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

Today, U.S. EPA announced it has officially thrown out the .075 ppm ozone standard proposed in 2008 by the Bush Administration.  The Bush proposal would have reduced the standard from .08 ppm to .075 ppm.  Now the EPA is proposing to set a new revised ozone standard somewhere between .06 ppm to .07 ppm.  This from the Washington Post regarding the proposed new ozone standard:

Ozone standards have been the center of a political and legal battle since the spring of 2008, when the EPA set a looser limit than what its own scientific advisers had suggested and President Bush himself intervened to scale back the agency's proposal at the last minute. The new proposal mirrors what EPA's Clean Air Scientific Advisory Committee unanimously recommended in 2007.

What are the implications for Ohio?  To say they are significant would be a gross understatement.  The following chart from Ohio EPA demonstrates that significant progress has been made in reducing ozone levels in the State.

 However, it becomes more and more difficult to achieve standards as they become more stringent.  Many businesses have already been squeezed hard to reduce their emissions.  The cost to achieve additional reductions will be greater. 

Ohio has been able to redesignate much of the state into attainment with the old .08 ppm standard.  Even Cleveland, the highest ozone levels in the State, was able to achieve the standard barely in time and was redesignated. 

As discussed above, the Bush Administration had previously proposed lowering that standard to .075 ppm. Based upon recent ozone data for major cities, this standard was going to be difficult to achieve.  The chart below show Cleveland monitors just came barely below the .084 ppm standard required to demonstrate compliance.  (EPA allow up to .084 ppm to meet the old standard.  Also note, the chart is in parts per billion).  Cincinnati and Columbus also barely achieved the old standard.

Achieving the .075 ppm standard would be very difficult based upon this data.  However, now comes the news today that EPA has elected to throw out the .075 ppm standard established by the Bush Administration as inconsistent with the scientific recommendations provided to EPA.   This from EPA's press release:

In September 2009 Administrator Jackson announced that EPA would reconsider the existing ozone standards, set at 0.075 ppm in March 2008. As part of its reconsideration, EPA conducted a review of the science that guided the 2008 decision, including more than 1,700 scientific studies and public comments from the 2008 rulemaking process. EPA also reviewed the findings of the independent Clean Air Scientific Advisory Committee, which recommended standards in the ranges proposed today.

Today's announcement indicates the standard will be set some where between .06 to .07 ppm.  What are the implications of the high end of that spectrum, .07 ppm standard, on Ohio? 

• Under the .075 ppm standard 23 out of Ohio EPA's 49 air monitors show non-attainment
• Under the .07 ppm standard 49 out of 49 monitors show non-attainment

Designations could happen this fall, which means virtually every county that touches any major metropolitan area (Toledo, Columbus, Cleveland, Akron, Canton and Youngstown) will be designated non-attainment.  EPA estimates 32 Ohio counties would be out of compliance with the .07 ppm standard.  Non-attainment designations brings with it restrictions on new or expanding businesses.  It also brings with it more stringent air pollution control requirements. 

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The past two days I have been in Houston at the Environmental Markets Association (EMA) fall conference.  If you are not familiar with the EMA, it is an organization that supports the use of market-based solutions to environmental issues.  The members are largely made up of consultants, traders of environmental credits and project developers. 

Many of the members were on the ground floor when the first cap and trade programs were implemented in the 90's regarding acid rain.  The also participated in the two cap and trade programs on utilities that followed acid rain- NOx SIP call and CAIR. 

Finally, there is also expertise in the burgeoning carbon markets.  Whether that involves the "voluntary markets" in the U.S., state mandatory programs like RGGI in the east, or the international cap and trade program in the European Union.

Bottom line, these folks have the expertise in trading various environmental credits under a wide range of programs.  They have seen what has worked (acid rain) and what hasn't worked (collapse of the CAIR program). 

The big topic of course is the Waxman-Markey and Kerry-Boxer bills pending in Congress.  There was a lot of discussion regarding the various elements of these bills.  From the various perspectives offered over the last few days I draw the following perspectives regarding the drive for a federal CO2 cap and trade program in the U.S.:

• Complexity- Many expressed concern that the Waxman-Markey Bill is overly complex.  That instead of focusing on setting up a core program- namely putting a price on carbon-the bill tries to dictate the minutia around the program.  The more complex the program the more difficult it is to operate.
• Offsets- Many concentrated on the debate over the domestic and international offset programs.  There appeared to be consensus that an offset program was absolutely key to bringing down the cost of compliance.  The concern expressed was that both Waxman-Markey and Boxer-Kerry put too many conditions on the offset program.  These include limiting how many offsets each company can use for compliance.  What types of offsets will qualify.  How quickly EPA can certify the verification procedures for creating offsets. 
• Stabenow-Baucus Offsets Bill- This bill is seen as a mechanism to clean up what is wrong with the offset programs established in the other bills.  A lot of hope was being placed on this being the vehicle to correct the problems.
• EPA Preclusion-  While not receiving a lot of attention, a huge difference between the House and Senate bills is whether EPA is precluded from regulating greenhouse gases under the Clean Air Act.  House says EPA is precluded, Senate does not.  As I have discussed on in prior posts, this is a huge issue.  In fact, one of the main reasons to set up a cap and trade program is to pre-empt EPA from establishing an unworkable command and control program under the Clean Air Act.
• Stability Reserve-  This is the concept of trying to address carbon prices getting to high after the program is established.  Rather than simply placing a cap on prices, both bills create the concept of a reserve of allowances that could be released if prices get to high.  This is not a cap, if the trigger is met it allows future allowances to be auctioned off.   EPA is supposed to take the proceeds from the auctions and purchase offsets to make the impact of releasing more allowance neutral.  The concern on the stability reserves were: 1) the triggers to tap into the reserve and whether it really can control prices from getting too high; and 2)  what happens if not enough offsets are available for EPA to purchase because all the limitations placed on which types of offset qualify.
• Verification Procedures for Offsets-  The Senate would require notice and comment on every offset project which was seen as overly cumbersome.  The House allows pre-compliance offset credits to qualify for only 2009-2012. Also, projects must meet either a state verification procedure or one deemed by EPA as stringent as a state verification procedure.  The short duration of pre-compliance offset projects was concerning because it may severely limit available offset credits after 2012.  The limitations on verification procedures could disqualify many projects that went through non-state certified verification procedures. 

Many more observations and comments were made.  I certainly learned a lot from the experts who work have been working in environmental markets since the 1990's.  Their expertise certainly should carry a lot of weight with Congress.  Otherwise, we risk have politicians set up a program that is doomed to failure from the start.

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The Federal Court of Appeals (2nd Circuit) issued a major decision in the ever growing debate regarding action on climate change.  The court is allowing states to proceed with a suit against power companies that calls for a court order to reduce emissions of greenhouse gases which  contribute to global warming.

Eight states (California, Connecticut, Iowa, New Jersey, New York, Rhode Island, Vermont and Wisconsin), New York City and three land trust organization had filed a suit alleging major power plants caused a nuisance by emitting greenhouse gases that contribute to climate change.  The Appeal Court decision follows a lower court which dismissed the case on an interesting rule of law- the "political question doctrine."  In essence the lower court found the nuisance claim to raise a very complicated political question that was best left to the Executive and Legislative branches of government.  That questions was the balance between:

1) Reducing greenhouse gases to eliminate or mitigate societal impacts that flow from climate change

- versus-

2) The negative impact on the economy caused by the regulations and the societal impacts that would result

The Appeals Court ruled that the States did not need to wait for Congress to act by passing legislation.  The Court also ruled that EPA's authority to regulate greenhouse gases under the Clean Air Act does not displace nuisance claims.  The Court noted that the mere issuance of a proposed endangerment finding by EPA was not enough to displace judicial relief under federal common law nuisance theories.

