Ohio Environmental Law Blog : Ohio Environmental Lawyer & Attorney : Joseph Koncelik : Frantz Ward Law Firm : Environmental Regulation, Land Use, Compliance : Cleveland, Ohio

Small businesses are deeply concerned with the economic impacts of the proposed cap-and-trade legislation currently pending in Congress.  Although small businesses will not be covered by the cap, if a price is placed on carbon, small businesses will feel the economic impact through energy price increases.  This is particularly true in the Midwest which is heavily reliant on carbon intensive coal power for its electricity generation.

With the hot national debate over cap-and-trade,  it is understandable that everyone is focused on the potential impacts of climate legislation on the economy.  However, I think this ignores the broader reality.  As discussed on this blog before there are other factors at work driving energy prices higher. (See, Cap and Trade: Job Killer or Call to Action for Coal States)  These include:

• A new program requiring control of mercury emissions from coal fired power plants
• Ever tightening federal ozone and fine particle pollution standards that will result in additional compliance costs for utilities
• A revamped cap-and-trade program for utilities in light of the Court decisions regarding the Clean Air Interstate Rule
• Potential tighter regulations on ash ponds and other utility wastes

If commodity prices rebound as a result of the economic recovery, price increases will be compounded.

For small businesses who are not prepared, high energy prices could force them out of business.

So, how can small businesses meet this threat through strategic action?  I would submit that any small business that is even moderately energy intensive should aggressively consider adopting energy efficient practices.

Today, the National Small Business Association released a report assessing the value of one practice, called "on-bill financing", that shows tremendous promise in reducing energy usage by small businesses.  According to the report, energy-efficiency programs such as on-bill financing can help the average small business save $4,932—and oftentimes more—every year on its energy bills.

On- Bill Financing- How it Works

Despite the benefits of energy efficiency projects, common barriers exist that prevent many businesses from implementing cost saving measures.  As detailed in the report, these include:

Cash flow: With tight margins and relatively small revenues, many small businesses find it challenging to undertake new capital investments, even if they will save money over time.  Fifty-two percent of small-business owners see cash flow as the primary barrier to investing in energy efficiency.

Up-front capital required: A typical energy-efficiency project might cost from $7,500 up to more than $20,000, with some projects costing a bit less and a few costing far more. 

Energy efficiency is only one priority among many: Small-business owners are heavily focused on the business at hand: managing inventory, maintaining payroll, providing health insurance, etc. They rarely have the time to focus on their energy bills, on energy-efficiency measures, or on their greenhouse gas emissions profile.

On-bill financing overcomes these barriers by: 1) identifying projects for the customer; and 2) providing up-front payment for the cost of the project and favorable repayment terms.

How are projects identified? Utilities identify businesses that may benefit from energy efficient project.  The utilities will use specialty trained contractors to perform an energy audit of the business to identify opportunities to reduce usage and save money.  The customers than elects whether to implement the project.  If the business implements the project it gets financed by the utility and repaid over time on the customers bill. 

The cost savings and the ability to reduce the impact of increasing energy prices are tremendously important to the vitality of small businesses.  There are also major environmental benefits as well. The report concludes that small business could collectively reduce greenhouse gas emissions by 259 million tons each year if they improved their energy efficiency by just 25 percent. 

A strong push for robust on-bill financing programs seems warranted. 

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The New York Times reported on the controversy surrounding the energy performance of LEED certified buildings.  Studies have shown that many LEED building receiving certification actually poorly perform when it comes to energy efficiency. 

The Article points to a federal building in Youngstown, Ohio which would have failed to obtain U.S. EPA's Energy Star rating even though it was LEED certified:

The building’s cooling system, a major gas guzzler, was one culprit. Another was its design: to get its LEED label, it racked up points for things like native landscaping rather than structural energy-saving features, according to a study by the General Services Administration, which owns the building.

As documented, the latest version of LEED starts taking a major step toward addressing these two major issues:

1. Energy Performance- Should all LEED building perform to a certain standard
2. Decertification-  Should LEED plaques be removed from buildings if they fail to demonstrate performance over the life of the building

My reaction is that perhaps there is too big of a focus on the energy performance of a building.  As mentioned in the article, the building actually achieved its LEED status by performing in other areas. 

