of ambition to reduce greenhouse gas emissions to keep the average global temperature rise below two degrees Celsius."

In the Durban agreement, countries agreed to negotiate a new climate change deal by 2015 to take force by 2020. It would assign emissions-reduction responsibilities to all major emitters, not developed countries only. The 194-party conference agreed to start negotiations on a new accord that would ensure that countries will be legally bound to carry out any pledges they make. Currently, only industrial countries have legally binding emissions targets under the 1997 Kyoto Protocol and the Protocol regulates only about a third of greenhouse gas emissions. These commitments expire next year, but they will be extended for at least another five years under the Durban Agreement adopted at COP 17, a key demand by developing countries seeking to preserve the only existing treaty regulating carbon emissions.

Note that China and India are not regulated under the Kyoto Protocol but have become two of the world's three biggest polluters in the 14 years since the Protocol was first approved. Under the Durban Agreement, China and India would have binding emission reduction commitments when the new protocol takes effect. By signaling their willingness to take on emissions cuts later, China and India won backing to extend the Kyoto Protocol's reductions past 2012, which will also extend the Clean Development Mechanism (CDM). Prices of CDM certificates have fallen by 54 percent in the past year as the weaker economy cut demand for offsets and concerns rose about the continuation of the program. China and India benefit from the CDM program because many projects are sited in those countries - and a higher certificate price benefits those projects.

From a glass half-empty perspective, the details of the big agreement don’t sound quite so definitive. No real treaty was reached. All that happened was that everyone agreed to try and reach a legal agreement by 2015. And if they do, it won’t come into effect until 2020. So not much happens for nine more years.

The hoopla surrounding the Durban Agreement is indicative of the fact that many watchers felt there was a very real prospect that nations would completely walk away from any organized commitment with regard to GHG regulation - and the fact that this did not happen in Durban is big news.

Where Do Things Stand in the Second Week of the U.N's Climate Change Conference?

This post was written by Jennifer Smokelin.

After one week of discussions at COP 17 in Durban, serious doubt hangs over the future of a new commitment period under the Kyoto Protocol, whose first commitment period on tackling climate change expires at the end of next year. The other major issue for debate is how to obtain financing to help poorer nations adapt to a warmer planet in an economic environment where the developed world wrestles with sovereign debt problems and a slow economy. Negotiations are not progressing well on this front either.

Regarding the future commitment period under the Kyoto Protocol, know that the commitment period for the developed nations to cut emissions by a minimum of five percent is just one clause in the Kyoto Protocol, the companion legislation to the United Nations Framework Convention on Climate Change (UNFCCC). Without a new commitment period, the rest of the related agreements remain intact, but do not enforce action on lowering emissions.

A further commitment period is unlikely because the European Union, a large supporter until recently of a new commitment period, has been undermined by the huge strain it is under from a sovereign debt crisis that is threatening to destroy the Euro. It is hoped a credible plan to prop up the Euro will emerge at an EU summit on Friday, which is also the last day of COP 17. But that is likely too late to have any effect at COP 17.

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Climate Change Talks in Durban Kick Off Amid Low Expectations

This post was written by Jennifer Smokelin.

Durban, South Africa is the setting for the 17th Conference of the Parties (COP 17) to the U.N. Framework Convention on Climate Change (UNFCCC). The two weeks of meetings will draw representatives of 194 countries and nearly 12,000 delegates. The delegates are expected to include several heads of state and government, ministers, UN officials, members of civil society and journalists. COP 17 is scheduled to run until December 9.

The COP 17 agenda includes efforts to make progress on a new commitment period for carbon reduction under the Kyoto Protocol and to provide assistance for developing nations facing the worst effects of climate change. Nonetheless, COP 17 is not expected to make much progress on either agenda item. In the current global economic crisis the linkages between emission reduction and economic growth will make any progress on emission reduction a hard sell for politicians and governments back home. Given the likely failure to achieve these big-ticket agenda items, what accomplishments can we expect in Durban? According to the UNFCCC, the discussions will seek to advance, in a balanced fashion, the implementation of the Framework Convention and the Kyoto Protocol, as well as the Bali Action Plan, agreed at COP 13 in 2007, and the Cancun Agreements, reached at COP 16 last December. What does that mean? Delegates in Durban will be addressing relatively small and, to many, arcane questions of process and finance. Negotiators, having entered the United Nations climate talks at Copenhagen two years ago with grand ambitions and having left with disillusion, are now defining expectations down and hoping to keep the process alive through modest steps. Last year in Cancun, Mexico, delegates produced an agreement that set up a fund to help poor countries adapt to climate changes, created mechanisms for the transfer of clean-energy technology, provided compensation for the preservation of tropical forests and enshrined the emissions reductions promises that came out of the Copenhagen meeting. Delegates in Durban will look to produce similar outcomes.

It's Here: The First UK Carbon Reduction Commitment Performance League Table

This post was written by Siobhan Hayes.

The UK Environment Agency published the first Performance League Table under the Carbon Reduction Commitment (Energy Efficiency) Scheme (‘CRC’) earlier this month. One of the ideas behind the CRC is that organisations will be motivated to improve their energy efficiency (and therefore their carbon emissions) because its will reduce their energy costs and allow them to be well placed in the CRC performance league table. The league table is said to rank the energy efficiencies of each of the participants. As discussed below, it is debatable whether it reveals anything really significant this year, although it is possible that it may do so over time.

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California Air Resources Board Approves Final Cap-and-Trade Regulations

This post was written by Todd Maiden, Donald Ousterhout and Brendan McNallen.

On October 20, the California Air Resources Board ("CARB") approved the final regulation for the California cap-and-trade program authorized by California's Global Warming Solutions Act (AB 32). As anticipated, CARB approved recent modifications to the regulation proposed in July and September 2011, paving the way for a cap-and-trade program with a compliance start date of January 1, 2013 for most entities covered by the regulation.

Under the cap-and-trade program, certain facility operators, including the operators of electricity generating facilities located in California, electricity importers and self-generators of electricity, will need to comply with California's mandatory reporting regulation if such entity's reported annual emissions in any year from 2008 to 2011 equal or exceed thresholds identified in the regulation. The applicability threshold for most facility operators, including electricity generating facilities, is currently set at 25,000 metric tons or more of carbon dioxide equivalent ("CO2e") per data year. An entity that has emissions from combustion of biomass-derived fuels is required to report and verify its emissions under the mandatory reporting regulation, but emissions from certain source categories (including the geothermal generating units and facilities) and certain biomass fuels (including biodiesel, fuel ethanol and agricultural crops or waste) will not be subject to the compliance obligation.

An entity that meets or exceeds the thresholds in the regulation in any year from 2008 to 2011 must register with CARB by January 31, 2012. An entity cannot hold a compliance instrument discussed below until the CARB Executive Officer approves the entity's registration.

The final regulation incorporates modifications to the regulation proposed in July and September 2011, including adjusting the start date for the first compliance period from January 1, 2012 to January 1, 2013. A covered entity must surrender one compliance instrument for each metric ton of CO2e emissions to meet its annual and triennial compliance obligations (as calculated pursuant to formulas set out in the regulation) beginning with the emissions data report for 2013 emissions, and for each subsequent year in which the covered entity has a compliance obligation.

Compliance instruments include allowances, CARB offset credits or sector-based offsets credits. Two auctions for emissions allowances are slated for 2012—on August 15 and November 14—and auctions will then be held quarterly beginning in 2013. The final regulations set forth the requirements for, and procedures for obtaining, CARB-issued offset credits, registry offset credits and sector-based offset credits, including the requirement that greenhouse gas emission reductions must be real, additional, permanent, quantifiable, verifiable and enforceable.

If you would like additional information about the California cap-and-trade program or have questions about your company's compliance obligations, please contact one of the the authors.

Slides and Audio from Reed Smith's Quarterly Environmental and Energy Law Resource Telesiminar

This post was written by David Wagner.

On Wednesday, Reed Smith held its quarterly environmental and energy law resource teleseminar and the slides and audio are available. We discussed current or emerging issues under five general categories. The categories and discussion included:

  • Legislation/Rules — We reviewed the key points and effective dates related to the New Source Performance Standards for the oil and gas industry as well as for utilities and refineries.
  • Litigation — A big environmental litigation issue involving the oil and gas industry is the aggregation of air emissions from diverse sources and we discussed recent challenges to air permits involving this issue. We also discussed the U.S. Supreme Court's recent denial of certiorari in Morrison Enterprises v. Dravo Corporation and the implications on CERCLA cost recovery and contribution claims.
  • Policy and Technology — On this front, our presentation focused on a recent DOE report on the need for additional disclosure, and the policy implications related to the interplay between the U.S. Environmental Protection Agency and Federal Energy Regulatory Commission.
  • International Issues — Here we provided a brief preview of the upcoming COP in South Africa and the fate of the Kyoto Protocol
  • State Issues — On the state level, we focused on California and summarized recent developments regarding the implementation of the California Global Warming Solutions Act (aka AB32) and California's “Green Chemistry” Initiative.
     

In Virginia, Insurer Not Liable for Global Warming Claims

This post was written by Larry Demase.

In AES Corp. v. Steadfast Insurance Co. (AES), 2011 WL 4139736 (September 16, 2011), the Virginia Supreme court unanimously held that the Steadfast Insurance Company (Steadfast) is not obligated to cover court costs for the Virginia-based energy group AES Corporation under its liability policy in another lawsuit, Native Village of Kivalina v. ExxonMobil Corp. (Kivilina).

AES is one of 24 companies that were sued by Kivilina, an Alaskan coastal village, for damage to its community from global warming (The underlying case, Kivilina, No. 09-17490, is still pending before the Ninth Circuit Court of Appeals). After being sued by Kivalina, AES tendered the claim to its insurer, Steadfast. Steadfast denied the claim, and subsequently filed an action for declaratory judgment in Virginia. The trial court ruled in favor of the insurer, concluding that the underlying climate change claims in the Kivalina lawsuit did not constitute an "occurrence" under AES' commercial general liability policies. Because the court decided the case on the occurrence issue, the court did not reach the issue of whether the pollution exclusion might apply. AES appealed to the Virginia Supreme Court. The Virginia Supreme Court held that an insurer’s duty to defend is not triggered by allegations of damages flowing from intentional actions that the plaintiffs claim resulted in climate change. The court held that the insurance policies at issue “only require [the insurer] to defend … against claims for damages of bodily injury or property damage caused by an occurrence or accident” and that the allegations in the underlying complaint do not constitute such an occurrence or accident: Further, the state supreme court held, “Whether or not [the insured’s] intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law.” This decision is being hailed as a major victory for insurers.

Power Plants, Petroleum Refineries and Landfills Take Note: USEPA Electronic Greenhouse Gas Reporting Tool Launches

This post was written by Jennifer Smokelin.

By September 30 of this year, 28 industrial sectors -- including power plants, petroleum refineries and landfills -- will be required to submit their 2010 greenhouse gas data under the U.S Environmental Protection Agency's (USEPA) Greenhouse Gas Reporting Program. You may recall that the September 30, 2011 deadline was pushed back from March 31. To facilitate the reporting, USEPA launched a new and improved greenhouse gas reporting tool this week known as the electronic Greenhouse Gas Reporting Tool, or e-GGRT, that will allow the top emitters in the country to submit their 2010 greenhouse gas pollution electronically. USEPA expects to receive 2010 greenhouse gas data from approximately 7,000 large industrial greenhouse gas emitters, including power plants, petroleum refineries and landfills. To provide a sense of the scale of the program, these emitters are responsible for 70 percent of the United States' greenhouse gas emissions. The Agency plans to publish non-confidential greenhouse gas data collected through the tool by the end of 2011

USEPA has indicated that, under the GHG Reporting Program, entities required to submit data must register with e-GGRT no later than 60 days before the reporting deadline, or August 1, 2011. If you have missed the August 1 deadline, USEPA still strongly encourages all reporting entities to register as soon as possible, and has stated that a good faith effort to register as soon as possible after the August 1 deadline "will be taken into consideration". This cryptic statement is open to interpretation and if you have not registered and wish to use e-GGRT, we recommend you register immediately then confirm with USEPA that your registration is accepted before relying on the registration to report using e-GGRT.

MSW Landfills Take Note: CO2 Emissions from Bioenergy and Other Biogenic Sources Issued 3-Year Deferral from Clean Air Act Permitting Requirements

This post was written by Jennifer Smokelin.

As anticipated in an earlier blog post and discussed during a recent Reed Smith teleseminar, on July 1 the U.S. Environmental Protection Agency (USEPA) issued a final rule to defer biomass from greenhouse gas (GHG) regulation for three years so that USEPA can properly study biomass emissions and make a considered determination regarding regulation of GHG emission from biomass. Over this time period, municipal solid waste landfills releasing GHGs from decomposing biomass and industrial plants that burn woody biomass will not need permits before starting construction or expansion and will not need Title V operating permits. However, facilities that co-fire biogenic and fossil fuels would still be required to count the fraction of CO2 associated with fossil fuel combustion towards their Prevention of Significant Deterioration (PSD) applicability determination. Further, the deferral would not apply to other GHGs (e.g., methane) or non-greenhouse gas pollutants that are otherwise subject to PSD and Title V permitting at landfills or industrial facilities.

In the final rule, USEPA will defer for three years the consideration of biogenic CO2 emissions under the Tailoring Rule. To facilitate the deferral, USEPA revised the definition of the term “subject to regulation” to exclude biogenic CO2 emissions from stationary sources. The deferral would apply only to CO2 emissions from the combustion and decomposition of biologically-based material. And such emissions will not count towards the PSD applicability determination for greenhouse gases. Some emissions that would be deferred by the rule include:

  • CO2 generated from the biological decomposition of waste in landfills, wastewater treatment or manure management processes;
  • CO2 from the combustion of biogas collected from biological decomposition of waste in landfills, wastewater treatment or manure management processes;
  • CO2 from fermentation during ethanol production or other industrial fermentation processes;
  • CO2 from combustion of the biological fraction of municipal solid waste or biosolids;
  • CO2 from combustion of the biological fraction of tire-derived fuel; and
  • CO2 derived from combustion of biological material, including all types of wood and wood waste, forest residue, and agricultural material.

For municipal solid waste landfill owners, it's worth restating the obvious: because CO2 generated from the biological decomposition of waste in landfills and CO2 from the combustion of biogas collected from biological decomposition of waste in landfills is deferred for three years, this deferral could be significant to your operation.

U.S. Supreme Court Issues Opinion in AEP v. Connecticut

This post was written by Jennifer Smokelin.