Other significant findings in the Appeals Court decision include:

• The Court found the States are experiencing current "injury in fact" due to impacts from climate change, including melting California snow pack and erosion on the Massachusetts shoreline
• Emitters of greenhouse gases face potential nuisance liability by contributing to climate change.  The Court rejected the notion there must be a direct causation between the sources of emissions and global warming.

The decision will certainly increase pressure on those who have resisted passage of climate change legislation.  Those who stand in the way of legislation must face the prospect of either: a) EPA regulations under the Clean Air Act; or b) Court ordered caps on emissions through multiple nuisance claims.  Either result would be far worse that the legislative option.  Both would result in even more complex regulatory schemes, less certainty and more regulation of smaller sources.

Perhaps there will be a renewed sense of urgency to pass climate change legislation.  American Electric Power, one of the utilities sued, was quoted in the N.Y. Times asserting the need for climate change legislation: 

At American Electric Power, Pat D. Hemlepp, a spokesman, said the company’s lawyers had not decided whether to appeal. But he added: “We don’t feel that litigation is a proper avenue to address climate concerns. In our view, it’s a policy issue.”

“Legislation would be the best approach, and that’s happening now,” Mr. Hemlepp said, referring to a bill that has passed the House and that the Senate may take up this year. 

UPDATE 9/24/09:  Another wrinkle that I did not discuss regarding this decision is that it will open up the floodgates of climate change litgation.   As appropriately acknowledged on Stoel Rives LLP Renewable + Law Blog, private parties now have been recognized to have standing to bring federal nuisance claims:

The court recognized that the Supreme Court had never addressed this question, but concluded that private parties should be able to proceed with federal nuisance claims related to climate change when they invoke an overriding federal interest or federalism concerns. By holding that private parties can bring federal nuisance suits and by recognizing that climate change is of overriding federal interest, the court potentially cleared the way for federal lawsuits against all types of companies that emit material levels of greenhouse gases.

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The Obama Administration announced it would review the revised ozone standard of .75 ppb that was previously established by the Bush Administration.   The Obama Administration has said if they decide to revise the ozone standard below .75 ppb they will announce it by December of 2009 and finalize the standard by August 2010. 

As reported in the article, other actions make it appear almost certain that U.S. EPA will revise the standard lower. 

The Justice Department, in a brief filed Wednesday in a federal appeals court, went further, saying that the EPA believes the revision made by the Bush administration does not adhere to federal air pollution law. The brief is part of a lawsuit by environmental groups against the Bush-era rule.

The news of a much tighter ozone standard follows great news for Northeast Ohio that it had achieved the original 8-hour standard of .85 ppb (see, Improving Air Quality Great News for Cleveland Business)  This past week U.S. EPA announced it was granting Ohio's request to redesignate Northeast Ohio Counties (Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Medina, Portage and Summit) attainment . 

An "attainment" status has significant benefits to a community trying to re-build its economy.   It is much easier for businesses looking to relocate or expand to obtain the air permits they will need. Unfortunately, if the standard is reset to something like .70 ppb, Northeast Ohio brief attainment window will close and it will be facing a tremendous obstacle to see an "attainment" status anytime in the near future. 

The above chart is the monitoring data from Ohio EPA's air pollution control plan submitted to U.S. EPA.  It shows the Ashtabula monitor is averaging 84.3 ppb, just slightly below the .85 ppb current standard.  But very, very far away from a possible .70 ppb.  As the Ashtabula monitor goes, so does all the counties in Northeast Ohio.  All eight counties will be in non-attainment if the Ashtabula monitor is not below .70 ppb.

Rather than focus on the economic costs of a revised standard or the difficulty of obtaining that standard, the Cleveland Plain Dealer focused on the future of E-check:

But it doesn't mean that you won't have to E-check your car anymore. Ohio has renewed its contract with Envirotest Systems to conduct the unpopular - though free to drivers - emission tests through June 2011.
 

Such a limited focus fails to recognize the wider implications of the tighter ozone standard.  Businesses that are located outside "non-attainment counties" should pay attention as well. In what has become a re-occurring theme on this blog, tighter ozone standards will have a dramatic impact on the cost of electricity for coal dependent states. 

Roughly 1/3 of all ozone causing pollutants are attributable to coal-fired power plants.  In fact, the progress in achieving the old standard was in large part attributable to federal control programs requiring reductions of these pollutants (NOx SIP Call and CAIR).  To achieve much tighter ozone standards, U.S. EPA will be forced once again to look to tightening emission requirements for coal plants.  Tighter emission requirements translates to higher compliance costs passed on to utility customers.

Ohio really needs to focusing intently on diversifying its energy portfolio to mitigate these increases.  Otherwise, businesses will be looking toward escalating operating costs making Ohio businesses non-competitive.  If you are a business who has opportunities to generate your own power, it would be a strategic advantage to give serious consideration to those plans.

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More rumblings that EPA may move forward with regulation of greenhouse gases under its existing authority under the Clean Air Act.  It appears EPA has started to rattle its saber in an effort to re-energize the cap-and-trade proposal currently in the Senate.

The San Francisco Chronicle reported that Administrator Lisa Jackson said the "endangerment finding" would be issued in the next few  months.  Here are a few of her key comments:

"Legislation is so important, because it will combine the most efficient, most economy-wide, least costly (and) least disruptive way to deal with carbon dioxide pollution," Jackson said. "We get further faster without top-down regulation."

But Jackson insisted the EPA would continue on a path that began when the Supreme Court ruled in 2007 that greenhouse gases qualified as pollutants and could be regulated if the government determined they threatened the public.

"Two years is a long time for this country to wait for us to respond to the Supreme Court's ruling," Jackson said.

An "Endangerment Finding" is a prerequisite to regulation of greenhouse gases under the Clean Air Act.  In Massachusetts v. EPA, the Supreme Court held that the Administrator must determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision.

On April 17, 2009, the EPA issued its proposed positive "Endangerment Finding" and now the public comment period has closed.  This means the EPA could move forward with a final rulemaking at any time.

As Administrator Jackson's comments make clear, the Obama Administration's preferred course of action is passage of cap-and-trade legislation- the American Clean Energy and Security Act of 2009 (ACES).  However, it appears momentum behind the legislation has waned in the Senate. 

Some business groups and politicians may see EPA's comments as only bluffing.  That would be a grave mistake.  There is no doubt from the comments made by the Obama Administration the Agency will proceed with regulation under the Clean Air Act very soon if the prospects on legislation dim.  Key members of the Obama Administration not only believe action must be taken regarding climate change, they also believe the Supreme Court made it legally required. 

Furthermore, those who believe EPA regulations pertaining to climate change can simply be overturned, should read the Supreme Court's decision in Massachusetts v. EPA.  The highest court in the land has left little room for a legal determination that climate change is a hoax or not worthy of regulation.

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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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Representatives Waxman and Markey released their much anticipated re-write of their proposed cap and trade climate legislation earlier this week. Much speculation has been offered in the media that the bill had no chance of passing as it was originally structured, if it had any chance at all. 

Well, there has apparently been a lot of horse trading going on to shore up Democratic support for the bill.  Most notably, President Obama's proposal to have 100% auction of allowances (pollution permits) has been completely tossed out.   The revised legislation allocates that majority of allowances to industry. 

The majority staff provided a summary of the American Clean Energy and Security Act of 2009 (ACES Act) to the Committee.  While the summary is helpful to get an overview of this complex bill, I thought one of the most interesting statements appears in the introduction to the summary appearing on the first page:

In the past two and half years, the Committee has held dozens of hearings on energy and climate change policy and has built a detailed factual record on the need for legislation in this area.  The nation's dependence on foreign oil has significantly increased over the last decade.  Consumers have faced increasing and volatile energy prices.  Other countries have overtaken us in the manufacture of wind and solar energy.  Energy company investments are paralyzed because of uncertainty about what policies the Congress will establish.  Meanwhile, global warming has increased unchecked.

