Posted on August 18, 2016
Today, the U.S. EPA and Department of Justice announced that Harley Davidson has accepted defeat on defeat devices. The icon of rebellion lost its black luster years ago when bankers, professors, and, of all things, lawyers, became the most noticeable owners and riders of their iron horses. The Gucci sunglasses betrayed the weekend gangsters to mere citizens who at first trembled at the rumble of Harley motors.
But now, the historic purveyor of the rawest available form of horsepower has agreed to stop selling popular “super tuners” for “Super Glides”, “Fat Boys”, “Road Kings”, “Electra Glides” and other iconic rides. The engine tuner kits are guaranteed to raise the rumble another notch or two. The problem? Emissions. What?! Yes, emissions.
Well, actually cheating about emissions. EPA says Harley’s “super tuned” engine emissions are higher than the emissions certified for stock engines. I’m shocked. The aftermarket nature of these horsepower enhancers does not matter. Harley is not supposed to help rabble rousing bikers exceed their emissions allowances, says EPA.
Wow. Is blaming Harley for breaking the rules within the rules? Has the last hope of rebellion been reduced from “rolling thunder” to a Vespa’s whine? I would take my stack of Harley t-shirts out in the backyard tonight for a ceremonial bonfire, but Birmingham has banned open burning until November.
Posted on April 27, 2016
This week, the Federal Highway Administration issued a Noticed of Proposed Rulemaking to promulgate performance measures to be used in evaluating federal funding of transportation projects. The requirement for performance measures stems from the Moving Ahead for Progress in the 21st Century Act, aka MAP-21. MAP-21 requires the FHWA to establish performance standards in 12 categories, one of which is “on-road mobile source emissions.”
The NPRM addresses this criterion, focusing largely on emissions of criteria pollutants. However, buried in the 423-page NPRM is a six-page section labeled “Consideration of a Greenhouse Gas Emissions Measure.”
And thus the FHWA drops a bomb that could revolutionize federal funding of transportation projects. It’s important to note that this may not happen. If the next President is Republican, it certainly won’t. Even if the FHWA goes forward, there would be legal challenges to its authority to use GHG as part of the performance measures.
If it does go forward though, it really would be revolutionary. As the NPRM states, transportation sources are rapidly increasing as a source of GHG emissions:
GHG emissions from on-road sources represent approximately 23 percent of economy-wide GHGs, but have accounted for more than two-thirds of the net increase in total U.S. GHGs since 1990.
The enormity of both the challenges facing the FHWA in attempting to establish a performance measure for GHG emissions and the potential impact implementation of a GHG performance measure would have is reflected in some of the 13 questions that FHWA posed for comment:
- Should the measure be limited to emissions coming from the tailpipe, or should it consider emissions generated upstream in the life cycle of the vehicle operations?
- Should CO2 emissions performance be estimated based on gasoline and diesel fuel sales, system use (vehicle miles traveled), or other surrogates?
- Would a performance measure on CO2 emissions help to improve transparency and to realign incentives such that State DOTs and MPOs are better positioned to meet national climate change goals?
- How long would it take for transportation agencies to implement such a measure?
Welcome to the brave new world of integrated planning to manage GHG emissions in a critical sector of our economy.
Posted on January 29, 2016
By upholding FERC’s regulatory authority over demand response transactions, the Supreme Court finds FERC is properly regulating wholesale electricity market sales operating in interstate commerce (Federal Energy Regulation Commission vs. Electric Power Supply Association). Associate Justice Scalia’s dissent criticizes the framing of the question. While acknowledging FERC’s regulatory authority over wholesale sales, he notes the statutory framework proscribes regulating other sales or those “not at wholesale,” suggesting a proper focus on whether there is a true sale at wholesale includes reviewing whether the prospective participant is in the business of reselling energy.
Besides the regulatory impact and effect on the markets, Justice Kagan’s majority opinion sends waves by its impact on energy use or non-use. As in peak periods it may be more efficient and easier to pay consumers for non-use versus paying generators to increase production, wholesale market operators developed demand response programs that pay consumers not to use available power. Non-use has the complementary benefits of being less taxing on a grid and results in fewer emissions. Thus, the reviewed and supported programs were viewed as resulting from market forces balancing supply and demand of wholesale electricity, which programs serve to improve competitiveness (may “drive down” generator bids), provide more efficient grid use, result in greater grid reliability, and, produce fewer emissions.
Additional parts of the opinion discuss: (i) the method and formula for compensating demand response payments similarly to those to suppliers, with an added review of whether resulting payment for the demand response is indeed cost beneficial; and (ii) whether the technical order was properly supported by “reasoned judgment” and “intelligibly explained,” and thus, not subject to being set aside as arbitrary and capricious.