Yesterday, in American Electric Power v. Connecticut, the U.S Supreme Court held that the Clean Air Act, which authorizes the U.S. Environmental Protection Agency (USEPA) to limit emissions of carbon dioxide from power plants, displaces any federal common law right to seek abatement of carbon dioxide emissions from power plants. Somewhat surprisingly, the U.S. Supreme Court, because it split 4-4, let stand the Second Circuit Court of Appeals' determination that it had jurisdiction over nuisance claims arising from carbon dioxide emissions. The split means that courts in that circuit continue to have jurisdiction to hear nuisance claims arising from carbon dioxide emissions. The ruling, however, does not apply to other federal circuits and thus it remains an open question outside the Second Circuit.

The case was remanded to the Second Circuit on the issue of plaintiffs' claims under state nuisance law. The Second Circuit did not reach those claims because it held that federal common law governed. In light of the Supreme Court's holding that the Clean Air Act displaces federal common law, the availability of a state lawsuit depends, inter alia, on the preemptive effect of the federal Act, and the issue of preemption was left for consideration on remand. Stay tuned.
 

In Case You Missed It, Here Are Slides and Audio from Reed Smith's June 16 Climate Change Event

This post was written by David Wagner.

Last week, we discussed recent international and U.S. developments related to greenhouse gas regulation, and here are the slides and audio from the event. In particular, we addressed:

  • How the uncertain future of the Kyoto Protocol and the Clean Development Mechanism affect U.S. business (You can also find details on this issue here)
  • What your business needs to know for compliance and planning related to step 2 of USEPA's greenhouse gas Tailoring Rule
  • Implications of the court's "cap and trade" ruling in Association of Irritated Residents v. California Air Resources Board
  • Developments in state courts including upcoming decisions on insurers' obligation to defend and/or indemnify covered insureds for public nuisance, and other types of claims based on third-party allegations of damages from climate change
     

How the Uncertain Future of the Kyoto Protocol and the Clean Development Mechanism Affects Business

This post was written by Jennifer Smokelin.

After a mid-year status meeting in early June, it is clear that the 192 or so parties to the international climate change convention's 17th Conference of the Parties (COP17) in South Africa this November have their work cut out for them…and the future of the Kyoto Protocol and the Clean Development Mechanism (CDM) is in limbo.

Following the mid-year meeting, most pundits agree that, after the Kyoto Protocol's first compliance period ends in 2012, a "regulatory gap" will result. In other words, there will a period of some unknown duration where there will be no legally binding, concrete greenhouse gas (GHG) mitigation commitments applicable to parties to the Kyoto Protocol. This will be the case even if, by some feat of negotiations, the parties are able to reach agreement regarding post-2012 compliance under the Kyoto Protocol in South Africa. A "regulatory gap" will occur because an agreement by COP17 parties would still require ratification by all parties to the United Nations' climate change convention (UNFCCC) and the one year time period until the first compliance period ends in 2012 is not enough time for ratification (keep in mind that ratification of the Kyoto Protocol itself took 7 years!).

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USEPA Delays Proposed Greenhouse Gas Emissions Rule for Power Plants

This post was written by Jennifer Smokelin.

On June 13, the U.S. Environmental Protection Agency (USEPA) indicated that it would take additional time to review input on proposed greenhouse gas emissions limits on New Source Performance Standards for new and existing power plants. The Agency stated that it will propose the new rules by September 30, 2011, instead of the original deadline of July 26. USEPA still plans to finalize the rules in late May 2012.

New Source Performance Standards are technology-based emissions limits issued under Section 111 of the Clean Air Act that apply to new and in some cases existing facilities in a specific industrial sector. NSPSs are a set of rules distinct from (and potentially broader than) the Tailoring Rule, the set of regulations now in effect to control greenhouse gases from large industrial sources. The proposed NSPS will apply to all sources within a source category and, in this case, the source category is power plants. Currently, under the Tailoring Rule, USEPA only requires the largest industrial facilities to obtain prevention of significant deterioration permits under new source review provisions of the Clean Air Act when they expand or make modifications that increase emissions. Those permits require the facilities to install best available control technology, which is determined for each individual facility, while the NSPS impose uniform emissions limits for the industry nationwide.

The extension will also not affect USEPA's deadline to propose performance standards for petroleum refineries by December 15. As we discussed on the blog in December 2010, this is a separate settlement agreement that requires USEPA to issue the final petroleum refinery rule by November 15, 2012 (See American Petroleum Institute v. EPA, D.C. Cir., No. 08-1277, settlement reached December 23, 2010).

Implementation of California's Global Warming Solutions Act Hits a Setback

This post was Eric McLaughlin and John Lynn Smith.

The California Air Resources Board (CARB) hit a road block on the way to implementing a key element of its plan to reduce global warming when a California court found that the agency’s adoption of the plan violates the California Environmental Quality Act (CEQA), creating uncertainty for the regulated community whose operations are subject to the cap-and-trade program central to that plan.

At issue is CARB’s implementation of its Scoping Plan, the key document that specifies the various greenhouse gas (GHG) reduction measures to achieve the goals of California’s Global Warming Solutions Act of 2006, commonly known as AB 32. A ruling by San Francisco Superior Court Judge Ernest Goldsmith, finalized on March 18, 2011 (Ruling), granted a Petition for Writ of Mandate challenging the Scoping Plan, primarily due to the agency’s failure to adequately consider alternatives to its adopted cap-and-trade program.

While the Ruling is a significant impediment to the GHG reduction measures in CARB’s Scoping Plan and AB 32 as a whole, it is a temporary one that is unlikely to threaten the long-term implementation of those measures. The Ruling does, however, require CARB to analyze the impacts of alternatives to the Scoping Plan’s cap-and-trade program, and to provide that analysis to the public, in order for the Scoping Plan to move forward. In the interim, the Ruling creates uncertainty for those members of the regulated community whose operations are subject to the first round of the cap-and-trade program, which is scheduled to take effect in January 2012.
 

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USEPA's New Deadline to Report GHG Emissions is September 30, 2011

This post was written by David Wagner.

The U.S. Environmental Protection Agency issued a final rule today extending the deadline for reporting 2010 data under the Greenhouse Gas (GHG) Reporting Program to September 30, 2011. The original deadline was March 31, 2011, and the new deadline falls just about 2 years after the initial rule was issued. Under the GHG Reporting Program entities required to submit data must register with the electronic GHG reporting tool (e-GGRT) no later than 60 days before the reporting deadline. With the extension, the new deadline for registering with e-GGRT is August 1, 2011.

The GHG Reporting Program primarily covers GHG-emitting facilities, fossil fuel suppliers, and industrial gas suppliers whose aggregate GHG emissions exceed 25,000 metric tons carbon-dioxide equivalent per year. It also covers facilities in certain emissions intensive source categories (e.g., cement manufacturing and petroleum refining). 

Slides and Audio for Reed Smith's 1st Quarter Climate Change Report

This post was written by David Wagner .

As always, we covered the latest in greenhouse gas regulation in our quarterly teleseminar and here are the audio and slides from yesterday’s event. We discussed:

  • Possible delays in the implementation of the Tailoring Rule (Larry Demase)
  • GHG permitting and biomass: EPA's permitting deferral and its affect on industries that use biomass (Jennifer Smokelin)
  • Congressional efforts to develop a Clean Energy Standard (David Wagner)
  • Developments in a recent California court decision addressing what additional work the California Air Resources Board must perform prior to implementing AB32 (Todd Maiden)

Reed Smith's (Free) Quarterly Climate Change Teleseminar is March 16

This post was written by David Wagner.

We’re celebrating one year’s worth of climate change teleseminars with, you guessed it, another climate change teleseminar. Please join us on Wednesday, March 16 from Noon to 1 p.m. (EDT) for the First Quarterly Report on Climate Change in 2011. In this one-hour teleseminar, Larry Demase, Jennifer Smokelin, Todd Maiden and Dave Wagner will provide a regulatory update on significant international, national and state issues concerning climate change and the future of GHG regulation. In particular, the topics are:

  • A delay in the implementation of the Tailoring Rule? An exemption for GHG permit applications in process prior to January 2, 2011?
  • GHG permitting and biomass: EPA's permitting deferral and its affect on industries that use biomass.
  • Congressional efforts to develop a Clean Energy Standard that would require electric utilities to generate electricity from "clean" energy sources, including nuclear, coal with carbon capture and storage, and natural gas.
  • Developments in a recent California court decision addressing what additional work the California Air Resources Board must perform prior to implementing AB32.

If you would like to attend, please email Sandy Petrakis.

The Environmental Law Resource Nominated for LexisNexis Top 50 Environmental Law Blogs

This post was written by David Wagner.

It's really nice to be recognized. In fact, we're thrilled that LexisNexis has nominated Reed Smith's Environmental Law Resource as one of the Top 50 Environmental Law & Climate Change Blogs for 2011. Even better, they grouped the 50 nominees into 11 categories and our blog was one of just 7 blogs nominated under the "Litigation" category. LexisNexis selected the nominees based on "timely topics, quality writing, frequent posts and that certain something 'extra' that keeps a web audience coming back for more."

We certainly appreciate your interest in our blog and, if you want to support our nomination, LexisNexis is inviting comments.

 

Will a Clean Energy Standard "Win the Future"?

This post was written by Todd Maiden, Jennifer Smokelin and David Wagner.

In the 2011 State of the Union address, President Obama urged lawmakers to establish a clean energy standard (CES) with a goal of 80 percent of the nation’s electricity to come from “clean” sources by 2035. The President emphasized that a CES would recognize electricity from not only renewable energy sources but also nuclear, coal with carbon capture and storage technology and natural gas. Calling the clean energy push “our generation’s Sputnik moment,” the President’s speech framed a clean energy standard in the larger context of improving the United States’ competitiveness in the global economy.

With this announcement, it’s fair to say we’ve officially shifted the federal political climate change discussion from cap and trade to the creation of a clean energy standard. Putting aside a comparison of the two approaches, here are a few things to know and watch for in the upcoming debate on a clean energy standard.

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11 Climate Change Issues in 2011

This post was written by Jennifer Smokelin and  David Wagner .

As we look forward to 2011, the Environmental Team at Reed Smith will be on top of a range of environmental issues, but offers the following analysis of what we view, in no particular order, to be 11 key climate change or greenhouse gas-related issues likely to affect you and your business in 2011 – call it “11 Climate Change Issues for ’11.” This post focuses on regulatory and transactional issues and we will analyze the outcomes of GHG-related court challenges as they unfold. Please return to blog regularly for updates and analysis on these and many other issues.

The 11 climate change issues are listed below.

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A New Year's Surprise: USEPA Agrees to Propose GHG Emission Standards for New and Existing Power Plants and Petroleum Refineries

This post was written by Larry Demase.

In response to challenges by various states and environmental groups to U.S. Environmental Protection Agency’s (USEPA’s) New Source Performance Standards for new electric generating units (“EGUs” or “power plants”) and new process facilities at petroleum refineries (“Refineries”), USEPA has agreed to propose New Source Performance Standards (“NSPS”) for greenhouse gas (“GHG”) emissions from those sources. In addition, it has agreed to issue guidelines for GHG emissions from existing EGUs and Refineries. Promulgation of these rules will be governed by Sections 111(b) and 111(d) of the Clean Air Act and 40 C.F.R. § 60.22.

In the case of EGUs, the agreements require USEPA to sign a proposed rule by July 26, 2011 and after considering public comments to sign, no later than May 26, 2012, a final rule. In the case of Refineries, the proposed rule must be signed December 10, 2011 and the final rule by November 10, 2012. Mindful of the delays that often take place in EPA’s rulemaking, the separate agreements require EPA to regularly update state and environmental groups of USEPA’s progress in developing these rules.
 

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Reed Smith's 4th Quarter Climate Change Report: Slides and Audio Available Here

This post was written by David Wagner.

If you missed Reed Smith's Quarterly Climate Change Teleseminar on December 16, 2010, feel free to listen to an audio recording of the event while watching the slide show. We discussed:

  • Significant developments at COP16 (Jennifer Smokelin)
  • The Impact of California's new "Proposition 26" on the implementation of California's Global Warming Solutions Act (aka "AB 32") (Eric McLaughlin)
  • USEPA's issuance of PSD and Title V Permitting and BACT Guidance for GHG sources subject to the "Tailoring Rule" (Larry Demase)
  • Recent Carbon Capture and Storage Developments (David Wagner)
  • Issues and problems to consider regarding 2011 GHG emissions monitoring & reporting (Douglas Everette)

Cancún or Can'tcún? Summary of COP 16

This post was written by Jennifer Smokelin.

Last year, after months of build up, politicians, scientists, environmental activists, and Reed Smith attorneys flocked to Copenhagen for COP15: a conference that many hoped would produce a binding international agreement on carbon emissions and an actionable plan for addressing climate change. These goals, of course, weren't realized. Nearly twelve months later, the Conference of the Parties convened once again, this time in Cancun, Mexico. The issues, controversies, and conflicts were very similar.

The outcome of COP 15 last year was the Copenhagen Accord – an agreement that was not adopted by the UN congress as a whole because of the objections of 5 countries. The outcome of this year’s COP (over the objection of one country, Bolivia) are the Cancun Agreements. The Cancun Agreements are a lot less than the comprehensive agreement that many countries wanted and leave open the question of whether any of its measures, including emission cuts, will be legally binding. This is a modest step in international climate negotiations and in its modesty highlights the international discord on the subject and punts a lot of the harder decision to future COPs. For example, the Cancun Agreements declare that deeper cuts in carbon emissions are needed, but do not specify any given mechanism for achieving the pledges each country has made.
 

The following is a summary of progress (or lack thereof) on key international issues.

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Reed Smith's (Free) Quarterly Climate Change Teleseminar is December 16

This post was written by David Wagner.

Please join us on Thursday, December 16 from Noon to 1 p.m. (EST) for our quarterly report on climate change. In this one-hour teleseminar, Larry Demase, Jennifer Smokelin, Todd Maiden, Douglas Everette and Dave Wagner will span the globe and discuss:

  • Significant developments at the global climate change conference, COP 16
  • The Impact of California's New "Proposition 26" on the Implementation of California's Global Warming Solutions Act (aka "AB 32")
  • USEPA's Issuance of PSD and Title V Permitting and BACT Guidance for GHG Sources Subject to the "Tailoring Rule"
  • Recent Federal Requirements Related to Carbon Capture and Storage
  • Issues and Problems to Consider Regarding 2011 GHG Emissions Monitoring & Reporting

To register for the event, please click here.