Let's rank the staff's reasons for passing climate change legislation:

1. Reduce dependence on foreign oil
2. Volatile energy prices
3. Increase production of renewable energy
4. Regulatory certainty
5. Global warming

Isn't iit a little odd that global warming is not emphasized as the main reason for the legislation.  There is no discussion at all of the increased threat of climate change and the need to act.  Rather, its about foriegn oil and renewable power.  That seems strange to me, after all it is a multi-billion dollar cap and trade program to reduce greenhouse gases.

It is clear the choice in messaging is in reaction to the headway Republicans and conservative Democrats have made in raising concerns about the timing and cost of the legislation.  In a very difficult economy its hard to gain support for costly new programs, especially programs on the scale called for in this legislation. 

In reaction to this strong criticism we find a re-worked bill that provides the lion share of allowances to industry as well as other hedges against the potential cost of the program.  I am not criticizing the approach, rather I am commenting on the unrealistic nature of the President's 100% auction proposal.  This is a massive new environmental regulatory program, one that is greater in scope than any previous programs.  It makes sense to transition toward a carbon regulated economy.

Here are some of the more notable provisions in the legislation:

1. Reduction Targets- Reductions from covered sources to 97% of 2005 levels by 2012, 83% by 2020, 58% by 17% by 2050.  Here is one of the changes that is meant to ease into a carbon constrained world.  The reductions have been diminished in the early years to ease the transition.  While it helps out in the early years, at some point we face a major spike in needed reductions.  That may be a difficult issue to overcome.
2. Who is covered by the Cap?- By year the cap kicks in--- Group 2012: Electricity generators, liquid fuel refiners, and fluorinated gas manufacturers. Group 2014: Industrial sources that emit more than 25,000 tons of carbon dioxide equivalent per year. Group 2016: Natural gas local distribution companies.
3. Allowance allocation- Coal related: 30% to local electric distribution companies regulated by the states. 5% to merchant coal generators. Natural gas related: 9% of allowances to local distribution companies.  Home heating oil and propane: 1.5% to state programs for users of home heating oil or propane.
4. Auction- approximately 15% of allowances will be auctioned beginning 2011 and proceeds directed to low and moderate income families to address increases in energy prices. This is a far cry from the President's proposal of 100% auction.
5. Offsets- Covered entities are able to offset up to 2 billion tons of emissions by using EPA-approved domestic and international offset credits.  The ability to use the credits is divided according to the legislation's allocation formula.  By 2017, the price to use international offsets is increased.  Covered entities must use five tons of international offset credits for every four tons of emissions being offset.  Offsets are designed to reduce the cost of compliance.  Industries covered by the cap can purchase credits generated by projects outside of the cap.  Offset credits would be cheaper than allowances thereby reducing the cost of compliance.  It also creates a whole new business for companies that specialize in carbon offset credit projects.
6. Offset Integrity Advisory Board-  Board provides recommendations to EPA as to type of offset projects that should be listed by EPA as eligible; appropriate quantification methodologies, etc...  The bill contains multiple safeguards to try and improve the integrity of offsets.  These provisions have been included to address the criticism the European Trading Scheme has received regarding the lack of creditability of offsets used in Europe's Cap and Trade program.
7. National Renewable Portfolio Standard- Includes a requirement that retail electric suppliers provide 6% from renewable energy sources by 2010.  The standard rises to 20% by 2020.  Up to one quarter of the 20% requirement can be met through energy efficiency projects.
8. Clean Air Act Exemptions-  The bill would specifically exempt greenhouse gases from coverage under the Title V program, New Source Review Program, NAAQS, and HAPs. 

Number 8-  is a huge positive factor arguing in favor of the cap and trade approach. As detailed on this blog many times, regulation of greenhouse gases under the Clean Air Act would be a disaster. It would result in over regulation of small sources, inefficient permitting which would slow projects and significant amounts of litigation.

Dspite the recent media coverage, I don't see how EPA backs away from the cliff at this point.  Three are too many things set in motion for EPA to move away from regulation under the Clean Air Act unless legislation is passed. Cap and trade legislation, especially a bill that calls for a smooth transition to a carbon regulated world is just a far better alternative.

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As reported by the AP, "White House Memo Challenges Finding on Warming", an OMB document contains opinions that regulation of the greenhouse gases under the Clean Air Act could have dramatic impacts on the economy.  The release of the OMB memo seems to have put the Obama Administration on the defensive. 

Major news outlets including the N.Y Times, Wall Street Journal and Associated Press reported the uproar regarding the memo. Here is how the Associated Press described the controversy surrounding the memo:

An Environmental Protection Agency proposal that could lead to regulating the gases blamed for global warming will prove costly for factories, small businesses and other institutions, according to a White House document.

The nine-page memo is a compilation of opinions made by a dozen federal agencies and departments during an internal review before the EPA issued a finding in April that greenhouse gases pose dangers to public health and welfare.

That finding could set in motion for the first time the regulation of six heat-trapping gases from cars and trucks, factories and other sources under the Clean Air Act.

On Capital Hill, EPA Administrator Lisa Jackson faced questions from Senators regarding the memo (video of her testimony). The memo was described by some as the "smoking gun" that supported Republican and business claims that regulation of greenhouse gases under the Clean Air Act would have a devastating impact on the economy.

The memo also called into question EPA's claim that the scientific underpinnings for its proposed endangerment finding made an "overwhelming" case for regulation due to the threats presented by climate change. As reported in the Wall Street Journal, the memo criticized EPA's scientific support for the endangerment finding:

“The amount of acknowledged lack of understanding about the basic facts surrounding [greenhouse gases] seem to stretch the precautionary principle to providing regulation in the face of unprecedented uncertainty,” the memo reads.

After the release of the memo and the ensuing uproar, the Wall Street Journal suggested EPA may be wavering in its commitment to regulate greenhouse gases under the Clean Air Act. Such conclusions seem to be supported by statements made by  the Director,of OMB Peter Orszag, on his blog.  

Media reports today are suggesting that OMB has found fault with EPA’s proposed finding that emissions of greenhouse gases from motor vehicles contribute to air pollution that endangers public health and welfare. Any reports suggesting that OMB was opposed to the finding are unfounded...

Perhaps more importantly, OMB concluded review of the preliminary finding several weeks ago, which then allowed EPA to move forward with the proposed finding. As I wrote on this blog on April 17, the "proposed finding is carefully rooted in both law and science." I also noted: "By itself, the EPA’s proposed finding imposes no regulation. (Indeed, by itself, it requires nothing at all.) If and when the endangerment finding is made final, the EPA will turn to the question whether and how to regulate greenhouse gas emissions from new automobiles." 

Orszag seems to be going out of his way to minimize the significance of the endangerment finding.  Such statement belittle the fact that if the endangerment finding is finalized it will set in motion significant regulation of sources under the Clean Air Act.  

After reading the the coverage, I just don't understand all the fuss. Of course regulation under the Clean Air Act would have dramatic impacts on the economy. U.S. EPA's Advanced Notice of Public Rulemaking (ANPR) sets forth numerous examples of the difficulties and issues associated with regulation under the Act.   Even though the ANPR was written during the Bush years, the issues it identifies remain valid.   I have written numerous posts discussing how the structure of the Clean Air Act is ill-suited for regulating greenhouse gases. 

Lets face it, the Obama Administration understands these issues as well.  That is why it has been using the threat of regulation to leverage passage of cap and trade legislation.  EPA Administrator Jackson reiterated support for cap and trade legislation today. 

Thus far the Administration has taken very slow and deliberate steps toward regulation.  Many critical decisions related to climate change are under "EPA review " or in the draft stage. To date, environmental groups have been content to let the Administration move forward at its own pace.  They are convinced regulation is inevitable. 

How long can EPA realistically string out the decisions on whether to address climate change under the Clean Air Act? The longer the string out the decision, the less effective EPA's threats are in leveraging Congress.  At some point, Congress may just be convinced EPA is bluffing. 

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Democratic leaders of the US House Energy and Commerce Committee agreed to hold another hearing on climate change legislation on May 1.  As discussed by commentators with the Environmental Markets Association, some Washington Insiders believe this announcement is a clear indication the Waxman-Markey Climate Legislation won't make it.