So should a building that does all the following be deemed not worthy of "green" status:

• Redevelops a contaminated brownfield property
• Reduces water use by 50% from basic standards
• Uses waterless landscaping
• Uses solar panels for energy
• Recycled materials from the prior building
• Purchased regional construction materials
• Has a plan for tenants to utilize ride-sharing and public transportation
• Other non-energy related enhancements

Aren't there significant environmental benefits to a redevelopment project that achieves all of these objectives?  Perhaps we need a different certification for these projects- Leadership in Environmental Design (LED) projects. 

I see the argument that buildings (and the energy they use) are one of the largest sources of greenhouse gas emissions due to their electricity use.  How can you say there is leadership in energy design when buildings don't actually perform well when energy audits are performed?  

But I come back to the same point- there are multiple ways to have environmental benefit.  Perhaps there needs to be different certifications for buildings that don't perform as well from an energy usage perspective.  However, stripping buildings of their "green status" when they may have had a host of environmental benefits seems extreme.

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Ohio faces a two headed hydra when it comes to the impact of the proposed cap-and-trade bill in Congress- the American Clean Energy and Security Act of 2009 (ACES):

1. Ohio generates almost 90% of its energy from coal;
2. Manufacturing represents one the largest employment sectors in Ohio (ranking 3rd nationally with 1.1 million workers as of 2006)

These two factors combine to raise the stakes significantly if a price is placed on carbon as a result of the cap-and-trade ACES proposal.  Coal-fired power plants are the largest source of greenhouse gases (GHGs).  Any regulatory approach that puts a price on GHGs will result in higher energy prices. 

Most manufacturers are not even covered under ACES because only the largest industrial sources are capped (25,000 metric tons or more).  However, the secondary effect of ACES- rising energy prices-could mean significant job losses in the manufacturing sector which is heavy user of power 

Potential Job Loses from Cap-and-Trade

A report released last week by the National Association of Manufacturers (NAM) projected that Ohio could lose from 80,000 to 108,000 jobs by 2030 if ACES passes. The job losses are directly attributable to rising energy prices. The NAM cap-and-trade report projects the following increases in commodities or electricity:

• 26% increase in gasoline prices
• 60% increase in electricity prices
• 79% increase in natural gas prices

The 60% increase is actually conservative when compared to other studies.  Some have said total increases could be as high as 112% by 2030.  Such large price increases raise operating costs for many small and medium manufacturers.  Those cost increases will make many business unprofitable forcing them to close their doors, so the argument goes.

Is this really a complete analysis? Also, is opposition to ACES really the correct strategy?

A Call to Action- Diversity in Generation Key for Coal Dependent States

Based on my last two posts you may be expecting me argue that growth in green jobs attributable renewable energy development will significantly offset the manufacturing job loses.  For example, in 2008 there was a 70% increase in wind turbine related jobs nationally. 

While green jobs are important, a more fundamental issue presents itself- When it comes to preserving manufacturing jobs, reliance on coal power is unsustainable. 

The cost of energy produced from coal is going to dramatically increase regardless of whether climate change legislation passes.  A complex web of regulatory forces are at work driving coal energy prices higher over the next decade and into the future.  A honest assessment of these factors should serve as call to action- diversification.

An honest assessment of the forces at play demonstrates that coal reliant states are fighting a losing battle against energy price increases.  States must diversify their generation portfolios in order to become less sensitive to these forthcoming price shocks.  This means development of biomass, nuclear, wind, solar and other forms of electric generation.   

Analysis of Five Factors Driving Future Coal Power Energy Prices Higher

1. New Source Review Enforcement Cases
2. The fix for the Clean Air Interstate Rule or Multi-Pollutant Legislation 
3. Mercury controls
4. Ever tightening ozone and fine particle federal air standards (NAAQS)
5. Massachusetts v. U.S. = regulation of greenhouse gases in some fashion

New Source Review (NSR) Enforcement Cases

Manufacturers and other businesses in the Ohio and throughout the Midwest have yet to see the full impact of the NSR enforcement cases on the price of energy.  The settlement with American Electric Power impacts sixteen (16) coal plants and is estimated to cost $4.6 billion.  Ohio Edison, subsidiary of FirstEnergy Corp., settled its NSR case in 2005.   The settlement is projected to cost $1.1 billion to retrofit the Sammis Station.  The litigation has yet to fully conclude in the Duke Energy case and while the verdict was mixed, the case will still result in significant compliance costs. 