In short, the Court found that FERC did not go too far in affecting retail markets and regulated on the wholesale side. Acknowledging the breadth of regulatory authority over affecting wholesale rates and charges must be read with “common sense” and care so as not to extend the same beyond its intended reach, the Court concluded that because wholesale demand responses result in reduced wholesale rates, the rules and regulations that govern same are a direct effect on the wholesale markets.
In a footnote the Court notes even if states could achieve the same result by giving rebates to customers for non-use, the process would be less efficient. The dissent uses this same example to support its view that the overall program in practice is the equivalent to offering credits to retail customers in excess of FERC’s authority.
FERC Commissioner Tony Clark’s post decision comments predict further judicial involvement as participants test jurisdictional limits. He invites the Commission to re-evaluate its approved pricing mechanism, referred to by the commissioner as a “compensation regime that continues to be widely panned by market experts.
For another review of the case and its common sense outcome, see college member Seth Jaffe’s post.
Posted on January 7, 2016
The Paris Agreement on climate change reached on December 12, 2015 has a heavily negotiated sentence that, when closely read, seems to call for the virtual end of fossil fuel use in this century unless there are major advances in carbon sequestration or air capture technology. That, in turn, has important legal implications.
Article 4 Par. 1 says, “In order to achieve the long-term temperature goal … Parties aim to reach global peaking of greenhouse gas emissions as soon as possible … and to achieve rapid reductions thereafter in accordance with best available science, so as to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century.”
In other words, what goes up should be taken back down: for every ton of greenhouse gases (GHGs) emitted from a smokestack, tailpipe or chopped tree, a ton should be removed.
According to the Intergovernmental Panel on Climate Change’s Fifth Assessment Report (2014), fossil fuel use emits about 32 gigatons of carbon dioxide per year. Other sources, such as methane leakage, cement manufacture, and other industrial processes add another 5-7 gigatons carbon dioxide equivalent. Deforestation and other agriculture, forestry and other land use changes (but subtracting emissions sequestered by forest growth) add yet another 10-12 gigatons a year. This all adds up to about 49 gigatons. However, global carbon sinks remove only about 18 gigatons per year (8.8 to the oceans, 9.2 to land, not including land use changes).
Thus the sinks take up about the equivalent of the non-fossil sources. In order to achieve a “balance” between emissions and sinks, we need to just about end the release of GHGs from fossil fuels, though a radical increase in sinks or reduction on non-fossil fuel emissions would provide some slack.
Assuming that some kind of balance between emissions and sinks can be achieved, would we actually have until 2099 to decarbonize the economy, as these numbers imply is needed? Not really. Kelly Levin, Jennifer Morgan and Jiawei Song at the World Resources Institute provide here an illuminating overview of what is required to achieve the long-term temperature goal in Article 2 of the Paris Agreement (“holding the increase in global average temperature to well below 2° C above pre-industrial levels and to pursue efforts to limit temperature increase to 1.5° C”). As the WRI post notes, a recent paper in Nature Climate Change suggests that carbon dioxide from electricity would have to be brought close to zero by 2050, and by then around 25 per cent of energy required for transportation would also need to come from electricity (up from less than one per cent now).
There seem to be only three ways to continue to use fossil fuels for electricity in the second half of the century (and for transport by the end of the century) and still meet the temperature goal:
- Capture the carbon before it escapes into the air, and sequester it
- Devise, and deploy on a massive scale, technologies to remove the carbon from the air, and sequester it
- Create new sinks, such as through the immediate halt to deforestation and a worldwide program of tree planting
All three of these raise a question of how long the carbon will be stored; we do not know how long carbon will stay in reservoirs, and we do know that trees do not live forever, and when they burn or die they release their carbon. Moreover, the technologies of carbon capture and sequestration, and of removing carbon from the ambient air, are developing slowly and are nowhere near large scale deployment. (A price on carbon would create an economic incentive to develop and use these technologies, but politicians in most places are unwilling to impose such a price. A large-scale government-funded research effort, such as the ones that put human beings on the moon, could also produce the necessary innovation, but there has been little visible support for such an effort.) Most of the industrial carbon sequestration that now occurs goes toward “enhanced oil recovery” – squeezing oil out of depleted reservoirs – but extracting more oil is not compatible with stopping fossil fuel use.
Finding the land for large scale tree planting would face its own challenges in a world where sea level rise, persistent drought, and extreme heat will be rendering much land unsuitable for growing food.
So meeting the demands of society for energy means a combination of aggressive energy efficiency and conservation programs, the installation of renewable energy (and, perhaps, nuclear), and the substitution of electric or hydrogen vehicles for those using petroleum at an unprecedented pace. The Deep Decarbonization Pathways Project has set forth the colossal amount of new facility construction that would be required worldwide to achieve this.