Republican have hammered home the unknown costs of the proposal and seem to be getting traction during this tough economic time.  As reported in the Oil and Gas Journal, the minority party is still flexing its muscles:

"It is our intention to use the opportunity you are providing us this Friday to carefully examine the one element of the legislation that has so far escaped examination in 38 hearings stretching over 40 days, its cost," the two GOP committee members said.

Republicans have found a sympathetic group among Democrats from states that rely on coal and manufacturing to drive their economies.  As reported in Politico, while Rep. Dingell may have lost his leadership position he is still finding sympathetic fellow Democrats willing to support further concessions to protect industry in their states:

But dethroning Dingell didn’t change the membership of the committee, and there are plenty of Dingell Democrats left on the panel — Rust Belt, coal state and Southern Democrats who want to protect native industries as they negotiate the final terms of a sweeping climate change bill.  And that’s why Waxman has his hands full winning votes in the committee, and it’s one of the reasons he moved Monday to postpone a bill markup scheduled for this week.
 

Meanwhile the "fuse has been lit" by EPA on moving forward with regulation of greenhouse gases under the existing authority in the Clean Air Act.  Many commentators speculate that EPA and the Obama Administration are using this as a tactic to push the climate change legislation through Congress, even if they are correct that may be a tactic that back fires. 

If Congress does not act, I see no way EPA reverses course on its Endangerment Finding or California's Waiver request to set GHGs limits for vehicles.  Furthermore, EPA is reconsidering the Bush Administration decision to not require CO2 controls for coal plants. 

Even if EPA does not move forward with a full blow set of regulations to regulate GHGs, these actions will lay the ground work for Environmental groups to assert no new permits can be issued without CO2 controls. If there are concerns about the costs of climate legislation, everyone should be asking what the implications of these EPA actions will be on permitting and associated economic development. 

(Photo: Flickr Amy Manuel)

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A new complex web of standards for control of vehicle emissions of greenhouse gases (GHGs) is coming at a time of unprecedented challenges to the auto industry.  The timing raises questions as to whether the Bush Administration's denial of California's request to establish separate GHG standards is really worth re-visiting.

On January 26, 2009 President Obama signed a Presidential Memorandum directing U.S. EPA to assess whether denial of California's waiver request to allow it to implement emission standards for GHGs from vehicles was appropriate in light of the Clean Air Act.   The memo forces EPA to reconsider the previous Denial of a Greenhouse Gas Waiver of Preemption for the State of California that was published in the Federal Register on February 12, 2009.

The decision to revisit the denial of California's Waiver request comes at a time of unprecedented challenges for the Big Three Automakers.  Just over the weekend the Obama Administration rejected re-structuring plans and ousted General Motors CEO, Rick Wagoner. With the major auto companies in survival (or near bankruptcy) mode, why is the Obama Administration complicating the regulatory structure for manufacturers?   

There Was A Sound Basis to Deny the Waiver Request

Former Administrator Stephen Johnson denied California Air Resources Board’s (CARB’s) request for a waiver to regulate greenhouse gases deeming it unnecessary in order to "meet compelling and extraordinary conditions." Johnson found C02 to be different than other pollutants regulated by the Clean Air Act, concluding that:

“section 209(b) was intended to allow California to promulgate state standards applicable to emissions from new motor vehicles to address pollution problems that are local or regional. I do not believe section 209(b)(1)(B) was intended to allow California to promulgate state standards for emissions from new motor vehicles designed to address global climate change problems."

While California and the other states that adopted the CARB standards challenged the denial, no Court reached the decision that Administrator Johnson acted unlawfully. 

Many who support the CARB standards cite litigation in other contexts to argue the denial was unlawful.  Supporters cite to decisions that found the CARB standards are not preempted by the CAFE standards. In those cases, the Courts generally recognized there is overlap between CAFE and the California GHG standards, however they rejected the claim this meant the standards were preempted. Green Mountain Chrysler v. Vermont.  Supporters of the CARB standards also point to language in the Supreme Court's decision in Massachusetts v. EPA which rejected EPA's policy reluctance to regulate GHGs. 

Courts finding: a) the CARB standards are not preempted ;and b) GHG need to be regulated as a pollutant under the Clean Air Act- is a far cry from finding California's can establish its own GHG standards for motor vehicles. The Bush Administration properly determined the ability to set separate emission standards is limited to standards necessary to address local pollution problems like ozone or particulates. 

Regardless, it appears the writing is on the wall and EPA will reverse course and grant the waiver. Otherwise, why would the President have issued such a directive.  Also, the Presidential Memorandum notes that "For decades, the EPA has granted the State of California such waivers"- a nod that history should be repeated by granting the waiver.

A Complex Regulatory Structure During Unprecedented Challenges to the Automobile Industry

EPA's decision on the waiver denial comes at the same time it is poised to issue its "endangerment finding" under Section 202 of the Clean Air Act.  The finding will set in motion the development of national standards for controlling GHGs from motor vehicles.  It has been reported that a positive "endangerment finding" was sent to the White House for review. 

Granting the CARB waiver request opens the way for implementation of the state standards in California and thirteen other states which in total represent about 40% of the U.S. auto market. After promulgation of GHG standards under Section 202 ("endangerment finding"), there will be potentially three methods for regulating fuel economy from vehicles and two methods for reducing GHG emissions- CARB, Section 202 and CAFE standards.

Of the three regulatory approaches, the CARB standards are by far the most inconsistent and difficult to implement. Instead of two or three standards, the CARB waiver request will result in a patchwork of regulations across the country.

The National Automobile Dealers Association (NADA) performed an analysis of the effect of the CARB Standards being adopted by other thirteen other states-  “Patchwork Proven: Why a Single National Fuel Economy Standard is Better for America than a Patchwork of State Regulation.” As set forth in the NADA study, the CARB regulations base compliance on what an automaker “delivers for sale” in that state. Therefore, states which adopted the CARB standards will force auto manufacturers to develop and implement more than a dozen separate compliance plans. This unnecessarily complex regulation will raise costs for consumers and will ultimately delay the introduction of advanced technologies to market.

With EPA about to establish national GHG standards for motor vehicles under Section 202 of the Clean Air Act, why revisit the Bush Administration's denial of the California Waiver?  At this critical juncture for the auto industry, a complex regulatory scheme for controlling GHG emissions appears unwise.

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Here are some snapshots of some of the latest developments regarding the Congressional debate over cap and trade legislation.  For the first time serious consideration of legislation is underway.  As a result, groups are beginning to develop their public positions.  Meanwhile, businesses continue to feel increasing pressure to address the risks associated with climate change.

Congressional Battle Lines Are Forming-  In my last post I apparently underestimated the aggressiveness of the Conservative attack on the Cap and Trade Proposal.  The legislative battle is beginning to take shape. RNC Chairman Steele said the following on a call in talk show: 

We are cooling. We are not warming. The warming you see out there, the supposed warming, and I am using my finger quotation marks here, is part of the cooling process. Greenland, which is now covered in ice, it was once called Greenland for a reason, right? Iceland, which is now green.

Skepticism among "Blue Dog" Democrats:  As serious consideration of a cap and trade bill is now underway, conservative Democrats are questioning the timing and implementation of a cap and trade proposal.  In a Wall Street Journal interview with U.S. Climate Action Partnership member, Fred Krupp, he minimized the concern a divide is occurring within the Democratic Party:

Recently I met with 27 House Blue Dog Democrats, alongside other members of USCAP including [GE boss] Jeffrey Immelt, [Shell’s] Marvin Odum, and [Duke Energy’s] James Rogers. What I heard is that they want to be involved in getting a climate bill right, and making it fair for consumers; I didn’t see a lack of engagement. Until now, there’d been no prospect of legislation. Now, the sorts of concerns are raised that naturally get raised when things could actually happen. This is part of the legislative dance, and that just began in earnest when President Obama called on Congress to deliver a climate bill.