Also, a New Source Review regulatory fix seems unrealistic in the near term.  Therefore, future projects that could improve plant efficiency may be avoided out of fear of triggering NSR.

Bottom line:  Billions in new compliance costs for coal fired power plants over the next several years and an uncertain regulatory structure.

CAIR or Multi-Pollutant Legislation

The Clean Air Interstate Rule (CAIR) was a cap-and-trade regulation directed at coal-fired power plant emission of SO2 and NOx.  On July 11, 2008, a federal court found CAIR to be inconsistent with the Clean Air Act.  While the rule remains in place while U.S. EPA develops a fix, U.S. EPA has put a CAIR-fix on the fast track.   It is uncertain what the "new-CAIR" program will look like, but there is little doubt it will result in a more expensive regulation. 

As an alternative to CAIR,  members of Congress have proposed multi-pollutant cap-and-trade legislation for coal fired power plants.  Regardless of whether CAIR remains as regulatory based or converts to legislation the consensus among Democrats was the Bush Administration rule did not require steep enough cuts from coal-fired power plants. 

Bottom line:  Either the CAIR fix or multi-pollutant legislation will raise compliance costs for coal-fired utilities

Mercury Controls

Based upon cost concerns, the Bush Administration rejected facility specific regulation of mercury emissions from coal-fired power plants.  Instead, the Administration proposed a new cap-and-trade program called the Clean Air Mercury Rule (CAMR).  A federal court ruled that mercury as a pollutant could not be regulated through a cap-and-trade mechanism.  On February 6, 2009, the Department of Justice (on behalf of the Obama Administration) dismissed its appeal to the U.S. Supreme Court.  U.S. EPA is currently developing regulations under Section 112 of the Clean Air Act that will require every coal-fired power plant to control mercury emissions.  

Bottom line:  All facilities may be required to reduce mercury emissions through carbon absorption or implementation of other technologies.  Under CAMR, utilities were hoping to avoid controls on some of the older less efficient plants.  The rejection of CAMR will drive compliance costs higher.

Ozone and Fine Particle Air Quality Standards

Coal-fired power plant contribute roughly one-third (1/3) of ozone causing pollutants and particulate matter pollution.  As U.S. EPA tightens the ozone and fine particle National Ambient Air Quality Standards (NAAQS), coal-fired power plants will remain a major target of tighter regulation. 

Bottom line:  States pass new regulations to meet tighter federal air quality standards.  There is lag time between development of new federal standards and implementation of these new state regulations.  States will be forced to contemplate even stricter regulation of coal-fired power plants as a result of tighter federal standards.

Massachusetts v. EPA-  Greenhouse Regulation is Inevitable

In 2007, the U.S. Supreme Court declared CO2 and other greenhouse gases a "pollutant" under the Clean Air Act.  This landmark decision has set in motion a series of proposed actions by U.S. EPA to regulate greenhouse gases under the existing framework of the Clean Air Act. Regulation under the Act will be much more costly than the proposed cap-and-trade legislation. 

Bottom line:  The debate cannot be framed as pass cap-and-trade or have no climate change regulations.  Regulation is inevitable and most agree cap-and-trade is much more cost effective than regulation under the Clean Air Act.

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I was asked by a reader (Associate Law Professor at UT) to provide a free advertisement about a fellowship program for lawyers interested in teaching energy law.  I don't put advertisements on  my blog, but I thought this may be an interesting opportunity for some of my readers.  The information below was provided by my reader.

The University of Texas School of Law is seeking applicants for an energy law fellowship. Fellows will be jointly affiliated with the Law School’s Emerging Scholars Program and the Robert S. Strauss Center for International Security and Law. Fellows do not need to have a specific interest in security issues.