UNFCCC and COP-16: Living the Adage "Under Promise and Over Deliver"?

This post was written by Jennifer Smokelin.

The United Nations Climate Change Conference (UNFCCC), which will be held in Cancun, Mexico, from November 29 to December 10, 2010, encompasses the sixteenth Conference of the Parties (COP) and the sixth Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP). It sounds like a big deal but you don’t hear much about the COP in the media these days. Does anyone recall the frenzy about the COP this time last year? We certainly remember the speculation regarding which heads of state would be attending and what agreements would be reached. It felt like the Super Bowl of COPs. This year feels a lot different. The COP is meeting with far less hype and we wonder whether the conference parties learned their lesson from last year and decided to abide by the adage “under promise and over deliver”.
 

 

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BACT is the New Black: USEPA Issues Long-Awaited GHG Permitting Guidance for States

This post was written by Jennifer Smokelin.

The U.S. Environmental Protection Agency (USEPA) recently released the final piece of the greenhouse gas (GHG) permitting puzzle, a guidance entitled “PSD and Title V Permitting Guidance for Greenhouse Gases.” With the January 2011 implementation of the Tailoring Rule requiring large industrial sources to obtain permits for GHG emissions, this guidance aims to assist permitting authorities in enacting GHG permitting programs. In particular, the 97-page document addresses Prevention of Significant Deterioration (PSD) applicability to GHG and BACT (Best Available Control Technology), and other PSD requirements. The guidance also discusses Title V applicability requirements and GHGs, as well as permitting requirements for Title V permits with regard to GHGs.

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A Suggestion to Banks and Investors in Energy Infrastructure: Start Paying Attention to Increasing Climate Change Litigation in the US

This post was written by Jennifer Smokelin.

Investment in energy infrastructure is in turmoil. Consider that large energy infrastructure projects are big investments. Ever since scientific evidence of climate change has called into question the use of coal-fired generators, how to build projects and finance these projects has been a challenge. Large utilities and the banking industry were seeking certainty in regulation – for no other reason than to have a clear baseline for investment purposes to evaluate what made sense (and cents) for a long term investment. And in the last Congress, the banking industry thought it would get some clarity. However, with the election earlier this month, it is clear the banking industry – indeed, all industry – now faces increasing uncertainty in federal climate change regulation and a patchwork of state and regional approaches. This means investment decisions in energy infrastructure, renewable energy, and other large-scale energy projects are in turmoil.
 

Last week, a report written by/for investment advisors for Deutsche Bank (“DB”) identified a by-product of climate change regulatory uncertainty and documented the trends in domestic climate change litigation. The report, titled "Growth of U.S. Climate Change Litigation: Trends and Consequences” concludes that US climate-related litigation is likely to triple this year over the suits filed last year. This spike in climate change litigation appears to be caused by lack of a clear federal policy, i.e., if environmental groups can’t get Congress to act, they will try to force policy change through the courts. Why is DB concerned? And why should any bank making an investment decision in energy infrastructure closely follow the trends in climate change litigation and regulation? Because without a clear federal policy, climate change policy may be dictated by the courts similar to the way tobacco litigation established US tobacco policy.
 

In a court-dictated climate policy era, banks need to understand the trends in litigation (and dictates of the courts) to make clear investment decisions, especially with respect to profitable projects for their investors. Uncertainty or not, investment in energy infrastructure will go on; the demands of our fuel-hungry society demand it. But the banks that will profit – and “weather the energy climate” – are the ones with the best understanding of litigation and regulation trends so that they can make the best investing decision for their investors – and thus adequately discharge their fiduciary duty to investors.
 

The UK's Carbon Reduction Commitment Program is Changing

This post was written by Catrin Phillips and Siobhan Hayes.

Over the last two years, much has been written – on this blog and elsewhere – about the UK Government’s Carbon Reduction Commitment (Energy Efficiency) Scheme (CRC). As a result, the property sector is largely aware of the complications around reporting carbon emissions to comply with the CRC and charging the costs of allowances to those consuming the fuel. But things are changing… The UK Government’s comprehensive spending review last week has actually taken a positive step to simplify the CRC while undoubtedly increasing the cost of the CRC for all participants.
 

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Federal Takeover Averted? Recent Survey Reports that 49 U.S. States Will Have GHG Permitting Programs Ready to Go by January 2011

This post was written by David Wagner.

Although this doesn’t make anything official, it’s an interesting development: the National Association of Clean Air Agencies (NACAA) reported yesterday that, with the onset of greenhouse gas (GHG) permitting only two months away, every state but one -- Texas -- is poised to ensure that sources can obtain preconstruction permits under the Clean Air Act come January 2, 2011.

As we’ve discussed on the blog, certain larger GHG emission sources will be subject to permitting requirements for planned construction projects under the Tailoring Rule starting on January 2, 2011. While most states already have the authority to permit GHGs under preconstruction permit – or Prevention of Significant Deterioration (PSD) – programs, USEPA proposed two rules to fill gaps in 13 state permitting programs that do not allow for the regulation of GHG emissions from industrial sources. The first proposed rule seeks to allow states that are not prepared to regulate GHGs to revise their State Implementation Plans. The second rule outlines USEPA's plan to establish a Federal Implementation Plan that would take over permitting programs in states that do not meet the requirements by January 2011.

NACAA, which is an association of air pollution control agencies in the United States, reviewed the air permitting program responses of the 13 states at issue. According to the NACAA report, air permitting agencies in all states on USEPA’s list (except for Texas) “have indicated that they will either revise their PSD rules by January 2, 2011 or very shortly thereafter, or accept a Federal Implementation Plan (FIP) that will give EPA authority to issue the GHG portion of PSD permits until state rules are revised." This provides some assurance that sources required to apply PSD controls to their GHG emissions will be able to obtain the necessary permits and avoid construction delays. NACAA’s state-by-state summary is available here.
 

Reed Smith's Third Quarter Climate Change Report - You Can Find It Here

This post was written by David Wagner.

If you missed Reed Smith's Third Quarter Teleseminar on Climate Change, feel free to listen to an audio recording of the event while watching the slideshow. The report discussed:

  • U.S. Congressional activity in light of the Senate's failure to pass climate change legislation last summer;
  • The likelihood that California's Proposition 23 will pass in November, how that would affect AB 32 (California's Global Warming Solutions Act), and practical implications for California businesses;
  • How the U.S. Environmental Protection Agency, in attempting to regulate greenhouse gases, is trying to fill some gaps in State Implementation Plans while potentially creating new regulatory gaps in the process; and
  • How the uncertainty of credits under the Clean Development Mechanism is affecting carbon allowance prices.

Our Fourth Quarter Climate Change Report is scheduled for December 16, 2010. Please contact us to sign up or look for more information on the blog.

Reed Smith's (Free) Third Quarterly Teleseminar on Climate Change is September 28

This post was written by David Wagner.

Please join us for our next quarterly report on climate change from 12 to 1 pm on Tuesday, September 28. In this one-hour teleseminar, Larry Demase, Jennifer Smokelin, Todd Maiden and David Wagner will provide an update on significant international, national and state issues concerning climate change and the future of greenhouse gas (GHG) regulation. Following up on Congress' failure to pass energy and climate legislation over the summer, our topics include:

  • A review of two USEPA proposed rules that would help ensure USEPA’s implementation of permitting requirements for GHGs, set to take effect in January 2011. The first proposed rule identifies State Implementation Plans that do not currently apply certain requirements to GHG emitting sources, and requires them to be modified. In the second rule, EPA is proposing a Federal Implementation Plan that will apply in any state that cannot (or does not) revise its state plan by January 2011.
  • A discussion on the likelihood that California's Proposition 23 will pass in November (which would postpone implementation of California's Global Warming Solutions Act, aka "AB 32"), an assessment of the true scope of Proposition 23, and practical implications for California businesses.
  • A discussion on the United Nations halting issuance of carbon credits for Chinese Clean Development Mechanisms.
  • An update on stalled Congressional action with regard to climate regulation.

To register for the teleseminar, please click here.

USEPA Reschedules Public Hearing on Proposal to Take Over Certain States GHG Air Permitting Programs

This post was written by David Wagner.

To follow up from earlier posts, the U.S. Environmental Protection Agency has rescheduled the public hearing on its proposed rule to establish a Federal Implementation Plan that would take over permitting programs in states that do not meet federal requirements. The hearing will be held on September 14, 2010 in Arlington, VA and logistical details are here. We’ve discussed this proposed rule and a related proposal requiring 13 states to revise their State Implementation Plans in some detail in this recent post.

USEPA Postpones Public Hearing on Proposal to Take Over Certain States GHG Air Permitting Programs

This post was written by Jennifer Smokelin and David Wagner.

On August 23, 2010, the U.S. Environmental Protection Agency (USEPA) postponed the public hearing on its plan to take over greenhouse gas (GHG) permitting programs related to construction or modification projects. The hearing was scheduled to be held in Arlington, VA on August 25, 2010, and was delayed because the draft rule has not yet been published in the Federal Register. USEPA has not set a new date for the hearing. As we discussed in a blog post last week, USEPA has proposed two rules to fill gaps in 13 state permitting programs that do not allow for the regulation of GHG emissions from industrial sources. The first proposed rule seeks to allow states that are not prepared to regulate GHGs to revise their State Implementation Plans. The second rule outlines USEPA's plan to establish a Federal Implementation Plan that would take over permitting programs in states that do not meet the requirements by next January, when USEPA’s Tailoring Rule would be in effect.

Regulated Entities in Allegheny County (PA) and Certain California Counties, Be Aware: USEPA May Take Over GHG Air Permitting Programs Related to Construction or Modification Projects

This post was written by Jennifer Smokelin and David Wagner.

Here's the issue:  Certain larger emission sources of greenhouse gases (GHGs) will be subject to permitting requirements for planned construction projects starting January 2, 2011.  In 13 states, the permitting programs (known as the Prevention of Significant Deterioration (PSD) permitting program) do not apply to sources of GHGs.  Thus, emission sources in those states would be unable to obtain a PSD permit that covers GHG emissions, and would potentially be unable to undertake construction or modification projects on or after January 2, 2011.  The states are Alaska, Arkansas, Connecticut, Florida, Idaho, Kansas, Oregon, Texas, and portions of California, Arizona, Kentucky, Nebraska, and Nevada.

Here's USEPA's proposed solution:  The Agency recently proposed two rules that would fill the gap in the permitting programs for these 13 states: (1) the SIP call and (2) the FIP.  Under the first proposed rule, the U.S. Environmental Protection Agency (USEPA) would issue a "SIP call," requiring the 13 states to revise their State Implementation Plans (SIPs).  According to USEPA, the PSD program in these jurisdictions is "presumptively inadequate" because they do not allow for the regulation of GHG emissions. All other states would be required to review their rules and inform USEPA if they would not be able to issue PSD permits for greenhouse gas emissions. 

Under the second rule, USEPA proposes to establish a FIP - a Federal Implementation Plan for the 13 "presumptive inadequate" states, and for any other state in which USEPA determines that the state PSD program does not meet requirements for regulation of GHGs. Only the states deemed by USEPA to be inadequate would need the federal plan.  In other words, in any states that do not update their regulations within 12 months after USEPA signs the final action, the second proposed rule would give the Agency the authority to take over until the state can assume the responsibility.

What this might mean to regulated entities:  A state that has to amend its rules, especially the 13 "presumptive inadequate" states, would likely have difficulty making the changes by USEPA's deadline, which is within 12 months after USEPA signs the final action.  If USEPA steps in as planned, new sources and modification projects might be unusually delayed while USEPA works through the GHG portions of permitting applications.

What this might mean in Allegheny County and most California counties:  It's hard to say.  Allegheny County and most of the Air Quality Management Districts in California are in a "grey area" - that is, they are not listed on either the Presumptive SIP Call or the Presumptive Adequate Lists.  USEPA has determined that these jurisdictions (among others) do not have an approved PSD SIP.  See additional discussion below.

What's next:  The two rules have not yet been formally proposed with publication in the Federal Register, and comments on the rules would be due 30 days after publication.  USEPA has scheduled a public hearing on the matter for August 25, 2010 in Arlington, Virginia.

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The Weakest Link in Greenhouse Gas Regulation? USEPA's Tailoring Rule

This post was written by Jennifer Smokelin.

Implementing the Environmental Protection Agency’s (USEPA’s) regulation of greenhouse gases (GHGs) under the Clean Air Act (CAA) is a three link chain, and each link in the chain is necessary and determinative of the success of the program as a whole. If any link fails, so does USEPA’s ability to regulate GHGs under the CAA. The three links are: (1) the Endangerment Finding; (2) the Tailoring Rule; and (3) the Best Available Control Technology (BACT) guidance. Previous articles in this blog and other blogs as well as teleseminar presentations by Reed Smith’s Environmental Team have discussed the likelihood of success to challenges to the Endangerment Finding. This post will briefly describe challenges to what is likely the weakest link in USEPA’s GHG regulation chain: the Tailoring Rule.

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Deadline Time for the UK's Carbon Reduction Commitment

This post was written by Siobhan Hayes and Indeg Kerr.

The latest Government Press Release shows that 1,299 businesses have registered under the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (‘CRC’). The Government’s own estimate is that 5,000 businesses will have to register and comply in full with the CRC. The deadline for registration is 30 September 2010 but the process of registration may take weeks. This posting addresses registration issues and the consequences of failing to register.

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Climate Change Legislation is Dead. Long Live Climate Change Regulation!

This post was written by Larry Demase, Jennifer Smokelin and David Wagner.

Although an energy bill is now on the Senate floor, it is limited to energy conservation and issues related to the oil spill. It does not include a price on carbon in the form of cap and trade for any sector, and we are unlikely to see comprehensive climate legislation in September or later this year. So now what? Congressional failure to act now or later in 2010 means that, on the federal level, the U.S. Environmental Protection Agency ("USEPA") will step in and use its authority under the Clean Air Act to regulate greenhouse gases ("GHGs") from the utility, transportation and industrial sectors, and there is a small possibility that such regulation by USEPA will include a cap-and-trade program. To be sure, USEPA has already taken several steps to regulate GHGs. 

The following post discusses what will likely come out of Congress and USEPA's ongoing efforts to enact measures that regulate GHGs.

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Follow-up on Reed Smith's Quarterly Climate Change Report

This post was written by David Wagner.