Size of the Climate Bill May 2 or 3 Times Projected in the President's Budget- Jason Furman, deputy director of the National Economic Council, told Senate staffers in late February that the plan could raise two to three times as much as the official budget figures, or between $1.3 trillion and $1.9 trillion, the WSJ reports.

[In order to get projections that high] That leaves carbon-emissions permits that are simply more expensive than the lowish prices that have been bandied about so far. To make the White House math work, the government would have to sell the same number of permits at prices ranging from $20 to more than $40 a ton [compared to $10 to $14 per ton originally projected.  For comparison the most recent RGGI auction, carbon was around $3 per ton]

Cap and Trade Means Jobs-  Understanding the link between a struggling economy and the viability of cap and trade legislation, the Environmental Defense Fund has launched a new web site showing regulating carbon can translate into green jobs.  The site contains maps of select states with push pins representing various companies that EDF argues would benefit from cap and trade legislation. It is no coincidence that EDF uses mainly coal states to highlight the potential for green job growth.  www. lesscarbonmorejobs.org

Insurers Must Disclose Climate Change Risks-  Another indication came last week that climate change is having real world impacts on the business community even before a vote occurs on cap and trade legislation.  The National Association of Insurance Commissioners (NAIC) voted last week to require the annual filing of Insurer Climate Risk Disclosure Surveys for insurance companies with annual premiums topping $500 million. The new rule, set to begin May 1, 2010, is the world's first climate risk disclosure requirement,

Market Solutions Versus Top Down Regulation-  The freight train that is greenhouse gas (GHG) regulation is on track and moving full steam ahead.  I cannot repeat enough to those debating climate change legislation, if you are focusing only on whether to enact cap and trade legislation you are missing the 800 lbs gorilla in the room.  GHG regulation is coming.  The Supreme Court set the train in motion with Massachusetts v. EPA.  No real debate should occur without examining the alternative of allowing Clean Air Act regulation of GHGs instead of a market based solution like cap and trade.

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If you are like me you have noticed a lot more people talking about climate change in the last month.  President Obama's cap and trade proposal has certainly garnered more attention on the subject.  Many opponents tend to ask why we should be pursuing such a massive program in the middle of an economic crisis.  Unfortunately, I have also had more conversations with individuals asserting global warming is a hoax or overblown.

Recent polling data supports that lack of firm public support that will be necessary to pass cap and trade legislation. A recent Gallup poll shows more Americans are beginning to question global warming now that a serious legislative proposal has been offered.

Eroding public support for cap and trade is having its effect on the debate in Congress. A recent Detroit News article cites eroding support even among Democrats:

Citing the burden the standards would put on manufacturing, particularly automobile-related manufacturing, Michigan Democratic senators Carl Levin and Debbie Stabenow are signaling their opposition.

Levin, six other Democrats and 26 Republicans are objecting to a Senate procedural budget reconciliation process that would limit debate and amendments to Obama’s proposed debate cap-and-trade legislation, according to the Detroit News.
 

As many have observed, the political debate in Congress may shape up to be less about political party and more about geography.  Senators, whether Democrat or Republican, from coal states or manufacturing states will find it very difficult to support cap and trade legislation.

What is even more threatening to a cap and trade proposal is that the Republicans have yet to fully seize on their attack message- with the economy in shambles now is not the time to be enacting climate change legislation.  Right now, Republicans are soft peddling opposition to cap and trade, as articulated in Reuters recently by Sen. Murkowski:

Congress will not be able to pass legislation capping carbon emissions in 2009 if the economy continues its downward slide, a key Republican senator said on Monday.

"If the economy is still where we are right now, I would suggest to you it's not happening this year," Senator Lisa Murkowski told reporters at a Platts Energy Podium.

Once the polling numbers show they can win the debate, you know they will ratchet up the heat...so to speak. 

What does the challenge of passing carbon legislation mean? As discussed in prior posts, it means that regulation of greenhouse gases (GHGs) through the Clean Air Act will happen first and in a dramatic fashion.  Many of those opposing carbon cap and trade legislation seem to ignore this reality. 

EPA has already drafted final emission reporting rules for GHGs.  Next month, EPA is likely to issue their draft endangerment finding.  In addition, EPA will take additional action to regulate GHGs under the Clean Air Act.  Massive litigation will follow all of these rulemaking efforts.  More suits will be filed by environmental groups looking to use existing authority under the Clean Air Act to block new plants or reduce emissions. 

Unfortunately, the command and control approach that will result from regulation under the Clean Air Act will be far more costly and will create great uncertainties.  Cap and trade has consistently been shown to be more effective and a cheaper way of reducing emissions. 

The clash between cap & trade and regulation under the Clean Air Act, was recently highlighted by a project titled "Breaking the logjam."  This project involved N.Y. University School of Law and New York Law School and enlisted 40 environmental law experts across the ideological spectrum.  The conclusion of the report was cap and trade is a far more effective means of addressing climate change:

Experience has shown the cap and trade approach to criteria pollutants can achieve cuts at lower cost than are achievable under the highly prescriptive and cumbersome regulatory method at the heart of the current statute [Clean Air Act]

In my mind, the debate cannot be framed in terms of either regulation or no regulation.  There is no such option. There is certainly enough Congressional support for addressing climate change that any legislative proposal to amend the Clean Air Act to prevent regulation of GHGs will be unsuccessful. 

Rather, the debate must be viewed as which method of regulation is the better option.  When viewed in this manner, we should be debating the elements of the cap and trade legislation- offsets and auction v. allocation-not whether to pass such legislation. 

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In accordance with the FY2008 Consolidated Appropriations Act, the U.S. Environmental Protection Agency (EPA) has issued its proposed rule to require annual mandatory reporting of greenhouse gases from over 13,000 businesses.  Businesses covered by the rule must start tracking emissions by 2010 and report in 2011 on an annual basis. While specific sources are named, EPA has decided to use an emission threshold of 25,000 metric tons of CO2 equivalents (mtCO2e) to determine coverage for many businesses under the rule. 

The details of the EPA reporting rule may provide a glimpse into the structure of President Obama's Cap and Trade program.  For example, the 25,000 mtCO2e and specifically named source categories may be used to determine which businesses are covered by the cap.  It is also important to note, the coverage of the reporting rule contrasts with much lower threshold triggers used by other regulatory programs under the Clean Air Act.

Which gases are covered by the rule?

U.S. EPA will require reporting of anthropogenic GHG emissions covered under the United Nations Framework Convention on Climate Change (UNFCCC); carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), and sulfur hexafluoride (SF6), as well as other fluorinated gases (e.g., nitrogen trifluoride and hydrofluorinated ethers). These gases are often expressed in metric tons of carbon dioxide equivalent (mtCO2e). 

All the other GHGs have higher potential to cause global warming.  Therefore, as with other the European Union Trading System, a conversion ratio is applied to create carbon dioxide equivalents.  For example, 1 ton of methane is equal to 20 tons of CO2.  These conversion ratios are important to understand because they determine which businesses are covered by the reporting rule.

For example, a large agricultural operation will have significant emissions of methane.  The facility will need to convert its methane emissions to CO2 equivalents to determine if it is a facility covered. [Note: most agricultural operations are exempted from coverage under the rule]

How did EPA pick the 25,000 mtCO2e threshold?

EPA considered thresholds of 1,000, 10,000, 25,000, and 100,000 mtCO2e/year when developing the proposal. For each threshold, EPA assessed the number of facilities that would be covered as well as the total amount of emissions that would be covered. These analyses suggested that at a threshold of 25,000 metric tons of mtCO2e/year, 13,000 facilities and 85-90% of total GHG emissions would be covered. At a threshold of 10,000 mtCO2e/year approximately 20,000 facilities and 86-91% of GHG emissions would be covered.  EPA felt reducing the threshold increased costs for smaller businesses and would not result in a significantly larger inventory of emissions.

Are other facilities with lower than 25,000 mtCO2e required to report?