The Emerging Scholars Program offers two-year fellowship to help attorneys prepare for tenure-track faculty positions in U.S. law schools. The Program is designed to give talented attorneys the chance to develop a scholarly agenda and publish one or more articles in preparation for the academic job market. Fellows will be full participants in the rich intellectual life of the Law School, and will receive substantial faculty assistance with their projects.

(see the extended entry for more information)

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During Governor Strickland's State of the State he made the "no new taxes" pledge.  However, the Governor did mention that to balance the budget he will propose "new fees, fines and penalties."  No specifics were provided, however, now that details are beginning to take shape the Governor Strickland has been criticized for his roll out of the nearly 120 fee increases.

While there are more significant fee increases on vehicle registration and other health care related services, this being an environmental blog, I will focus on the new ODNR and Ohio EPA fee increases.  As discussed below, it is going to be more costly for businesses (and residents) to get rid of their waste.  This should create even a greater incentive for businesses to look at their practices and see if there are ways to reduce the amount of waste that has to be disposed of in solid waste landfills.   This could be through process changes that reduce the amount of waste generated or it could be recycling/re-use of waste materials generated.

However, the ability to recycle or re-use solid waste generated as part of business operations is dependent upon Ohio EPA's beneficial re-use rules.  Unfortunately, those rules have not come forward which makes it more difficult for businesses to evaluate their options.  While the fee increases may push evaluation of "greener" alternatives to disposal, businesses face uncertainty as long as clear re-use standards are not established.

Here is a link to a spreadsheet put together by the Ohio Office of Budget Management which shows all the fee increases and the projected revenue (which reaches over $1 billion dollars). Here is a breakdown of the proposed fee increases as it relates to the environment:

Municipal Solid Waste (MSW)
While I was at Ohio EPA, the agency moved from general revenue (GRF) to fees to pay for its programs.  The municipal solid waste tipping fee was chosen because it was a broad based fee that touches residents and businesses.  Due to its broad based application, the Agency could use the funding to support various programs outside of the Division of Solid and Infectious Waste.  Sort of like a tax...right.

The proposed state budget will build upon past fee increases and further increase the MSW tipping fee by $1.25 a ton. This will bring the MSW tipping fee from $3.50 a ton to $4.75 a ton. Of the proposed $1.25 increase,  Twenty-five cents would go to ODNR for the Soil and Water Conservation Districts. The remaining $1.00 will go to Ohio EPA to support various programs.

Construction and Demolition Debris (CDD)
The proposed budget will increase the CDD tipping fee by $2.70 a ton. This will bring the CDD tipping fee from $1.70 a ton to $4.40 a ton. This amounts to an 60% increase in the fees for CDD.  The $2.70 increase would be divided as follows:  $2.25 will go to ODNR for the Soil and Water Conservation Districts and .45 will got to Ohio EPA for operation costs throughout the agency.

Green building practices under the U.S. Green Building Council's LEED program award points for recycling and reuse of construction waste.  With this significant fee increase contractors and project owners should seriously contemplate recycling this material versus disposal even if they are not working on a green building project.

New E-Check Fee
Ohio EPA has proposed an increasing the fee for purchasing new tires by $2.30 per tire.  This fee is projected to generated $15 million in new revenue.  The previous tire fee was used to pay for programs to eliminate tire dumps around the State.  This has been one of the greatest success stories in Ohio.  This increase would be devoted to an entirely new purpose-paying for Ohio's automobile emission testing program (E-check).

Energy Extraction Fees

ODNR for its part has proposed a new fee on oil, coal and natural gas extraction.  Together these fees are projected to generate over $7 million in new revenue.  The energy extraction fees have not been warmly received by industry who argue that raising costs on these energy related resources will simply result in increased costs for individuals and businesses around the state.  

As fees go up for use of resources and disposal of waste, businesses have further incentive to examine green alternatives.  This could be improved energy efficiency. establishment of a co-gen facility that could reduce electric fees, recycling, and reduction of waste streams.

(Photo:D'Arcy Norman/everystockphoto.com)

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