If you missed Reed Smith's Quarterly Report on Climate Change, feel free to listen to an audio recording of the event. In addition, the slideshow presentation is available here. The report covered a lot of information and featured:

  • A status report on Congressional action on comprehensive climate regulation;
  • A summary of issues regarding the GHG cap-and-trade scheme under AB 32 in California;
  • An overview of the legal issues related to carbon capture and storage; and
  • A discussion of offset projects in the United States.

 

Join Reed Smith for our Quarterly Climate Change Regulatory Update via Teleseminar on July 15

This post was written David Wagner.

Please join us for our Second Quarterly Report on Climate Change from 12 to 1 p.m. EDT on Thursday, July 15. In this one-hour teleseminar, returning speakers Larry Demase and Jennifer Smokelin, joined by Todd Maiden and David Wagner, will provide a regulatory update on significant international, national and state issues concerning climate change and the future of GHG regulation.

Following up on speculation regarding summer strategy for passing energy and climate legislation, planned topics include:

  • An inclusive status report on Congressional action with regard to comprehensive climate regulation (including the Kerry-Lieberman bill)
  • The status of the GHG cap-and-trade scheme under AB 32 in California
  • An update on the latest regulatory developments in Carbon Capture and Storage
  • Plus a special discussion titled, "Preparing to Build Offset Projects in the United States; Criteria and Lessons Learned from the CDM"

To register for the teleseminar, please click here.

The UK's Carbon Reduction Commitment: Now Is the Time

This post was written by Siobhan Hayes and Indeg Kerr.

We wrote a variety of blog postings on the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (‘CRC’) whilst the Government was consulting on the draft Regulations. A lot of the information must have seemed unimportant prior to April 2010 but now the CRC Energy Efficiency Scheme Order 2010 (‘CRC Order’) is in force and many businesses will need to evaluate whether, how and to what extent they must comply with the CRC. 

The CRC is aimed at organisations which are not energy intensive and will cover many sectors including offices, retailers and hotels. The CRC affects overseas companies that do business in the UK and applies whether or not they do so using UK subsidiaries. Private equity investors have to determine how to manage their CRC liabilities.

This posting covers how to determine whether the first phase of the CRC Order is going to apply to your business and provides pointers on what to do next.

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If Congressional Climate and Energy Legislation Fails to Pass in the U.S., What Happens?

This post was written by Phil Lookadoo and Jennifer Smokelin.

The future of greenhouse gas (GHG) regulation in the United States, as well as the future mix of electric power generation sources, is linked to the fate of climate and energy legislation in Congress. With all eyes on the Senate recently released Kerry-Leiberman comprehensive climate and energy legislation and what by most accounts is its slim chances for passage, let’s consider the possibility that Congress will fail to pass climate or energy legislation.

If that is the case, this does not mean no regulation of greenhouse gases and no energy reform. It simply moves the discussion to another government branch, namely, the Executive Branch, and in particular the U.S. Environmental Protection Agency (USEPA) and the Federal Energy Regulatory Commission (FERC). In other words, if Congressional climate and energy legislation fails to pass, executive branch initiatives gain in importance, and these initiatives will proceed apace regardless of Congressional inaction.

A Shift to USEPA Regulation of GHGs

USEPA can be expected to move forward with regard to regulating GHGs from stationary sources. On December 7, 2009, in compliance with the US Supreme Court’s decision in Massachusetts v. EPA, 549 U.S. 497 (2007), USEPA issued its Endangerment Finding, opening the door to USEPA regulation of GHGs under the existing Clean Air Act (CAA). Although the Endangerment Finding is currently being challenged in the Federal Circuit, challenges to the Endangerment Finding will not likely impede further EPA action to regulate GHGs under the CAA. However, challenges to these USEPA further actions are likely.

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New Climate Bill Introduced in U.S. Senate

This post was written by Ariel Nieland.

After much anticipation, Senators Joe Lieberman (I-Conn.) and John Kerry (D-Mass.) finally unveiled their comprehensive energy and climate bill, known as the American Power Act, in a press conference yesterday afternoon. The bill's release was delayed by several weeks after prior co-sponsor Senator Lindsey Graham (R-SC) withdrew his support following a dispute over unrelated immigration reform legislation. Below are some of the bill's key features:

  • Aims to reduce greenhouse gas emissions by 17% from 2005 levels by 2020 and 83% by 2050, targeting heavy industry, power plants and transportation infrastructure.
  • Removes disincentives for natural gas generation at merchant plants in order to level the power sector playing field, and plans to help guide state regulators by requiring public disclosure of chemicals used in natural gas production.
  • Places a cap on carbon emissions for producers of more than 25,000 tons of carbon pollution annually, which includes approximately 7,500 U.S. companies. Producers with a mandatory cap may trade carbon credits in the primary market, while the secondary market will be open to all participants. Carbon credits would start at $12 per ton.
  • Provides financial incentives for a variety of energy producers, including regulatory risk insurance and loan guarantees for a dozen new nuclear plants; $2 billion a year for coal technologies that can capture and store greenhouse gas emissions, such as carbon capture and storage; and $7 billion a year for improvements to transportation infrastructure and efficiency.
  • Encourages offshore oil drilling while providing states with veto power over drilling in neighboring states along with the ability to opt out of any drilling within 75 miles of the state's own shoreline. States that oppose drilling could pass laws blocking the activity, while states that choose to drill may retain 37% of federal royalties raised.
  • Preempts any state-operated cap-and-trade programs already in existence, and compensates states for any revenue lost as a result.
     

New Climate Bill Likely to be Unveiled in the U.S. Senate Next Week

This post was written by Ariel Nieland.

Based on news reports, Senator John Kerry (D-Mass.), along with Senator Lindsey Graham (R-S.C.), and Senator Joseph Lieberman (I-Conn.) plan to release a revised climate bill aimed at cutting U.S. industry emissions of carbon dioxide and other greenhouse gases associated with global climate change. It may be unveiled as early as next week in time for Earth Day on April 22. A key issue raised in prior climate bills, which the new bill is not expected to address, is the creation of a national "cap and trade program" for managing greenhouse gases, such as the ones currently in place in the European Union to reduce greenhouse gases and in the U.S. to control acid rain-causing sulfur dioxide. The new climate bill will, however, likely provide for an overall cap on greenhouse gas emissions for certain utilities, with other industries to be phased in over time, as well as "a modest tax" on transportation fuels. The bill is also expected to incentivize construction of nuclear power plants, carbon capture and storage facilities, renewable energy sources such as wind and solar power, as well as oil and gas drilling.
 

Cash For Climate: Copenhagen Green Climate Fund Update

This post was written by Jennifer Smokelin.

Debate still rages as to the significance of the Copenhagen Accord, the non-binding agreement noted by the UNFCCC at the end of the COP in Copenhagen in December. Many leaders of the process, including outgoing U.N. climate chief Yvo de Boer, have downplayed the chance of the Accord folding into a binding deal in Cancún, saying such an agreement will be unlikely until late 2011. But U.S. deputy climate envoy Jonathan Pershing defended the Accord recently in Bonn, where negotiators met this past weekend to begin setting the table for this year's COP in Cancún, Mexico, in November.

Climate adaptation financing is one of the most direct impacts of the Accord. Under Paragraphs 8 and 9 of the Accord, wealthy countries have committed to sending $100 billion a year by 2020 in climate funds to at-risk nations. How those funds will be raised and governed remains an open question. A high-level advisory group to mobilize the climate change financing was assigned by United Nation Secretary-General Ban Ki-moon. Its mission is to mobilize financial resources through the development of practical proposals to significantly scale up both short and long-term financing for mitigation and adaptation strategies in developing countries. The Accord states in Paragraphs 8 and 9 that financial support is to be given to developing countries to help them combat climate change between 2010 and 2020, with “priority” to be given to the “most vulnerable developing countries” such as the least developed countries, small island developing states, and Africa. Funding will be secured from various sources including governments, the private sector, bilateral and international institutions. The group will also investigate how to jump-start the mobilization of new and innovative resources from both the public and private sector.

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Recent Reforms to UN's Clean Development Mechanism

This was written by Jennifer Smokelin and David  Wagner.

Overshadowed by the activities in the final few days at the Copenhagen climate change conference, the UN agreed to revise some elements of its Clean Development Mechanism (CDM). Despite ongoing concerns about the long-term (post-2012) future of CDM, these reforms are significant.

Perhaps most significantly, the CDM reforms direct the CDM Executive Board to establish new procedures for stakeholders to appeal decisions. This on the heels of the CDM Executive Board’s controversial recent decision to reject applications from ten Chinese wind energy projects. The Executive Board has also been granted permission to streamline registration and issuance procedures for emission reduction projects and provide new funding to accelerate the development of CDM projects in countries with fewer than ten CDM approved projects in operation. Following a number of investigations which found that some of the firms tasked with independently verifying that CDM projects deliver real emission cuts had been cutting corners, the reforms also call for an improved system of “continuous performance monitoring” of these third-party certifiers.

Climate Change After Copenhagen

This post was written by David Wagner.

Reed Smith attorney Jennifer Smokelin participated in a seminar sponsored by the Climate Decision Making Center (CDMC) on March 8, 2010 and addressed her time spent at the United Nations' Framework Convention on Climate Change (UNFCCCC or COP 15) in December 2009. Jennifer's presentation, which is available here, discussed COP 15 and the likely affect of the Copenhagen Accord from the perspectives of two stakeholder groups: business and industry non-governmental organizations (BINGOs) and the general citizenry. In particular, Jennifer analyzed the commitments offered thus far under the Copenhagen Accord, compared them to commitments under the Kyoto Protocol and what that means for business and the environment, and opined regarding likely US actions to implement the Copenhagen Accord.

The CDMC is anchored at Carnegie Mellon University's Department of Engineering and Public Policy. It was founded in 2004 with a five-year, $6.9 million grant from the National Science Foundation. Collaborating investigators and graduate students are located at the University of British Columbia, the University of California at Berkeley, the University of Calgary, Oxford University, Stanford University, Pacific Risks, and The Wharton School at the University of Pennsylvania. At the CDMC, researchers are studying the limits in our understanding of climate change, its impacts, and the strategies that might be pursued to mitigate and adapt to change.
 

Franchisors: Are You Prepared for the UK's Carbon Reduction Commitment?

This post was written by Siobhan Hayes.

In earlier postings we introduced the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (“CRC”). From 1 April 2010 the CRC Regulations will apply and many franchisors will be responsible for the carbon emissions of their franchisees. Franchisors will need information from their franchisees and may incur costs under the CRC that may not be easily recovered from franchisees.
 

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Reed Smith Discusses Copenhagen in The National Law Journal

This post was written by Larry Demase and Jennifer Smokelin.

In this article published in The National Law Journal, Reed Smith attorneys and Copenhagen attendees Larry Demase and Jennifer Smokelin discuss outcomes from the United Nations' climate change conference while focusing on what may happen to the domestic energy sector. They emphasize that, despite the questions surrounding international climate negotiations, the Obama administration will continue to push to reinvent the domestic energy sector, if for no reason other than economic stimulus. This push is reinforced by the recent proliferation of "energy security" and "green jobs" bills proposed in Congress. As for changes, they also explain that, during the next 10 to 20 years, we can expect a threefold increase in supply from renewables such as wind and solar. They also look for coal-supplied electricity to trickle off during the next 40 years but, assuming a viable carbon capture and storage program, in the near term significant production of electricity from coal will remain.

 

Who's in Accord with the Copenhagen Accord - and What Does It Mean?

This post was written by Larry Demase, Jennifer Smokelin and David Wagner.

January 31, 2010 marked the official deadline for parties to the Copenhagen Accord to submit their respective plans for reducing greenhouse gas emissions. However, this was not considered a “hard deadline” by the UNFCCC Secretariat and thus responses still trickle in. To date, 95 countries have officially agreed to “associate” with the Accord, with certain emitters (arguably key emitters) also including emission reduction actions in their statement to the UNFCCC. Some big global emitters have signed on to the Accord – the US Climate Action Network (USCAN) indicated that as of the date of this posting, countries representing 80.8% of global emissions are in accord with the Copenhagen Accord. 

 

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It's Official: SEC Adopts Interpretive Guidance About Climate Change for Public Companies

This post was written by  David Mittelman, Eulalia Mack, Todd Maiden, Lou Naugle, Jennifer Smokelin and J. Todd Arkebauer.

A week after the Securities and Exchange Commission (the "SEC") voted to adopt interpretive guidance addressing public company disclosure standards in connection with climate change, they made it official. On February 2, 2010, the SEC issued the interpretive guidance. The guidance reflects an effort by the SEC to provide companies with greater clarity about existing obligations under the federal securities laws that relate to climate change and its consequences. Reed Smith updated its client bulletin to provide some more information on the key disclosure areas.
 

 

SEC Adopts Interpretive Guidance About Climate Change for Public Companies

 This post was written by David Mittelman, Eulalia Mack, Todd Maiden, Lou Naugle, Jennifer Smokelin and J. Todd Arkebauer.

On January 27, 2010, the Securities and Exchange Commission ("SEC") voted to adopt interpretive guidance addressing public company disclosure standards in connection with climate change. While this interpretive guidance is not intended to impose new standards, it does serve as an important reminder for public companies, potentially as part of their disclosure controls and procedures, to assess whether climate change may have a material impact upon their business and financial condition. For details, go to Reed Smith's client bulletin that discusses this development.

Among the disclosure areas the forthcoming interpretive guidance will address, according to the SEC press release, are the following:

  • Impact of legislation and regulation. When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material.
  • Impact of international accords. A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect consequences of regulation or business trends. A company should consider, for disclosure purposes, the actual or potential indirect consequences it may face because of climate change-related regulatory or business trends.
  • Physical impacts of climate change. Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

Given the SEC's high-profile stamp of authority on this topic, public companies should expect a greater focus by the SEC staff and third-party observers in reviewing and evaluating disclosure practices about the material impact of climate change.

Climate Change Regulation After Copenhagen: Now What? For Starters, Consider Turning Your GHG Emission Reductions into an Asset

This post was written by Larrry Demase, Jennifer Smokelin, Todd Maiden and David Wagner.

In this client update, Reed Smith attorneys (including COP15 delegates Larry Demase and Jennifer Smokelin) reflect on what transpired in Copenhagen and offer some advice regarding what regulated entities should do next.