Yes.  EPA also named specific source categories that are covered by mandatory reporting regardless of whether they cross the 25,000 mtCO2e threshold.  These sources include, among others, the following: electric generating plants subject to the Acid Rain program, aluminum, ammonia, cement, electronics, lime, petrochemical, petroleum refining, certain underground coal mines, manufacturers of engines, and municipal landfills.

EPA also included "downstream" sources.  Those facilities that produce fuel that when burned result in GHGs emissions.  This producers include: coal, coal-based liquid fuels; petroleum products, natural gas and natural gas liquids; producers of industrial greenhouse gases as listed in the rule; and importers/exporters of 25,000 mtCO2e. 

How will this affect small and medium sized businesses?

Using this threshold,  EPA estimates this will capture 90% of GHG emissions and require 13,000 businesses to report. In rolling out its proposed rule, EPA tries to deflect criticism leveled by the U.S. Chamber and others that  EPA GHG regulations will have a negative impact on small and medium sized businesses.  EPA provides the following fact relative to the 25,000 threshold:

25,000 mtCO2e are equivalent to emissions from annual energy use of about 2,200 homes. It is also equivalent to just over 58,000 barrels of oil consumed or 131 railcars’ worth of coal.

This statistic does give you some perspective on the magnitude of the sources covered by the reporting rule.  However, just because these larger sources are covered by the reporting rule does not necessarily mean that regulation of GHGs under the Clean Air Act would not capture much smaller sources.  For example, the New Source Review permitting threshold for a major source is 100/250 tons of a pollutant.

What is the method for monitoring emissions?

EPA selected a combination of direct measurement and facility specific calculations as the general monitoring approach.  Direct measurement will require Continuous Emission Monitors (CEMs) on some sources.  Other sources will have to use emission calculations designed for that type of facility. EPA asserts that the emission calculations are similar to those used in other programs such as the Climate Registry or California's AB-32. 

Consistency is an important issues.  EPA estimates the cost to report will be around $13,000 per facility.  This is an average which means it will be much higher for some facilities.  Many companies have voluntarily begun measuring emissions under the Climate Registry or another approach.  Other companies are covered by mandatory state programs like RGGI. 

The ability to agree on a common method for measuring emissions is critical.  It will reduce compliance costs and prevent criticism that there are inconsistencies in the various programs.  For these reasons, the comments on this portion of the rule are critical. 

Has there been an early criticism of the rule?

Yes.  The largest amount of criticism has been focused on the reporting requirement being applied to both upstream and downstream sources of GHGs emission.  As an example, the coal mine and the power plant who later burns the coal are both required to report under the rule.  Some have criticized this approach as "double counting" or a waste of resources.  Others have pointed out that EPA needs to gather a range of data to keep policy options open for controlling GHGs. 

Additional Information:

For more information on the rule, see EPA's web page dedicated to the GHG reporting rule.  Also, EPA has prepared a four page fact sheet that does a good job summarizing the major components of the rule.

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In a dramatic reversal from the Bush Administration, the Department of Justice and U.S. EPA are renewing their New Source Review enforcement efforts against coal-fired power plants.  The NSR lawsuits originally commenced during the Clinton years have resulted in billions of dollars in new controls and hundreds of millions in civil penalties. 

The industry had breathed a sigh of relief when the Bush EPA announced they were not going to pursue additional cases.  Now the industry faces the prospect of a new round of very costly litigation, controls and penalties.

U.S. EPA issued a press release announcing the first new NSR complaint:

Coal-fired power plants collectively produce more pollution than any other industry in the United States. They account for nearly 70 percent of sulfur dioxide emissions each year and 20 percent of nitrogen oxides emissions. Emissions from coal-fired power plants have detrimental health effects on asthma sufferers, the elderly and children. Additionally, these emissions have been linked to forest degradation, waterway damage, reservoir contamination and deterioration of stone and copper in buildings.

To combat these adverse effects, the EPA and the Justice Department are pursuing a national initiative, targeting electric utilities whose coal-fired power plants violate the law.

The suits reverse the Bush Administration decision to only conclude the Clinton era NSR lawsuits and to not pursue new cases unless the involve violations of the Bush era  NSR regulations. In 2006, former EPA enforcement chief Grant Nakayama told Congress he would pursue investigations of coal-fired power plants only if they appeared to fall out of step with the administration's series of proposed and final changes to the NSR program .  On October 13, 2005 Marcus Peabody, Assistant Administrator, issued a memorandum to U.S. EPA's Office of Enforcement Compliance Assurance directing the office to pursue only cases involving violation of the Bush era NSR rules. 

The NSR directive is just one of many Bush evironmental policy and regulatory decisions that the Obama Administration has reversed.  Utility representatives said the Obama administration's efforts to ramp up NSR enforcement came as no surprise.

On February 25th, the Department of Justice has sued Louisiana Generating, alleging that the NRG Energy subsidiary violated New Source Review requirements by operating the Big Cajun 2 Power Plant without also installing and operating modern pollution control equipment after the generating units had undergone major “modifications.”(DOJ Press Release)

This follows a similar lawsuit filed earlier in February against Westar Energy, Inc for failing to install Best Available Control Technology (BACT) at one or more of its coal-fired power plants.  The complaint alleges that for more than a decade, the Jeffrey Energy Center has operated without the best available emissions-control technology required by the New Source Review provisions of the Clean Air Act to control emissions of sulfur dioxide, nitrogen oxide and particulate matter, contributing to formation of fine particulate matter, smog and acid rain.
 

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No doubt the President's budget includes a very ambitious proposal cap and trade proposal to address Climate Change.  The President Budget provides an overview of the proposal in the EPA budget:

After enactment of the Budget, the Administration will work expeditiously
with key stakeholders and 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. This program will be implemented through a cap-and-trade system, a policy approach that dramatically 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, this program will fund vital investments in a clean energy future totaling $150 billion over 10 years, starting in fiscal year 2012. The balance of the auction revenues will be returned to the people, especially vulnerable families, communities, and businesses to help the transition to a clean energy economy.

The budget blueprint Obama sent to Congress yesterday foresees revenue of $645.7 billion by 2019 from the sale of permits to polluters from 2012. Obama proposes to use the money raised to pay for other priorities, such as tax breaks for the lower and middle class. Another $150 billion will be used to help spur development of renewable energy. 

Early reaction to Obama's plan has been mixed with most recognizing he will have an enormously tough road ahead to pass a Climate bill with the framework he is proposing.

100% Auction... how about 30%?- President Barack Obama may need to give away as much as 70 percent of greenhouse-gas emissions permits to win support for his cap-and-trade program, Merrill Lynch & Co said.

McCain Blasts Obama Proposal- “I don’t think cap and trade should be used for the purposes of generating revenue,” McCain

 Environmental groups were jubilant at Obama's proposals on climate change-"It's a hugely important policy direction and another sign that Obama gets it when it comes to building a clean energy economy," said Gene Karpinski, president of the League of Conservation Voters.

Obama team will be pragmatists on climate change-  "Todd Stern, the Obama administration’s new top climate-change negotiator, wants to tamp down on the expectations. He talks tough and is all for the shift to a low-carbon economy, but he’s not an ideologue. And he may well be reflecting the White House’s pragmatism in the face of numerous challenges."  Its hard to see the pragmatism in a 100% auction, very small offset proposal.

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There has been major developments as a result of litigation, policy, rulemaking and legislation in the last few weeks relating to climate change and coal fired power plants.  Some changes are a result of outstanding litigation.  However, the most significant changes are indicative of the sea change that is occurring at the federal level under the Obama Administration relative to climate change. 

