The twists and turns in the saga of regulation greenhouse gases (GHGs) continue. After the State of the Union and release of the President’s budget, there is speculation that President Obama has abandoned Cap & Trade legislation.
Meanwhile, businesses face greater risk as a result of new and impending regulatory action. The Securities and Exchange Commission (SEC) has issued guidance telling companies they must disclosure risks to investors related to the company’s exposure to effects of climate change and potential regulations. Finally, EPA is moving ahead with its plans to regulate GHGs using existing authority under the Clean Air Act.
Is Cap & Trade Dead or Alive?
The President only made vague references in the State of the Union to a "comprehensive energy legislation" that will include measures to address climate change. Speculation was that the Obama Administration had made the decision to drop its plans for Cap & Trade. The speculation increased with the release of the proposed federal budget, which dropped $646 billion in anticipated revenue from Cap & Trade. The President only included a "placeholder" for that revenue.
Carol Browner, the President’s Climate Adviser, pushed back on the notion Cap & Trade is dead. This from Politico:
The top White House climate adviser pushed back against reports that a climate bill would be scaled back — but shied away from giving an exact time frame for when the Senate should take up the legislation.
“I think predictions about when something is going to happen in the legislative process are very, very hard to make you have to just continue working at it,” Carol Browner told an audience assembled for a climate and energy forum. “We’re encouraged by what we are seeing, and we’re going to continue working at it.”
In hopes of keeping a bi-partisan compromise alive in the Senate, the President put more nuclear power on the table in State of the Union. There is also discussion of a scaled back Cap & Trade proposal that would be limited only to utilities.
Even with a scaled back proposal or other compromises, I see it very hard to get to 60 votes in the Senate. Which makes the next update the critical issue.
While some businesses think the reduced prospects of a Cap & Trade bill means they have escaped potential climate change regulation, they may have a major wake up call this March. EPA is planning on moving forward with a series of regulations that will have dramatic impacts on businesses that emit CO2 and other greenhouse gases.
EPA has finalized its "Endangerment Finding." This paves the way for the Agency’s release of the Light Duty Vehicle Rule which will establish GHG emission standards for vehicles. As previously discussed in prior posts, finalization of mandatory emission limits for vehicles raises GHGs to "regulated pollutant" status under the Clean Air Act.
Once GHGs are considered "regulated pollutants", other provisions of the Clean Air Act are automatically triggered, most notably Title V permitting and New Source Review (NSR). EPA is proposing to finalize its "tailoring rule" simultaneously with the Light Duty Vehicle Rule in order to substantially raise the thresholds for triggering Title V permits or NSR.
The likelihood of regulations was further evidenced by the President’s proposed budget, which includes significant increase funding to pay for new EPA regulatory initiatives on climate change. (Summary of EPA proposed budget)
- $47 million more the EPA in the 2011 budget to pay for greenhouse gas regulation
- $4 million would go to the EPA’s mandatory greenhouse gas reporting rule. Major emitters of greenhouse gases must start tracking their emissions this year under EPA’s reporting rule.
- $25 million to States to aid in processing new permits that will be required as a result of greenhouse gases becoming a regulated pollutant under the Clean Air Act.
- $7 million is allocated to development of new performance standards including determining what constitutes Best Available Control Technology (BACT) for greenhouse gases.
SEC Interpretative Guidance
On January 27th, the SEC voted to issuance guidance requiring companies to disclose certain risks associated with climate change. The 3-2 vote was highly controversial.
While some saw the SEC action as an political endorsement of climate change regulation, others believe its the job of the SEC to require disclosure of business risks. The NY Times, in an editorial, supported increased information on corporate risk associated with climate change-"The S.E.C. action is simply one more incentive for investors and managers to better understand the risks — and the opportunities — out there for publicly traded businesses. "
From the press release, here is a description of the requirements in the forthcoming guidance:
- Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
- Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
- Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
- Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.
While the prospects for Cap &Trade legislation have dimmed dramatically over the last few months, this is by no means the end of the story. Significant new mandatory regulations will be finalized as early as March.
While there are issues with the House version of the Cap & Trade bill, it would at least create a market mechanism for reducing emissions. Business opposing Cap & Trade may soon learn that the alternative- regulation under the Clean Air Act- is a far worse proposition.