Among other issues, the update discusses how to position your GHG-intensive business to minimize compliance costs in a carbon-constrained economy. It also addresses how to position your GHG emission reduction credits to serve as an asset. For example, regulated entities should make sure they have documented and verified all of the GHG credits to which they are entitled. One group of potential GHG credits that comes to mind after the economic downturn last year are credits available as a result of reduced GHG emissions. Consider: Have your facilities reduced GHG emissions in the past year, because of plant idling or reduced production capacity? Have you reduced your carbon footprint measurably and permanently? Or are you beginning to reduce your GHG emissions to improve efficiency? If so, some of these reductions in GHG emissions may be eligible for credits. These credits, which must be properly documented and verified, could potentially be sold or traded on various mandatory and voluntary markets (EU-ETS and/or the Chicago Climate Exchange, for example), or banked for compliance with the inevitable domestic cap-and-trade program.

In short, there may be opportunity here. Reed Smith can work with you to determine which GHG reductions at your facilities are eligible for credits, and help plan how to maximize the potential opportunities, or even how to profit from these credits.

The Copenhagen Accord and COP-15: Brokenhagen or Some Version of Hopenhagen?

This post was written by Larry Demase and Jennifer Smokelin.

As they return from two weeks at the COP in Copenhagen, Reed Smith lawyers Lawrence Demase and Jennifer Smokelin reflect on what transpired and offer some advice regarding what to look for in the future:

The Copenhagen Accord, negotiated by only five countries and outside of the UN process, lays out the high-level agreements in principle of the largest emitters that are not party to the Kyoto Protocol: China, the United States, and India. The most significant outcome is the agreement with regard to greenhouse gas (GHG) reduction by non-Kyoto parties, particularly China and the United States. With China's use of oil increasing at an incredible rate, even modest commitments (like a decrease in GHG intensity), could be a significant undertaking. The impact of the Copenhagen Accord may be felt more in the price of oil than in the reduction of emissions of GHG.

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The Legal Classification of UK's CRC Emissions Allowances

This post was written by Luca Salerno and Siobhan Hayes.

In earlier postings we have introduced the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (“CRC”) and have considered the impact for companies and groups and penalties for non-compliance. This note considers briefly what the problems are in the legal classification of carbon emission allowances and the issues that will need to be resolved by the time businesses start trading them.

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Day 12: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Larry Demase.

Just like our Day 1 report from Copenhagen, we are back to a bunch of “C” words. This time they include: commitments, cost, China, closed door meetings, and, of course, confusion. We will certainly post a COP-15 recap and try to explain “what it all means.”

As of this 22:00 GMT posting, it is being reported that “developed and developing countries have now agreed to listing their national actions and commitments, a finance mechanism, to set a mitigation target of 2 degrees Celsius and to provide information on the implementation of their actions through national communications, with provisions for international consultations and analysis under clearly defined guidelines.”

It remains to be seen how this agreement compares to the last (and fourth) draft of the “Copenhagen Accord”. The fourth draft had called for global GHG emissions to be cut by 50% from 1990 levels by 2050, with Annex I Parties (industrialized nations except the United States) committing to reductions of 80% by the same time. Other nations would “implement mitigation actions”, in the form of national action plans, that would be updated every two years. The fourth draft also acknowledged the scientific view that nations need to keep emissions below a level that stops the global average temperature exceeding a 2 degrees Celsius increase above pre-industrialized levels.

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Day 11: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Larry Demase.

Prior to being replaced, Connie Hedegaard analogized the last minute nature of the COP to procrastinating elementary school students, stating, “It’s just like schoolchildren. If they have a very long deadline to deliver an exercise they will wait for the last moment…. It’s basically as simple as that.” With one full day left, COP-15 is in countdown mode and we’ll see if the parties finish their homework on time.

Underscoring the urgency, political heavyweights are here and making the rounds, including Prime Minister Gordon Brown, US Secretary of State Hillary Clinton, former Vice President Al Gore, and Senator John Kerry. In a plenary session, Prime Minister Brown stated that there was no insurmountable obstacle to an agreement in Copenhagen which could be turned into a binding treaty in 6-12 months. He called for (a) long term goal of 2 degree temperature increase; (b) immediate (ok, year 2012) aid of $10 billion to developing countries; (c) $100 billion in long term financing to developing countries; and (d) a commitment by all countries to reduce emissions to a degree consistent with their “highest ambition”.

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Day 10: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Larry Demase.

In addition to the official proceedings, much of the activity at and around the COP centers on what is not said or said unofficially or (hearsay notwithstanding) just heard from other delegates. For example:

  • At a side event this morning hosted by the International Energy Agency, the Swedish Deputy Prime Minister, who was the keynote speaker, did not discuss the resignation of Connie Hedegaard, the Danish chairwoman in charge of COP-15. Lars Lokke Rasmussen, the Danish Prime Minister took over for her purportedly because he was not happy with pace of negotiations. That is in contrast with the official statement that the takeover was planned. Regardless, there is buzz among delegates that the Danish Prime Minister is trying to politically hijack the conference.
  • A Japanese negotiator lamented that he stayed up all night to negotiate and was depressed over prospects – although he said he thought there was still a chance for a political agreement. 
  • The European Union wants a reduction based on 1.5 degree (C) in temperature but there has been significant discussion among delegates that this level of reduction is unworkable.

Scuttlebutt, protests and general chaos aside, where does that leave us? For the next two days, the COP is left to focus on the deadlock in the negotiations over payment to the developing countries and the level of emission target reductions. 

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Day 9: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Larry Demase.

It’s time to add a corollary to our earlier statement that it’s not just what you know and who you know but what you are called. Our corollary is that it’s also what kind of credentials you have.  The Bella Centre was a mob scene this morning and it turned away thousands of registrants. Still, for the 20,000 registrants who didn’t get in, it’s hard to say what they missed. 

The high level negotiations between countries have reached a critical point with various alliances being formed on a number of issues. Nonetheless, the possibility of a broad based agreement may be fading. Of course, things may change but the Kyoto Protocol parties (along with the United States) are likely to leave with an agreement to finish their work either at a June meeting or at the next annual U.N. conference in late 2010 in Mexico City.  

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Day 8: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Larry Demase.

After a relatively quiet weekend (in which we took a two-day blogging break), tempers flared as today was a day of protest at the COP.

First, observer-delegate protests. Protestors - including a group of activists dressed as polar bears urging the talks to “save the humans” - inside the Bella Center delayed registration and attendance: five thousand delegate hopefuls were queued up outside the Bella Center trying to get in at 2 p.m., most having waited in the weather since 7:30 a.m. this morning.

Then, party-delegate protests. For five hours today (Monday), just four days before world leaders are due to forge a deal in Copenhagen, African countries backed by 135 developing countries including China and India staged a boycott of negotiations claiming rich nations are trying to avoid new, legally binding promises by ditching the Kyoto Protocol; the boycott ended when rich nations assured the Africans they were willing to discuss Kyoto commitments However, precious time was lost – in a week where there was already no time to spare (see blog posts from last week re key negotiators’ lament for “more time”).

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Day 5: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Jennifer Smokelin.

Overtaking the position from American golf star Tiger Woods, “Copenhagen” (as in COP-15) is now the number one search query on the world’s leading internet search engine Google, according to Treehugger.com.  And the numbers continue to add up: 113 heads of state are scheduled to arrive next week, the most at any Conference of the Parties (COP).  There have been over 35,000 registrants for an event center that can only hold 15,000. By comparison, Kyoto, where the Protocol was agreed to, had 11,000 registrants. Now, in a move never seen before at a COP, the UNFCCC has resorted to implementing a secondary badge system to restrict access, mostly for non-governmental organizations, next week.  That certainly underscores the unprecedented convergence of public opinion and politics on this issue.

But will the COP be successful? That depends, of course, on how you define success. Todd Stern, the top US climate negotiator said “absolutely I think there is a deal to be done here”. But what are the terms? Let’s consider an easier question: are the negotiators making progress? At the early morning plenary COP/MOP (Meeting of the Parties), chairs of the key working groups KP and LCA put forth drafts that seemed at least to Executive Secretariat of the UNFCCC Yvo de Boer to set forth the beginnings of a framework for meaningful action.   Some experts state that the negotiations are precisely where they need to be before heads of state step in: all issues open but the choices sharpened. But Mr. de Boer admitted that now, going in to the weekend (not waiting until midweek), was the time to focus on the “big picture” items, e.g., whether the world should seek to keep global temperatures from rising beyond a ceiling of either 2.7 or 3.6 degrees Fahrenheit above pre-industrial levels and what countries should commit to with regard to short term and long term financial aid. On the latter issue, the European Union stepped up and pledged $3 billion in climate aid to poor countries. Let’s see the United States match that.

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Day 4: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post Is written by Jennifer Smokelin.

It’s Day 4 of the Conference of the Parties (COP) and there is still some confusion among non-governmental groups (NGOs) – and let’s hope not among the Parties – as to the differing responsibilities of the two working groups at the COP: the Ad Hoc Working Group on Long-Term Cooperative Action under the Climate Convention (AWG-LCA) and the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP) [see Day 2 post for details]. 

At today’s AWG-KP civil society briefing, a question from the floor asked how the AWG-KP working group was progressing with regard to the Nationally Appropriate Mitigation Actions (NAMAs) and certain financing issues.  After consultation with the KP committee chairs on the dais, Chair John Ashe (Antigua and Barbuda) carefully explained that the question from the floor got it wrong:  this was the briefing for the “good guys” - you know, the ones who have already made commitments - and that questions regarding NAMAs and financing were being discussed by the AWG-LCA (by implication, the not so good guys).  Care to take a guess where the United States falls? 

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Day 3: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post is written by Jennifer Smokelin.

As I think back on last evening’s buzz and today’s speeches, including remarks by USEPA Administrator Lisa Jackson at the Conference of the Parties (COP), the loud speaker system at the nearby United States’ pavilion blares an old Marvin Gaye song: “it takes two, baby. Me and you, just takes two.”  And one wonders whether the US delegation has resorted to delivering a subliminal musical message to industrialized countries (Annex I parties) and developing countries (Annex II parties) when it comes to greenhouse gas (GHG) emission reductions. 

Last evening and into today, much of the buzz at the Bella Centre in Copenhagen focused on a “Danish Text” for a political agreement on climate change. It’s been criticized as favoring industrialized countries by seeking to preserve their economic dominance. Another text believed to be drafted by China favored, not surprisingly, developing countries. The Chinese text, for example, made no mention of specific commitments by developing countries. Also weighing in today was Todd Stern, the top U.S. climate negotiator. He emphasized that any international climate change agreement must include commitments from developing, especially fast-growing, countries such as China. This takes us back to what we mentioned in our Day 1 posting, namely, that the four issues capturing the most attention in Copenhagen center on industrialized targets, commitments to and by developing countries, financing and the legal shape of the agreement.   So to address climate change in a meaningful way, just sing along: “To make a dream come true, it just takes two.”

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Day 2: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Jennifer Smokelin.

Here in Copenhagen, it’s not just what you know and who you know but what you are called. In addition to the government negotiating teams, the delegates are categorized by acronyms: BINGOs, RINGOs, ENGOs, YUNGOs, and several others. As delegates for the Environmental Markets Association, my colleague Larry Demase and I are BINGOs: Business and Industry Non-Governmental Organizations. (RINGOs are Research-oriented and Independent NGO, ENGOs are Environmental NGOs and YOUNGOs are Youth NGOs). In addition to observing the negotiations, these additional groups organize side events and daily briefings with negotiators to ensure that all key issues are considered and addressed in the climate negotiations.

And to follow the climate negotiations, there are a few more acronyms to learn. In 2007, the Conference of the Parties adopted the Bali Action Plan and Bali Roadmap. The key negotiating groups under the Bali Action Plan and Roadmap are the Ad Hoc Working Group on Long-Term Cooperative Action under the Climate Convention (AWG-LCA) and the Ad Hoc Working Group on Further Commitments for Annex I Parties under the Kyoto Protocol (AWG-KP). The names for both groups are fairly self-explanatory. The AWG-LCA focuses on long-term cooperation including mitigation, adaptation, finance and technology/capacity-building. The AWG-KP focuses on emission reductions by Annex I countries (i.e., developed countries) beyond 2012. The road for both of these groups is supposed to end with reports for the larger Conference of the Parties (COP-15) to consider in Copenhagen at the end of this week.

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USEPA Announces Greenhouse Gas Endangerment Finding

This post is written by Larry Demase.

In response to the decision of the United States Supreme Court in Massachusetts, et al. v. Environmental Protection Agency, et al, 127 S.Ct. 1938 (2007), yesterday USEPA announced its finding, long anticipated, that greenhouse gases threaten the public health and welfare of the American people. This so-called endangerment finding also includes USEPA’s decision that greenhouse gas emissions from on-road vehicles contribute to the threat to human health and the environment and purportedly supports USEPA’s proposed greenhouse gas standards for light duty vehicles. According to Administrator Lisa Jackson, the Agency’s endangerment finding is also intended to support its proposed rule requiring new or modified source of greenhouse gases to utilize “best available control technology” to control or reduce emissions of greenhouse gases. 

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Day 1: Report from Reed Smith Delegates in Copenhagen at the United Nations Climate Change Conference

This post was written by Jennifer Smokelin.

As you know, the United Nations climate conference began today in Copenhagen, Denmark. And Reed Smith is here. Actually it’s the 15th conference of its kind and it is properly known as Conference of the Parties or COP-15 under the United Nations Framework Convention on Climate Change (UNFCCC). COP-15 may not yield a new global climate treaty with every minor detail in place. But hopefully it will close with agreements on four political essentials, thereby creating some clarity the world – not least the financially struck business world – needs. Stay tuned to this site to find out, day by day, how close the parties some on these issues.

Four issues to follow are:

  1. How much are industrialized countries willing to reduce their emissions of greenhouse gases? 
  2. How much are major developing countries such as China and India willing to do to limit the growth of their emissions? 
  3. How is the help needed by developing countries to engage in reducing their  emissions and adapting to the impacts of climate change going to be financed?
  4. How is that money going to be managed?

As crowds of people arrive in Copenhagen, and amid an assortment of climate-related side events such as Hopenhagen Live, COP-15 opened today. Speakers focused on a lot of “C” words: how the conference marks the culmination of a two-year negotiating process to enhance international climate change cooperation, how countries and the negotiations must be constructive, and how there was hope for consensus. 

Much of the news for the day, it seems, was back in the United States. The U.S. Environmental Protection Agency (USEPA) announced its final endangerment finding that concludes greenhouse gas emissions endanger public health and welfare. The finding does not include any proposed regulations, but it will pave the way for several pending EPA rules. For example, USEPA will be able to finalize draft regulations to impose the first-ever federal tailpipe standards for greenhouse gases and to require the largest industrial sources to install the best available control technology to curb their emissions. EPA is expected to finalize both of those rules by March 2010.