 Here is a review:

1. EPA will not regulate mercury by cap and trade-  EPA Administrator Jackson announced today that the Agency will be moving forward with rulemaking to regulate mercury emissions from coal plants.  "President Obama's EPA does intend to regulate mercury under section 112 of the Clean Air Act," said Jackson. Acting solicitor general Edwin S. Kneedler will drop the prior appeal of the decision in New Jersey v. EPA which struck down the Bush Administration cap and trade proposal for regulating mercury.
2. NEPA reviews of climate change impact required for oversees projects- The Obama Administration has settled an outstanding lawsuit which sought to compel NEPA reviews of climate change impacts for oversees projects financed with federal money.  Western cities and environmental groups alleged that Export-Import Bank of the United States and the Overseas Private Investment Corporation illegally provided more than $32 billion in financing and insurance to fossil fuel projects over 10 years without assessing whether the projects contributed to global warming or impacted the U.S. environment, as they were required to do under the National Environmental Policy Act (NEPA).  The settlement will require NEPA reviews and will also require future reductions of greenhouse gases.
3. BACT for coal plants does not mean IGCC-  A Texas Appeals Court rejected a challenge to a permit for a new 800 mw pulverized coal plant.  Appellants has argued the permit should have required IGCC technology as BACT instead of the proposed pulverized coal technology.  Consistent with other Court decisions looking at BACT, the Court said control technologies under BACT must be applied to the proposed project which in this case was a pulverized coal plant.
4. No Climate Change Legislation This Year-  Senator Boxer released here principles for what must be included in the Senate version of climate change legislation.  Senator Boxer said “Copenhagen is December...That’s why I said we’ll have a bill out of this committee by then.”  However, any bill passing out the committee still must pass the full senate and be reconciled with the House bill.  This schedule renders it impossible that cap and trade legislation will pass Congress in 2009.
5. EPA begins review of California Waiver Decision-  In a press release today, EPA announced they are beginning the review of the California waiver request to regulate greenhouse gas emissions from vehicles.  I think this quote from the EPA press release pretty much tells you what the outcome will be - "EPA believes that there are significant issues regarding the agency’s denial of the waiver. The denial was a substantial departure from EPA’s longstanding interpretation of the Clean Air Act’s waiver provisions. "

 (Photo: CJJohnson7/everystockphoto.com)

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Governor Ted Strickland made his State of the State speech today.  While almost the entire speech was focused on education there were a few interesting nuggets relative to Ohio's progress in developing green jobs. 

"Over the last three years, Ohio has led the nation with 350 new or expanded facility projects in the renewable energy sector.

 Take solar energy, for example. The Toledo area has become an international center for solar research and production, with more than 6,000 people working in the solar industry. First Solar and Xunlight (Zun-light) both launched major expansions just this past year.

 All across the state we’ve seen advanced energy creating opportunities."

Later in the speech Strickland discussed Ohio's efforts to incorporate energy efficiency requirements into new government buildings:

Together we took the school building program that Governor Taft and the legislature created, and we expanded it to fund hundreds of new and renovated school buildings. And our new schools are being built to efficiency standards that will reduce our energy costs for the life of the building. In fact, Ohio has the largest energy efficient school building program in the nation.

The Governor should be commended for creation of a Renewable Energy Portfolio Standard (Ohio calls it an "Advanced Energy Portfolio Standard").  His initial proposal was greatly improved upon in the Legislature.  However, the rules governing implementation of the RPS seem to be currently stuck at PUCO after the Commission was flooded with comments on how to improve them.  Without improvement we stand to lose the momentum gained through passage of the energy legislation.

The Governor also included Advanced Energy Grant Funding in the Job Stimulus package passed recently.  However, the size of the grants ($250,000 for non-coal projects) seem to be too small to attract major new development to the State.

Is Ohio losing the momentum on attracting green jobs and economic development? 

President Obama has made clear his priority is renewable energy, climate change and green jobs.  Given Ohio's importance in the election this seems like a perfect fit to start getting Ohio out of its economic crisis and create the jobs of the future. Unfortunately, the Governor included no new proposals or ideas for how to build on Ohio's recent momentum in his State of the State address. 

Many states recognize the huge changes that are coming as a result of climate change and energy.  Unfortunately, Ohio lags these other states in developing and attracting the talent to truly lead in these areas.  As purely anecdotal evidence, when I attend national conferences that discuss these issues I will sometimes be the sole representative from Ohio. Meanwhile the New England States and West Coast dominate these conferences. 

Granted I don't attend every conference in these areas, but Ohio has certainly not lead on renewable energy.  It was the 26th state to pass an RPS.  Ohio has not lead at all on climate change. Its efforts have been focussed on resisting rather than improving climate change proposals. 

When the major policy changes on climate change and renewable energy are put forward, where do you think the jobs will go? 

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In remarks titled "from peril to progress", the President set forth bold action yesterday that will inevitably lead to full regulation of CO2 and greenhouse gas emissions.  The President ordered a "vigorous review" of California's request to regulate greenhouse gas emissions which had been previously denied by the Bush Administration. [President Obama's memo ordering a review of the California Waiver]   While much of the media focus has been on the effect of the other aspects of the President's actions, such as raising mileage standards, in reality the California waiver request has far more reaching repercussions. 

California has been seeking EPA’s approval to waive federal preemption of state vehicle emission standards for several years.  California wants to enforce a state law that would require automakers to reduce carbon dioxide emissions from new vehicles by 30 percent by 2016. Under the Clean Air Act, U.S. EPA must concur that California has demonstrated a need reduce greenhouse gases in order  “to meet compelling and extraordinary conditions.” 42 U.S.C. § 7543(b)(1)(B). Former EPA Administrator Johnson denied California's "waiver" request last year.

The signs that President Obama would proceed in a radically different direction than the Bush Administration on controlling greenhouse gases have been building for some time. First, he mentioned climate change in his speech in Chicago the night he won the election.  Second, he appointed members to the cabinet and senior staff positions that are strong believers in aggressively tackling climate change.  Third, he made mention of climate change in his 20 minute inaugural speech clearly indicating it will be a major priority of his Administration. 

Yesterday, the President took bold action only a week into his Presidency with his issuance of an order to review the denial of the California waiver request.  After announcing his action, President Obama made a speech that contains a clear message- it the President's intention for the United States to lead on addressing climate change no matter how difficult the task may be.  His speech included some pretty bold statements.  Here is an excerpt from his speech: 

Third, the federal government must work with, not against, states to reduce greenhouse gas emissions. California has shown bold and bipartisan leadership through its effort to forge 21st century standards, and over a dozen states have followed its lead. But instead of serving as a partner, Washington stood in their way. This refusal to lead risks the creation of a confusing and patchwork set of standards that hurts the environment and the auto industry.

The days of Washington dragging its heels are over. My administration will not deny facts, we will be guided by them. We cannot afford to pass the buck or push the burden onto the states. And that's why I'm directing the Environmental Protection Agency to immediately review the denial of the California waiver request and determine the best way forward. This will help us create incentives to develop new energy that will make us less dependent on oil that endangers our security, our economy, and our planet....

Finally, we will make it clear to the world that America is ready to lead. To protect our climate and our collective security, we must call together a truly global coalition. I've made it clear that we will act, but so too must the world. That's how we will deny leverage to dictators and dollars to terrorists. And that's how we will ensure that nations like China and India are doing their part, just as we are now willing to do ours.

It's time for America to lead, because this moment of peril must be turned into one of progress. If we take action, we can create new industries and revive old ones; we can open new factories and power new farms; we can lower costs and revive our economy. We can do that, and we must do that. There's much work to be done. There is much further for us to go.

But I want to be clear from the beginning of this administration that we have made our choice. America will not be held hostage to dwindling resources, hostile regimes, and a warming planet. We will not be put off from action because action is hard. Now is the time to make the tough choices. Now is the time to meet the challenge at this crossroad of history by choosing a future that is safer for our country, prosperous for our planet, and sustainable.
 

California's waiver will almost certainly be granted.  Such action will tip the regulatory dominoes leading to full blow regulation of greenhouse gases from more than just tailpipes in California. As discussed on this blog before, the Supreme Court has already determined CO2 is a pollutant under the Clean Air Act.  Since the Court's decision the debate has centered on whether CO2 is a "regulated pollutant."  Once it is considered "regulated", then numerous provisions in the Act will be deemed to apply to control CO2 and other greenhouse gases.  

One way to make CO2 a regulated pollutant is for EPA to issue new regulations requiring control.  EPA started down that road slowly with the issuance of its Advanced Notice of Public Rulemaking for regulation of greenhouse gases this summer.  However, environmental groups argued new regulations were not needed.  They argued the act already "regulates" CO2.  Specifically, the Clean Act includes monitoring requirements for CO2 from coal plants.

In waning months of the Bush Administration, the Environmental Board of Review issued a major decision in Deseret Power, finding that EPA had discretion to decide whether monitoring was enough to constitute regulation.  In the final days of his tenure, former Administrator Johnson issued an interpretative memo responding to the Deseret Power decision declaring monitoring was not enough. 

Since issuance of the memo, environmental groups have legally challenged the Johnson memo and pressured the Obama Administration to retract it.  However, granting California's waiver request would likely render the memo meaningless.  A grant of the waiver would not by itself be considered regulation of CO2, thereby providing the trigger for regulation of CO2 under other provision of the Clean Air Act.   And with that the dominoes will begin to fall...

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President Elect Obama has prided himself on appointing a mix of opinions in his cabinet and senior advisors.  For example, his National Security team is made up a former political rival and a Republican from the Bush Administration.  Obama has said he studied history and identified a possible issue in past presidencies is not fostering a diverse mix of opinions to debate policy.  Here is what the President Elect said after making his National Security appointments:

“One of the dangers in a White House, based on my reading of history, is that you get wrapped up in groupthink, and everybody agrees with everything, and there's no discussion and there are not dissenting views,” Obama said, voicing a frequent criticism by some senior Bush-administration alumni.
“So I'm going to be welcoming a vigorous debate inside the White House. But I understand, I will be setting policy as president.

The diversity that was plainly evident in his Naitonal Security team seems to be missing on his Green Team.  Carol Browner as Climate Czar and past senior managers at EPA will fill the other important environmental posts. The announced appointments have met with a mix of reviews.  The USA Today praised the choice in an article title"Obama's Dream Green Team is Warmly Received." 

One is a Nobel Prize winner overseeing research of alternative energy. The three others all have one thing in common: experience working for the Environmental Protection Agency...

"This is clearly a green dream team," said Gene Karpinski, head of the League of Conservation Voters, an environmental group. "These people have shown they can get the job done."

Obama has mustered an "impressive team of experienced and capable leaders," said Tom Kuhn, president of the Edison Electric Institute, a group representing electric companies.

As an opposing view, the Wall Street Journal blasted the environmental appointments in an editorial:

The EPA long ago became the government arm of the environment lobby, but Ms. Browner was especially political. During her EPA salad days, she put out air-pollution standards that even the agency itself said would have no measurable impact on public health, purely as antibusiness punishment. She forced GE to dredge the Hudson River of PCBs that posed no threat to the public. Ms. Browner also rewrote a law called New Source Review so that power plants, refineries and other industries were always breaking the particulate emissions rules....

As for the "team of rivals" hype, the rest of Mr. Obama's energy list is heavy with Ms. Browner's acolytes. Lisa Jackson, for 16 years a top EPA enforcement officer, will now run that agency. At the White House Council on Environmental Quality will be Nancy Sutley, who was Ms. Browner's special assistant at EPA.

The Washington Post noted the commonality in the appointments in their piece covering the appointments titled "Seasoned Regulators to Lead Obama Environment Program." :

Word of their appointment was greeted enthusiastically yesterday by some environmental groups. The League of Conservation Voters called the group a "green dream team."

Industry groups were more cautious. At the U.S. Chamber of Commerce, Vice President William Kovacs said the group worried that the new officials would use their power to limit greenhouse-gas emissions and impose painful new costs on energy use.

"I think that they could be aggressive, and we're hoping that they're really going to look at the circumstances" of the economic downturn, Kovacs said. "That is our biggest single concern, because literally all three of them have a regulatory bent."

Regardless of your opinions of any of appointments as individuals, it is hard to see a wide divergence of opinion emerging.  While there is no doubt seasoned veterans are needed to develop and implement a game changer like climate change legislation, I agree with the President elect...a diversity of opinion is a valuable asset that can improve decision making.

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Talk about your pro-bowl quality punts...U.S. EPA's Environmental Appeals Board made a major one this week on the issue of climate change.  All eyes were fixated on the Board waiting for their decision on whether the Clean Air Act requires immediate regulation of greenhouse gases  (GHGs-which include CO2).  The Board's answer?  We would rather let the Obama Administration decide.

Others on the web point out this may hold up permits for coal plants while EPA deliberates on what to do next.  There is uncertainty after the decision, but other Courts don't have to follow the EAB ruling.

-See Coal Plant Stop Orders and Power Landscape Changes After Ruling

Background:  For those not keeping up to date on the latest litigation over regulation of GHGs, a major decision was issued yesterday- Deseret Power Electric Cooperative (Bonanza).  At issue in the case was whether the current language of the Clean Air Act requires immediate regulation of GHGs.

The Sierra Club appealed a federal permit that would have allowed construction of a new coal fired power plant.  The Sierra Club argued the permit was illegal because it did not require control of CO2 and the Clean Air Act (CAA) mandates regulation of the pollutant. 

Under the CAA,  EPA would have to require controls for CO2 if it is a pollutant "subject to regulation" under the Act.  The issue turned on the amount of regulation necessary to trigger this provision.  The Clean Air Act does require monitoring and reporting of CO2 for some sources.  But EPA argued monitoring is not enough, claiming that it has interpreted "subject to regulation" as meaning the Agency has set a standard requiring reductions, not just monitoring of emissions.

Implications:  A win for the Sierra Club would have had immediate and dramatic impacts on business across the country.  Hundreds of thousands of businesses, even commercial buildings may have needed a federal air permit to control CO2 emissions.  The EPA would have been overwhelmed with a tidal wave of new work. Why?

As discussed in a prior post, the permit thresholds in the CAA are extraordinarily low in the context of greenhouse gases.  Just how low?  The Act requires federal regulation for sources that emit 100 or 250 tons of a pollutant, depending on various factors.  That's fine for traditional pollutants like sulfur dioxide and soot, but ridiculous when viewed in the context of greenhouse gases.  As a comparison, California's Climate Change Program (AB-32) uses a threshold of 25,000 metric tons. 

On the other hand, if the Board sided with U.S. EPA then regulation of GHGs would be delayed until either U.S. EPA completed its lengthy rulemaking process or legislation is enacted by Congress.

Decision:  The Board definitely punted.  It did not agree with the Sierra Club that the plain text of the CAA requires CO2 to be regulated.  However, it rejected the EPA's position that an analysis of its historical interpretations forecloses the possibility that monitoring requirements are sufficient to trigger the need to regulate GHGs as a pollutant. 

The Board returned the permit to the Agency for further deliberation.  The Board said it is within EPA's discretion to begin regulating GHGs because the CAA includes monitoring requirements.  The Board concludes with the following paragraph:

Accordingly, we remand the Permit to for the Region (U.S. EPA) to consider whether or not to impose a CO2 BACT limit in light of the Agency's discretion to interpret, consistent with the CAA, what constitutes a "pollutant subject to regulation under this Act."  In remanding this Permit to the Region for reconsideration of its conclusions regarding application of BACT to limit CO2 emissions, we recognize that this is an issue of nation scope that has implications far beyond this individual permitting proceeding.  The Region should consider whether interested persons, as well as the Agency, would be better served by the Agency addressing the interpretation of the phrase "subject to regulation under this Act" in the context of an action of national scope, rather than through this specific permitting proceeding.  (emphasis added)

In otherwords, we want the Obama Administration to decide this through a regulatory interpretation that will apply universally and not by us requiring it in the context of a single appeal of a permit.

(Photo: Tostie14/everystockphoto.com)

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