The determination is expected to add to the Obama administration’s bargaining power in the absence of comprehensive U.S. energy and climate legislation. Also, President Obama shifted his visit to the Copenhagen talks from this week to the last day, indicating an increase in the administration’s commitment to, and hopes for, a successful outcome. The President also indicated that there appears to be an emerging consensus for developed nations to mobilize $10 billion a year by 2012 to support climate change adaptation and mitigation in developing countries.

Exclusive Reports by Reed Smith Delegates From the Climate Summit in Copenhagen Will Be Posted on This Blog Beginning on Monday, December 7.

 

From December 7-18, representatives from nations around the globe will gather in Copenhagen to discuss a global agreement on climate change. Denmark will act as host for this fifteenth Conference of the Parties (COP) under the United Nations’ Framework Convention on Climate Change (UNFCCC). Officially, the stated goal of COP15, according to United Nations organizers, is “to stabilize the amount of greenhouse gases in the atmosphere at a level that prevents dangerous man-made climate changes.” They add that “this stabilization must occur in such a way as to give the ecosystems the opportunity to adapt naturally” without compromising food safety or hindering sustainable social and economic development around the world. 

Reed Smith environmental attorneys will be attending the conference as delegates, along with a significant number of business and political leaders, and will post daily from the ground on issues including progress toward a post-Kyoto agreement, decisions regarding technology transfer to developing countries, the future of the Clean Development Mechanism, and UN Program on Reducing Emissions from Deforestation and Forest Degradation (REDD).

California Air Resources Board (CARB) Releases Preliminary Draft of Cap-and-Trade Regulations

This post was written by Rose Standifer.

California has moved one step closer to implementing a comprehensive cap-and-trade program for greenhouse gas (GHG) emissions. On Tuesday, November 24, 2009, the California Air Resources Board (CARB) released a preliminary draft of regulations for a GHG cap-and-trade program. The regulations are far from complete. Key components of the program, such as how to allocate emission allowances, have not yet been developed. CARB will be holding a public workshop to discuss the preliminary draft on Monday, December 14, 2009 and will be accepting comments on the preliminary draft through Monday, January 11, 2010. An updated draft will be issued in Spring 2010, with the goal of issuing final regulations in September 2010 and launching the cap-and-trade program on January 1, 2012.

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USEPA Publishes Final Mandatory Greenhouse Gas Reporting Rule

This post was written by David Wagner.

The final rule implementing USEPA's Mandatory Greenhouse Gas Reporting Program was published in the Federal Register on October 30, 2009, and the rule will become effective on December 29, 2009.  For more information and an analysis of the rule, please review our earlier posting.

UK's Carbon Reducation Commitment (CRC) News

This post was written by Tim Foster and Siobhan Hayes.

In earlier postings we have introduced the UK’s Carbon Reduction Commitment (“CRC”) which has been the subject of public consultation. The Government issued their policy decisions recently and a number of things will change when the Regulations come into force next April. To restate, headlines reporting the CRC was deferred were wide of the mark and the CRC will still start to apply in April 2010. To emphasise the impact of the CRC the first thing to note is that it will now be called the CRC Energy Efficiency Scheme. Energy efficient businesses are to be rewarded for their good behaviour. 

This is a note on the main changes we expect to see when the next draft of the Regulations is published towards the end of this year.

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USEPA Finalizes First Nationwide Mandatory Greenhouse Gas Reporting Requirements

This post was written by Rose Standifer and Jennifer Smokelin.

Mandatory reporting of greenhouse gases (GHG) is now required nationwide. On Tuesday, September 22, 2009, the U.S. Environmental Project Agency (EPA) issued its Final Mandatory Reporting of Greenhouse Gases Rule. The final rule requires mandatory reporting of GHG from most large GHG emissions sources in the United States. The stated purpose of the rule is to collect accurate and timely emissions data to inform future policy decisions. Reporting requirements begin on January 1, 2010. Initial reports, covering emissions during 2010, are due on March 31, 2011.

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CRC Performance League Tables for UK Businesses

This post was written by Siobhan Hayes and Tim Foster.

In earlier postings we have introduced the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (“CRC” )and have considered the impact for companies and groups and penalties for non-compliance .This is a note on the performance league tables that will rank all CRC participating organisations in terms of energy efficiency. The more efficient will receive bonus payments while the less efficient will be penalised, under a system of “revenue recycling”, which is explained below.

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CRC in the UK Hotels Sector

This post was written by Siobhan Hayes, Indeg Kerr and Tim Foster.

In earlier postings we have introduced the UK’s Carbon Reduction Commitment Energy Efficiency Scheme(CRC). This posting is a brief look at how the hotels sector will be affected by the CRC.

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CRC Penalties for UK Businesses

This post was written by Siobhan Hayes.

In earlier postings we introduced the UK’s carbon reduction commitment (CRC) and we have considered which companies need to comply. In this posting we are covering the penalties that UK businesses will face if they fail to comply with various reporting requirements and fail to buy and surrender carbon emission allowances by the relevant deadline.

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In the U.S., the House Passes The American Clean Energy and Security Act, First-Ever Congressional Bill To Address Climate Change

This post was written by Todd O. Maiden, Eric M. McLaughlin, and Amy E. Coren.

Despite heavy criticism from House Republicans and generally tepid support from House Democrats, the latest bill on climate change initiatives, H.R. 2454: The American Clean Energy and Security Act (ACESA), garnered just enough votes to move forward in the legislative process, passing 219 to 212. Having passed the House, the next stop for ACESA is the U.S. Senate for consideration.


Introduced by U.S. House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and House Energy and Environment Subcommittee Chairman Edward Markey (D-MA), H.R. 2454 calls for an economy-wide greenhouse gas (GHG) cap-and-trade system and various complementary GHG reduction measures, while also providing for federal investment in the areas of clean energy and energy efficiency programs, carbon capture and sequestration technologies, and the research and development of renewable technologies.
 

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Carbon Reduction Credit: What UK Businesses Need to Know Now

This post was written by Siobhan Hayes, Indeg Kerr, and Tim Foster.

In earlier postings we’ve introduced the UK’s Carbon Reduction Commitment (Energy Efficiency) Scheme (CRC). All UK businesses with half hourly meters were sent letters from the Environment Agency (EA) introducing them to the CRC and the obligations the business will face. However, please note that letters went to the billing addresses for each relevant meter. The EA states that it does not know which parent company will be responsible for compliance with the CRC and that applies across the whole of the business of the UK group (covered in a previous posting). It is possible that your organisation has received a letter but there may be complications: it could have gone to a person who no longer works at the company; may be overlooked; or may not reach the right level of management. Even without the initial EA letter getting to the right people, businesses in the UK need to be prepared.

This posting covers the information to be gathered for the qualification year of 2008 and some practical steps to prepare for CRC compliance.

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The Impact of the UK's Carbon Reduction Commitment on Groups and Subsidiaries

This post was written by Tim Foster and Siobhan Hayes.

In 2010 the Carbon Reduction Commitment Order will require many UK businesses to measure and report on their energy consumption, to buy allowances to cover their carbon emissions and to pay significant penalties if they do not comply. The CRC was summarised in a recent Reed Smith posting.

Unlike previous legislation affecting EU carbon emissions (the Emissions Trading Scheme) the CRC does not apply to specific installations or individual companies in relation to their own emissions. It applies to the whole of the organisation in the UK. For companies doing business in the UK that means that the CRC applies to the relevant UK group as a whole. If the UK group is owned by a parent incorporated overseas the parent will have compliance duties in respect of its UK subsidiaries.

The rules are not straightforward and involve a raft of potentially confusing definitions and terms to describe participating and responsible entities.   This posting covers the key points on who has to comply:

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Why UK Businesses Cannot Ignore the Carbon Reduction Commitment (CRC)

This post was written by Indeg Kerr, Siobhan Hayes and Tim Foster.

UK businesses need to know their carbon footprint because in 2010 the Carbon Reduction Commitment Order will apply. Since our CRC posting in December 2008, draft regulations have been published and are now subject to public consultation. This remains a scheme where businesses using a substantial amount of energy will have to report on their energy consumption, buy carbon allowances based on projected carbon emissions for each scheme year then surrender them at the end of each year when energy use is known. A league table will be published by the Environment Agency (EA) who will administer the scheme showing the relative energy efficiency of all those in the program. The best performing businesses will receive a refund of some of the costs of the allowances plus a bonus but the worst performing businesses will pay a penalty.

Some industries are high intensity energy users and already have to comply with the EU’s Emissions Trading System. The CRC scheme will capture lower intensity energy users who used a significant amount of electricity in 2008 and may include large offices, chains of retail outlets, hotels, banks, chains of restaurants as well as industry.
This posting outlines the types of business that may need to comply with the CRC scheme, the basic requirements of the program, some cost issues, and next steps to consider.
 

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Dodging the Bullet: Advice to Facilities Whose Emissions May Be Under the Reporting Threshold of USEPA's Proposed Mandatory GHG Inventory Reporting Regulations

This post is written by Jennifer Smokelin.

EPA is proposing a rule to require mandatory reporting of greenhouse gas (GHG) emissions in the United States (the "Proposed GHG Rule"). EPA is developing this rule in accordance with the FY2008 Consolidated Appropriations Act, which was signed into law in December 2007. The Proposed GHG Rule would require reporting of anthropogenic GHG emissions covered under the United Nations Framework Convention on Climate Change (UNFCCC).

Almost all the literature set forth by EPA and commentators under this proposed regulation carefully considers the question, "Who would report?" But an equally important question—about which there is far less discussion—is, "How do you establish that you don't have to report?"

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USEPA Sends GHG Endangerment Finding to the White House

This post was written by Jennifer Smokelin.

Last Friday, the U.S. Environmental Protection Agency found that climate-warming greenhouse gases, including carbon dioxide, pose a danger to human health and welfare, according to the New York Times. EPA sent its finding to the Office of Management and Budget for review. Once the budget office clears the finding, it can be signed by Lisa P. Jackson, EPA’s Administrator, Lisa P. Jackson. There is also likely to be a public comment period on the proposed finding, but likely none that will prevent the endangerment finding from being finalized.

EPA has been charged for decades with regulating air pollutants under the Clean Air Act and, as the Supreme Court recognized in Massachusetts v. EPA (2007), GHG emissions are air pollutants subject to Clean Air Act regulations. An endangerment determination would confirm the Agency’s power, but also its obligation, to regulate greenhouse gases now.

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USEPA Proposes Rule On Mandatory GHG Reporting

This post was written by Jennifer Smokelin and Larry Demase.

On Mar. 10, EPA announced a proposed rule in response to the FY2008 Consolidated Appropriations Act (H.R. 2764; Public Law 110–161) that requires mandatory reporting of greenhouse gas (GHG) emissions from large sources in the United States.  In general, EPA proposes that both upstream production facilities such as fuel suppliers and downstream emitting sourcess of GHG are to report. Emission sources include electric generators, manufacturers of vehicles and engines, food processors, lime production facilities and facilities that emit 25,000 metric tons or more per year of GHG emissions.  Annual reports to EPA are required.  The gases covered by the proposed rule are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE).  EPA is using its authority under the Clean Air Act to develop the rule and it states that the rule is relevant for determining  how to use Sections 111, 112 and 129 of the Clean Air Act  to establish standards for sources emitting GHGs.  EPA estimates that the expected cost to comply with the reporting requirements to the private sector would be $160 million for the first year.  In subsequent years, the annualized costs for the private sector would be $127 million. This rule will begin the process of shifting the focus of GHG regulation away from the states. 

The proposed rule will soon be published in the Federal Register under Docket ID No. EPA-HQ-OAR-2008-0508.  The proposed rule will be open for public comment for 60 days after publication in the Federal Register. Two public hearings will be held during the comment period.  Click here for a pre-publication copy of the proposed rule and preamble.
 

In the US, Federal Legislation on Cap and Trade: What to Expect

This post was written by Jennifer Smokelin.

 In President Obama's Feb. 24, 2009 address to Congress, he called on "Congress to send me legislation that places a market-based cap on carbon pollution." His address, coupled with the President's FY 2010 budget proposal, outlined the Administration's plans to develop a comprehensive energy and climate change plan to invest in clean energy, end our addiction to oil, address the global climate crisis, and create new American jobs that cannot be outsourced. After enactment of the budget, the Administration indicated it will work expeditiously with key stakeholders and the Congress to develop an economy-wide emissions reduction program to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020, and approximately 83 percent below 2005 levels by 2050. The Obama Administration anticipates that this program will be implemented through a cap-and-trade system, a policy approach that was used to regulate sulfur dioxide emissions and which significantly reduced acid rain at much lower costs than the traditional government regulations and mandates of the past. Through a 100 percent auction to ensure that the biggest polluters do not enjoy windfall profits, the government projects that this program would fund investments in a clean energy future totaling $150 billion over 10 years, starting in FY 2012. The balance of the auction revenues would be returned to public programs to assist families, communities, and businesses in the transition to a clean energy economy.

 Given this emphasis, we are likely looking at federal legislation this year in the form of a federal cap and trade program (although this may be delayed somewhat due to the economic crisis). Stay tuned to this blog for comments regarding what will it look like, what business opportunities to expect, and what you can do now to shape legislation.
 

USEPA to Reconsider Recent Interpretation on Carbon Dioxide Regulation

This post was written by Mark Mustian and David Wagner.

Only two months after issuing a memorandum interpreting which pollutants are covered (or not covered) by the federal Prevention of Significant Deterioration (PSD) Perrmit Program, EPA is reconsidering its approach.

On Dec. 18, 2008, Steve Johnson, the EPA Administrator under the previous administration, issued a memorandum that guided regulators on how to consider carbon dioxide emissions under the Prevention of Significant Deterioration (PSD) permitting program. The memo stated that EPA does not consider a pollutant (including carbon dioxide) to be "subject to regulation" until EPA has promulgated a regulation that requires emission controls. As a result, carbon dioxide would not be subject to emission limitations before a PSD permit was issued.

In a Feb. 17, 2009 letter to the Sierra Club, Lisa Jackson, EPA's new administrator, announced the Agency was opening up the memorandum for reconsideration and public comment. EPA specifically noted that the memo did not bind States issuing permits under their own authority, and that it should not be considered "the final word on the appropriate interpretation of Clean Air Act requirements". The letter added that the Agency will publish a notice of a proposed rulemaking on the matter in the near future.

 Click here for the original memo and Sierra Club letter.

A CAP-ital Idea: Business Opportunities for Covered Sources in a US Cap-and-Trade System

 This post was written by Jennifer Smokelin.

Is cap-and-trade likely in the new administration? President Obama's comprehensive New Energy for America plan supports implementation of an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent below 1990 levels by 2050. Details of the to-be-proposed cap-and-trade program are still fuzzy – but where do we look for clues as to the design of the system, which may be passed as early as 2010?

The answer is look to what has previously been the most successful piece of proposed legislation to garner support in Congress to date. The only greenhouse gas cap-and-trade bill that has ever been voted out of a congressional committee is the Lieberman-Warner Climate Security Act of 2007, proposed by Sens. Joe Lieberman, (I-Conn.), and John Warner, (R-Va.). The Senate bill failed to muster the required 60 votes to close off debate in June 2008 and was withdrawn, but it is sure to return in 2009 after a new administration and Congress take office. Thus, it is important to analyze the business opportunities proposed in this bill, as some are likely to be included in whatever national legislation inevitably is passed.
 

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California Air Resources Board Approves Climate Change Scoping Plan: Low Carbon Fuel Standard

This post was written by Katie Annand.

The Scoping Plan envisions reducing GHG emissions in the transportation sector through the use of a low carbon fuel standard (LCFS). The LCFS is an effort to lower the carbon intensity of fuels sold in California. The standard would require transportation fuel providers to ensure the fuels they sell meet a declining standard for GHG emissions in carbon dioxide equivalent per energy unit of fuel sold. The LCFS, an Discrete Early Action measure that will be up for consideration in March of 2009, will look at the full fuel cycle: from extraction, transportation, distillation, distribution and indirect land use. 

The plan estimates that the carbon intensity off transportation fuels in California will be reduced by close to ten percent by 2020. An additional effect will be an incentive to develop a diverse set of clean, low carbon transportation fuel options. 

The LCFS will incorporate market compliance mechanisms that provide flexibility to fuel providers. In other words, fuel providers who exceed the performance standards set by CARB will receive credits that they can trade. 

Click here to return to Scoping Plan overview.

California Air Resources Board Approves Climate Change Scoping Plan: California Cap and Trade Program

This post was written by Robert Dellenbach.

The California cap-and-trade program is a prominent component of the California Air Resources Board’s Climate Change Scoping Plan.

Highlights:

  • Caps on greenhouse gas emissions will be imposed beginning in 2012, and by 2015, 85 percent of California greenhouse gas producers will be subject to caps; these caps will decline over time to achieve 1990-level emissions by 2020
  • Tradable allowances will be distributed to producers, giving them the right to emit greenhouse gasses, up to their respective caps, for specific periods of time
  • By January 1, 2011, California regulators must finalize regulations for the system, including the mechanics of the market for trading allowances.
  • It has not yet been determined whether allowances initially will be granted, sold or auctioned – we expect many interests to weigh in before the final program is adopted
  • Development of this system will result in substantial cost and wealth transfers, requiring vigilance by affected businesses and offering a number of opportunities for entrepreneurs and opportunistic enterprises.
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California Air Resources Board Approves Climate Change Scoping Plan: Targeted Fees

This post was written by Katie Annand.

The Scoping Plan incorporates various targeted fees on GHG emission producing activities as part of the state’s comprehensive reduction strategy. The plan also considers potential uses for revenue raised by these fees and others. 

High Global Warming Potential Gases

  • One targeted fee in the Scoping Plan is a mitigation fee for high global warming potential (GWP) gases. The plan focuses on high GWP gases because they are relatively inexpensive, there is no incentive to develop alternatives, reduce leakage or recover these gases from old units. The plan anticipates that a mitigation fee would better reflect the impact of these gases on the environment, would promote alternatives to using these gases, and would improve removal and recycling of the gases. 
  • The high GWP gas fee would be variable and associated with the impact the chemical has on public health and on the environment. The fees would decrease as the manufacturer or producer redesigned the product or found alternatives.
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California Air Resources Board Approves Climate Change Scoping Plan: Transportation

This post was written by Thomas Quinlan.

Transportation-related GHG emissions are one of the key elements of the Scoping Plan as passenger vehicles account for almost 30 percent of California’s GHG emissions. CARB is pursuing a three-prong strategy in this sector: reduce GHG emissions from vehicles, reduce the carbon content of fuels, and reduce the miles vehicles travel. 

To meet these goals, the plan incorporates the following programs:

Light Duty Vehicles

  • Under the authority of AB 1493 (Pavley), CARB adopted vehicle standards that lowered GHG emissions beginning in 2009. These standards have not taken effect yet because of various legal challenges and delay by US Environmental Protection Agency (EPA). Implementation of the Pavely standards and a second, more stringent, phase of regulation is proposed in the Scoping Plan. 
  • CARB is also evaluating the use of “feebates,” which would combine a rebate program for low emitting vehicles with a fee program for high emitting vehicles. Feebates would be used either to complement the Pavley standards or to achieve similar goals if the Pavley standards do not take effect. 
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California Air Resources Board Approves Climate Change Scoping Plan: Renewable Portfolio Standard

This post was written by Steven Gasser.

The approved Scoping Plan revises California’s Renewable Portfolio Standard to achieve a 20 percent renewable energy mix statewide by 2010, and a 33 percent renewable energy mix by 2020. The plan defines renewable energy sources as wind, solar, geothermal, small hydroelectric, biomass, anaerobic digestion and landfill gas. The state currently is at a 12 percent renewable energy mix.

To achieve this goal, the Plan proposes the following:

  • Making significant investment in the transmission infrastructure to renewable resource zones. The Renewable Energy Transmission Initiative (RETI), a broad collaborative of state agencies, utilities, the environmental community, and renewable generation developers, will work to identify and prioritize renewable generation zones and associated transmission projects.
  • Implementing systems changes to allow integration of large quantities of intermittent wind and solar generation, e.g. grid improvements so that fluctuations in power availability can be accommodated; improved communications technology, automated demand response, electronic sub-station improvements to accommodate intermittent energy sources.
  • Reducing complexity and cost faced by small renewable developers (20 megawatt or less) in contracting with utilities to supply renewable generation. 
  • Requiring investor owned utilities to increase the share of renewables in their portfolios to 20 percent by 2010.
  • High Recycling / Zero Waste initiatives, which may also contribute to achieving the 33% goal through deployment of anaerobic digestion for production of fuel/energy.

Click here to return to Scoping Plan overview.

California Air Resources Board Approves Climate Change Scoping Plan: Energy Efficiency

This post was written by Sara Mo.

The approved Scoping Plan includes measures that expand and strengthen existing energy efficiency programs as well as building and appliance standards. 

The plan establishes new targets for statewide annual energy demand reductions of 32,000 gigawatt hours and 800 million therms from businesses. In addition, the plan sets forth the following energy efficiency strategies:

  • Cross-cutting Strategy for Buildings– Construction of “Zero Net Energy” buildings that regulate building energy use over the course of a typical year by reserving surplus energy to a grid and drawing from the grid when additional energy is needed;
  • Codes and Standards Strategies– More stringent building codes and appliance efficiency standards; broader standards for new types of appliances and for water efficiency; improved compliance and enforcement of existing standards; voluntary efficiency and green building targets beyond mandatory codes;
  • Strategies for Existing Buildings – Voluntary and mandatory whole-building retrofits for existing buildings; innovative financing to overcome first-cost and split incentives for energy efficiency on site, renewables and high efficiency distributed generation;
  • Existing and Improved Utility Programs – More aggressive utility programs to achieve long-term savings; and
  • Other Needed Strategies – Water system and water use efficiency and conservation measures; local government programs that lead by example and tap into local authority over planning, development, and code compliance; additional industrial and agricultural efficiency incentives; providing real time energy information technologies to help consumers conserve and optimize energy performance.

The Scoping Plan also promotes the use of solar water heating systems and builds on existing legislation, such as the Solar Water and Efficiency Act of 2007, which authorized a ten-year, $250 million incentive program for solar water heaters with a goal of promoting installation of 200,000 systems in California by 2017. In addition, the plan recommends developing combined heat and power systems rather than building new power plants or replacing existing ones.

The Scoping Plan accounts for other innovative approaches that may be used to motivate private investment in efficiency improvements. For example the cap and trade program [link to Cap and Trade], will provide incentives to pursue projects to reduce GHG emissions, such as the bundling of energy efficiency improvements for small businesses. California will also pursue comparable investment in energy efficiency from all retail providers of electricity in California, including both investor-owned and publicly owned utilities.

Click here to return to Scoping Plan overview.

California Air Resources Board Approves Climate Change Scoping Plan

This post was written by Katie Annand.

(This is the first post in a series of seven.  This overview post can be used to view selected issues within the Scoping Plan.  Please see bulleted list below.)

On December 11, 2008, the California Air Resources Board (CARB) approved the Scoping Plan for AB 32, the Global Warming Solutions Act of 2006. The Scoping Plan, which has been in draft form since June 2008, outlines California’s strategies for meeting AB 32’s ambitious mandate: reduction of California greenhouse gas (GHG) emissions to 1990 levels by 2020. The plan has the potential to be a model for other states’ – and the federal government’s – climate change strategies.

The measures in the plan are continuing to be developed by CARB and will be in place by 2012. For more information about specific focus areas discussed in the plan, click on the links above. For the complete Scoping Plan, click here.

 Key strategies addressed in the Scoping Plan include Emissions Reduction Measures. These measures take into account both existing policies and new proposals and focus on the following areas:

  • Energy Efficiency. Expanding and strengthening existing energy efficiency programs and raising efficiency standards. For more information, click here.
  • Renewable Energy. Achieving a statewide renewable energy mix, requiring 33 percent of the state’s electricity to come from renewable sources by 2020. For more information, click here.
  • Cap and Trade Programs. Establishing a broad-based California cap and trade program to provide finite limits on emissions. For more information, click here.
  • Transportation. Developing a wide range of programs and regulations to decrease GHG emissions from the transportation sector. For more information, click here.  
  • Fuel Standards. Adopting and implementing a low carbon fuel standard (LCFS) to reduce the carbon intensity of fuels sold in California. For more information, click here.
  • Targeted Fees. Creating targeted fees on GHG emission producing activities. For more information, click here.

Do You Know the Amount of Carbon Emitted by Your UK Business?

This post was written by Indeg L. Kerr and Siobhan Hayes.

Why you need to know now

In 2010 the top 5,000 or so companies in the UK will have to buy “allowances” to cover the carbon emissions of their group in the UK. The Government are setting up a Carbon Reduction Commitment (‘CRC’) Scheme. The Climate Change Act came into force last week containing just a broad outline of the Scheme. 

Draft Regulations with much needed details are to be published in February 2009 but consultation about the Scheme has already taken place so there are some things that we know big businesses need to start doing now and to prepare for emissions trading!

This client alert is aimed at those organisations who have not yet considered the CRC in relation to their UK business. It is a brief introduction. We can help you with more detailed information once the Regulations are available.

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New York Governor Approves Two Green Building Laws For Residential And State Structures

This post was written by Eric M. McLaughlin and Keisha M. Williams.

In late September, New York became the latest state to give the green light to “green building,” after Gov. David Paterson signed two bills introducing green building performance standards for construction and renovation of New York state government buildings, and a Grants Program for green residential builds. The new laws aim to encourage and incentivize the construction of energy-efficient, sustainable buildings, using recyclable and environmentally friendly materials, and are in line with the governor’s “15 x 15” plan to reduce energy use by 15 percent of expected levels by 2015. New York’s new laws highlight the fact that buildings account for nearly 40 percent of the nation’s greenhouse gas emissions and more than 70 percent of its electricity consumption, and that these impacts can be reduced by regulations governing design and construction.

The State Green Building Construction Act (A. 2005) (State Building Act) will require all new state-owned buildings, and substantial renovations of existing state-owned buildings, to comply with green construction principles set forth in standards to be developed by the Department of Environmental Conservation (DEC) and the New York State Energy Research and Development Authority (NYSERDA). State agencies will also be required to prepare annual building performance reports containing information on their green credentials, including energy consumption, waste reduction, and how indoor air quality compares with set benchmarks. The State Building Act takes effect 180 days after signature, on or about March 25, 2009.

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Congress Enacts Five-Year Extension of Tax Incentives for Green Buildings

This post was written by Ruth N. Holzman, James R. Eskilson, Todd O. Maiden, Eric M. McLaughlin, and Jennifer Smokelin.

There’s good news for commercial building owners who have wanted to “go green,” but have been waiting to see whether the tax incentives for green buildings, set to expire at the end of 2008, would be extended. The historic financial rescue bill (H.R. 1424), signed by President Bush on Friday, Oct. 3, 2008, also included the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (“TEAMTRA”). Among the tax-extenders in TEAMTRA was a five-year extension of the tax incentives for “green” commercial buildings.

Internal Revenue Code Section 179D gives owners of commercial real property a tax break by allowing them to deduct the cost of certain energy-efficient property. It applies to both new construction and to retrofits of existing construction. Prior to TEAMTRA, this tax break only applied to property placed in service on or prior to Dec. 31, 2008. With the extension of this provision to Dec. 31, 2013, property owners now have sufficient time to design, construct and complete projects that will qualify for this tax break. Although numerous bills had been introduced in Congress that would have raised the amount deductible under Section 179D, TEAMTRA did not contain any increase in this amount. The deduction is still limited to the product of $1.80 multiplied by the square footage of the building.

For a brief overview of the Section 179D deduction for “green” buildings, see “New Tax Incentives for ‘Green’ Buildings Have Owners Seeing Green,” in The Critical Path, Fall 2006; for a more detailed discussion, see "New Tax Incentives for 'Green' Buildings Have Owners Seeing Green," in the ABA's The Construction Lawyer, Summer 2007.

California PUC and Energy Commission Release Joint Proposed Opinion on Strategies for Reducing GHG Emissions

This post was written by Todd O. Maiden and Rose L. Standifer.

On Sept. 12, 2008, the California Public Utilities Commission ("CPUC") and the California Energy Commission ("CEC") released their joint proposed opinion on strategies to help reduce greenhouse gas ("GHG") emissions and meet the goals of AB 32, the California Global Warming Solutions Act of 2006. The Proposed Final Opinion on Greenhouse Gas Regulatory Strategies, prepared jointly by CPUC President Michael Peevey, and CEC Chairman Jackalyne Pfannenstiel and CEC Commissioner Jeffrey Byron, provides recommendations, and outlines a variety of options for the California Air Resources Board ("CARB") to consider in deciding how to design a program to achieve the GHG emission targets in the electricity sector. After public comments, the full CPUC and the full CEC will individually consider adopting the finalized opinion at their respective meetings Oct. 16, 2008.

An "Interim Opinion," adopted in March 2008 by the two Commissions, recommended aggressive regulatory measures that maximize energy efficiency and expand renewable energy development beyond the 20 percent goal, and consideration of a multi-sector cap-and-trade program to capture additional cost-effective reductions of GHG emissions. The Interim Opinion also recommended that the "deliverers" of electricity to the California grid would be responsible for complying with the AB 32 regulations.

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In the US, Vast Western Cap-and-Trade System Beginning to Take Shape

This post was written by Louis NaugleTodd O. Maiden, John Lynn Smith, Randall D. Morrison, Julia C. Butler, Lawrence Demase, and Jennifer Smokelin.

On the heels of the California Air Resources Board’s (“CARB”) release of its much-anticipated Climate Change Draft Scoping Plan in late June, the structure of both California’s developing cap-and-trade system and a broader western regional cap-and-trade system are coming together quickly.

On July 23, 2008, the CARB took another big step in releasing the in-depth appendices to the scoping plan, providing more detail about its cap-and-trade concept, as well as other regulatory measures. On the same day, the Western Climate Initiative (“WCI”), of which California is a member state, released the draft design of its regional cap-and-trade program.

The WCI is an international coalition comprised of member states and observer states. Currently, the member states include California, Arizona, New Mexico, Montana, Oregon, Utah and Washington. The Canadian Provinces that are also members include Manitoba, Quebec, British Columbia and Ontario. The observer states include at least 13 more states and/or provinces, encompassing the remainder of the Western United States, stretching as far east as Kansas, and also including many of the northern states of Mexico.

The new details of the WCI plan suggest that member states and organizations within those states should begin preparation for compliance with the regional cap-and-trade system. The draft design defines the scope of the system, including which greenhouse gases (“GHGs”) are covered, which emission sources are covered, and which types of facilities and companies are likely to have the compliance obligation. Many key issues are still to be determined over the next few years. Important details such as setting a regional cap, determining a distribution system for allowances, and defining a role for the use of offsets, are major provisions that will be finalized as the member states refine the plans within their own borders.

With the release of the draft scoping-plan and the appendices, California has demonstrated that it is prepared to take the lead, even among the member states of the WCI. California’s cap-and-trade system could cover up to 85 percent of the state’s emission sources by 2020. The broad design of the systems is generally known, including the concepts of a declining cap over time, the ability to buy and sell allowances to maintain optimal cost effectiveness, and the imposition of significant penalties for those organizations not in compliance. However, many details are not yet finalized, and the issue of how allowances will be distributed – whether they are to be distributed freely or as part of an auction system – is likely to be one of the most hotly debated topics over the coming months and years.

Comments on the WCI's draft design are due August 13, 2008, comments on the CARB's scoping plan are due August 1, 2008, and comments on the CARB's scoping plan appendices are due August 11, 2008.

Pennsylvania Climate Change Act

This post was written by Jennifer Smokelin, Lawrence Demase and Louis Naugle.

Global warming legislation was enacted for the first time in Pennsylvania July 10, when Gov. Ed Rendell signed the Pennsylvania Climate Change Act. The measure was overwhelmingly approved earlier this month by both houses of the Pennsylvania General Assembly.

A coal-rich state, Pennsylvania emits 1 percent of the world’s greenhouse gases responsible for global warming, more than the emissions of 105 developing countries combined. 

The Climate Change Act is immediately effective and will:

(1) Require the Pennsylvania Department of Environmental Protection to conduct an annual inventory of greenhouse gas emissions in all sectors, specifically but not limited to transportation, electricity generation, industrial, commercial, mineral and natural resources, production of alternative fuel, agricultural, and domestic sectors, and through such inventory, to establish a baseline of GHG emissions

(2) Require DEP, within 90 days of the Act’s effective date, to set up a voluntary registry for business and industry where they can track their GHG emissions and potentially get credit for voluntary GHG emission reductions

(3) Provide for an 18-member politically appointed stakeholder advisory group to DEP (the “Climate Change Advisory Committee” or “Committee”), that will work with DEP to develop a state plan (“Climate Change Action Plan”) to reduce GHG emissions, which is to be available within 15 months of the Act’s effective date

(4) Require DEP to report on potential climate change impacts and economic opportunities for the state within nine months of the Act’s effective date (revisions to be provided every three years thereafter)

(5) Require the Secretary of DEP to monitor the enactment of laws by the U.S. Congress to determine whether any federal law is more stringent than Pennsylvania law with regard to GHG inventory, registry or reporting requirements and, if so, to identify the affected entities, which must comply with the more stringent federal regulations through a notice in the Pennsylvania Bulletin.

California Releases Draft Scoping Plan for GHG Emissions Reduction

This post was written by Todd Maiden, Lawrence Demase, Jennifer Smokelin, Louis Naugle, and John Lynn Smith.

On June 26, 2008 the California Air Resources Board (“CARB”) released a draft of California’s scoping plan for the reduction of greenhouse gas (“GHG”) emissions. This was a major step towards the implementation of Assembly Bill (“AB”) 32, the California Global Warming Solutions Act of 2006. CARB will continue to solicit public input on the draft scoping plan until early October. A revised proposed scoping plan will be then released and will be considered by the CARB in November.

The draft plan calls for cutting greenhouse gas emissions to 1990 levels by the year 2020. While this is a 30% reduction from “business-as-usual” emission levels (the level that emissions would reach by 2020 without any attempts at reduction), it is only about a 10% reduction from today’s levels. The 2020 goal is not the end of the emission reduction effort. By 2050, California hopes to reduce emissions to 80% below 1990 levels. The reduction plan for 2020 will provide the framework for successful implementation of the long-term reduction plan.

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Federal Climate Change Legislation Blocked after Week-Long Senate Debate

This post was written by Todd O. MaidenLawrence A. DemaseJennifer SmokelinLouis A. Naugle, and John Lynn Smith

On June 6, 2008, U.S. Senate Majority Leader Harry Reid withdrew from consideration a bill that would have established a national “cap-and-trade” system, requiring industry to pay to emit carbon dioxide and the five other most abundant greenhouse gases (“GHGs”).  The Senate voted 48-36 in favor of the legislation, but Democratic proponents fell 12 votes short of the 60 votes needed to overcome a Republican filibuster.  Six senators absent from the debate, including presidential candidates John McCain and Barack Obama, sent letters indicating they would have voted for the bill, had they been present.

The bill, dubbed the Lieberman-Warner Climate Security Act of 2008, and championed by California Sen. Barbara Boxer, Chair of the Senate Environment and Public Works Committee, aimed to reduce total U.S. GHG emissions by about 66 percent of current levels by 2050.  In the coming decades, the Act – proposing the first cap-and-trade system to cover the electricity, industry, and transportation sectors – would have generated more than $5 trillion in government revenue, to be distributed to affected industries, consumers, and local governments.

Sen. Boxer remained optimistic about the chances of passing federal climate change legislation in the near future.  “It’s clear a majority of Congress wants to act,” she said, referring to the 54 senators who had demonstrated support.  She predicted that a new Congress and a new president would be more amenable to legislation mandating reductions in GHGs.

Other senators had harsher words for the bill’s opponents.  Sen. Robert Menendez (D-N.J.), a member of the Energy and Natural Resources Committee and Chairman of the Senate Foreign Relations subcommittee in charge of international environmental agreements, released a statement in which he charged that “The Republican ‘No’ Machine has reared its head again . . . prevent[ing] our nation from reducing the emissions that have caused the climate crisis and from investing in green technologies that can create jobs and spur the economy.”  Noting the bill was “not perfect,” he added that “every major movement starts with a first step, and that’s what this bill represented.”

Utilizing the same general approach as is being developed under California’s Global Warming Solutions Act of 2006, the bill would have created a national market in emission allowances and provided companies with financial incentives to reduce emissions.  The legislation would have allowed total U.S. GHG emissions to peak in 2012, and required subsequent reductions of about 2 percent per year until 2050.  Approximately 2,100 companies – mostly coal-fired power plants, oil refineries, natural gas processors, and factories – would have been required to purchase permits, or “allowances,” to emit GHGs.  Companies exceeding the target reductions would have been able sell or trade their allowances.  While many of the initial allowances would have been distributed at no charge, most would have been auctioned off.  The revenue from these auctions would have paid for cleaner technologies and rebates to poorer consumers to offset expected increases in energy prices.  The bill would have also established a Carbon Market Efficiency Board, which would have monitored progress and assisted companies in dealing with fluctuations in carbon prices.  In short, the bill was intended to incentivize GHG emission reductions while enabling the emitting parties to determine how they wish to accomplish those reductions.

Opponents, including the current Administration, viewed the bill as a tax on industry that would have increased energy prices, eliminated jobs, and made American businesses less competitive.  President Bush said the bill was “the wrong way to proceed,” and had threatened a veto if it were to pass in its current form.  He added that the bill “would impose roughly $6 trillion of new costs on the American economy.”  An Energy Information Administration study estimated that reducing greenhouse gases 45 to 55 percent by 2030 would slow economic growth by 0.2 percent to 0.6 percent of U.S. gross domestic product.  Because the electric power industry would account for more than 80 percent of the reductions, the study predicts that electricity prices could rise by 11 percent to 64 percent by 2030, and gasoline prices could rise by 22 to 49 cents over the same period.

San Francisco Bay Area Air District First in Nation to Impose Fees on GHG Emissions

This post was written by Todd O. Maiden, Lawrence A. Demase, Louis A. Naugle.

On May 22, 2008, the Bay Area Air Quality Management District (“BAAQMD”) became the first agency in the nation to impose fees on businesses that emit greenhouse gases (“GHGs”).  The new regulation, effective July 1, will require 2,500 businesses in nine Northern California counties to pay 4.4 cents for every metric ton of emitted carbon dioxide.  While the fees may amount to less than $1 per year for more than 1,500 small businesses, some companies that operate oil refineries, power plants and manufacturing facilities may pay between $50,000-$200,000.  The regulation will apply to any business holding a current BAAQMD permit that restricts emissions resulting in smog.  The new measure is anticipated to generate approximately $1.1 million in fees, which BAAQMD will use to track GHG emissions.

BAAQMD – California’s first regional agency dealing with air pollution – was created by the California Legislature in 1955.  The regional agency oversees air quality issues in all seven Bay Area counties – Alameda, Contra Costa, Marin, San Francisco, San Mateo, Santa Clara and Napa – and in portions of Solano and Sonoma Counties.

The new measure is intended to reduce emissions and impose an assessment to cover the ultimate costs of global warming upfront. However, the fees may be too modest to impact individual behavior.  Nevertheless, proponents hope the measure will set a precedent and provide a model framework for state and local agencies.

Critics argue the agency lacks the authority to impose these fees because the state has sole jurisdiction to monitor and regulate GHG emissions.  California has passed AB 32, the Global Warning Solutions Act of 2006, which requires that greenhouse emissions be reduced to 1990 levels by 2020, and further reduced to a level 80 percent below 1990 levels by 2050.  Critics also assert that the BAAQMD measure will interfere with state’s efforts because it will create uncertainty as to the controlling regulation, will undermine existing state programs, and may engender duplicative fees.

The measure may yet be subject to legal challenge. It could, for example, be subject to state or federal preemption, especially if other programs are adopted that either tax emissions or establish a cap-and-trade program.  On the other hand, a spokesman for the California Air Resources Board has reportedly suggested that requirements for future statewide programs could be superimposed over the local fee program, leaving it intact.  Although uncertainty exists about the future of the measure, the agency seized the initiative in a way that is likely to get the attention of state and federal agencies.

Greenhouse-Gas Cap and Trade in the US

This post was written by Jennifer Smokelin.

Will national GHG cap and trade hit this country? If so, when? Will the cap and trade system affect your client? And can your clients take advantage of trading in GHG cap and trade before then (IETA estimates predict an overall growth to 70 billion Euro next year in the global market for carbon, of which EU-ETS is 75 percent)?  The Lieberman-Warner Climate Security Act of 2007 (S.2191), which would establish a national cap-and-trade system to reduce U.S. greenhouse-gas emissions, is much less stringent than some other climate bills in Congress, but Lieberman-Warner is so far the only one to pass out of committee; it's scheduled for a Senate vote in June. It would become effective in 2012 and affect 80 percent of the GHG emitting sectors in the United States. Further, U.S.-based entities can benefit today from the carbon markets created by the Kyoto Protocol and the European Trading System (ETS), even though the United States has not ratified Kyoto. They can do so by investing in Clean Development Mechanism (CDM) projects in "non-Annex I" countries like Mexico, and then trading the resulting Certified Emissions Reductions (CERs) into the ETS at a current estimated value of $27 per ton CO2 equivalent. In addition, under Lieberman-Warner as passed out of committee, foreign-generated credits might be used to meet required allowances in the early years of the U.S. cap-and-trade program.

Plan to Regulate Airline Emissions Moves Forward in the E.U.

This post was written by Jennifer Smokelin.

The first reading report of the European Parliament (issued last November) to include airlines in the E.U.’s carbon trading scheme was approved by the members of the European Council, although in a scaled-back version. The Council’s proposal aims to start in 2012 (instead of 2011) and suggests emission levels should be capped at 100 percent of the average levels for the years 2004-2006 (thought by some to be 90 percent above 1990 levels). The degree to which permits will be issued free rather than auctioned remains to be determined. The plan still needs final approval of the European Parliament on second reading which will likely take most of 2008.

One Step Closer to National Greenhouse Gas Regulations

This post was written by Jennifer Smokelin.

Congress has directed the Environmental Protection Agency (EPA) to establish national mandatory reporting of greenhouse gas (GHG) emissions.  Congress inserted the requirement into the omnibus budget bill, HR 2764 (Public Law No. 110-161), which was signed into law last month.

Most observers assumed that a national GHG reporting program would be part of more comprehensive federal emissions trading legislation (e.g., the Lieberman-Warner Act).   Instead, the reporting mandate has been enacted before comprehensive climate legislation: Buried in the $500 billion omnibus budget package signed into law by President Bush last month is a provision that requires EPA to establish a mandatory program that will require U.S. companies by mid-2009 to report their GHG emissions. This leaves the EPA in the difficult position of having to develop a reporting program without knowing the details of the regulatory program it will ultimately be supporting, not to mention developing a program to work in harmony with the reporting requirements of other states, including California’s mandatory reporting regulation that became effective Dec. 6, 2007 (but it doesn't require the submission of reports, which would cover 2008 emissions, until 2009)!