The Paris Agreement calls on all countries to strengthen their pledges to reduce GHG emissions, and to monitor their progress and report it to the world. It also says that “all parties should strive to formulate and communicate long-term low greenhouse gas emission development strategies.” (Article 4 Par. 19) That looks like strategies under which every country must show how it is controlling its fossil fuel use.
These provisions are not legally enforceable. However, many domestic laws are, and they will become a powerful tool to force early planning, or at least disclosures. One key example is the securities disclosure requirements for publicly traded companies. On January 27, 2010, the U.S. Securities and Exchange Commission issued guidance for the disclosure of climate-related risks. It specifically calls on companies to “consider, and disclose when material, the impact on their business of treaties or international accords relating to climate change.” The Paris Agreement is clearly such an accord, and (if it is vigorously implemented) it will have material impact on many companies in the business of extracting, processing and using fossil fuels, or making things that rely on fossil fuels (such as motor vehicles, ships and airplanes). The SEC’s guidance makes clear that management’s discussion and analysis should explore known trends and uncertainties concerning climate regulation. This includes regulation outside the U.S. that can affect the operations abroad of U.S. companies. Therefore, disclosure can be expected of the effect of severe restrictions here or in other countries on fossil fuel use, including the possibility that most fossil fuel reserves will need to stay in the ground.
Climate disclosures have received increased attention since it was reported in November that New York Attorney General Eric Schneiderman is investigating ExxonMobil under the New York securities law, the Martin Act, over its statements about climate change, and had reached a settlement with Peabody Energy.
This is not necessarily limited to U.S.-registered companies. For example, in April 2015 the G20 finance ministers and central bank governors asked the U.K. Financial Stability Board for advice on the financial stability implications of climate change. In November 2015 this Board proposed the establishment of a disclosure task force to develop voluntary disclosures for several climate-related risks, including “the financial risks which could result from the process of adjustment towards a low-carbon economy.”
Going forward, impact review of energy projects under the National Environmental Policy Act and its counterparts in many states and most other developed countries should consider the phase-out of fossil fuels that is inherent in the Paris Agreement. For example, a proposal to build or finance a coal mine, a coal-fired power plant, or a coal port should consider whether the facility would need to be closed before the end of its otherwise useful life, and whether the project would be inconsistent with the Agreement.
Systematic analysis and disclosure of these risks will lead responsible boards of directors to undertake serious planning to effect an orderly transition to the low-carbon world that 188 countries agreed to in Paris. These disclosures will also help investors decide what companies will thrive in such a world (such as developers of technologies for renewable energy and efficiency), and what companies are failing to prepare for the transition and thus will themselves become fossils.
Posted on October 14, 2015
Many organizations have announced voluntary greenhouse gas emission reduction goals by which they aim to reduce their emissions of greenhouse gases despite the absence of any legal requirement to do so. Meeting these goals implicates the concept of additionality when the goals are to be met, in part, through off-site actions, such as the purchase of carbon offsets, retirement of renewable energy credits, or construction of off-site renewable energy projects. The concept of additionality seems simple: in principle, emission reductions attributable to an organization’s actions should only be recognized or “counted” if such reductions are more than what would have been achieved absent the action. Applying the concept of additionality in the real-world, however, is complicated. Perhaps unnecessarily so?
First, the “proof” of additionality required by many of the certifying bodies can be confusing and conflicting. For the faint of heart, the concern about proof discourages any action other than the purchase of “certified” paper offsets. A second, confounding problem results from the greening of the grid itself. Emissions have been falling for many organizations simply because the electricity they procure from the grid is becoming less carbon intensive. How to square these emission reductions with the concept of additionality leads one to question how the concept of additionality should be applied to voluntary emission reduction goals.
In the context of regulated organizations, the idea of additionality makes sense. Organizations that must comply with a regulatory scheme to reduce their emissions of greenhouse gases should not be allowed to claim credit for off-site actions if such actions do not, in fact, lower emissions beyond what they would have been absent the organization’s actions. No organization (regulated or unregulated) wants to waste money paying for off-site actions that do not in fact lower emissions. Establishing that a particular organization’s action will, in fact, lower emissions more than would have occurred absent that organization’s action turns out to be much more difficult than it at first appears given the multiplicity of variables that come into play: who else might be inclined to take the same action? When? For what reason? Is the action occurring in an area governed by a renewable portfolio standard or not? Many different criteria are used by regulatory agencies and voluntary verification programs. Three examples are helpful.
The California Air Resources Board treats emission reductions as “additional” if they exceed what would be required by law or regulation and if they exceed what would “otherwise occur in a conservative business-as-usual scenario.” 17 CCR § 95802(a)(4). The American College & University Presidents' Climate Commitment (“ACUPCC”) replaces “conservative business-as-usual” with “reasonable and realistic business-as-usual.” The Verified Carbon Standard adds a requirement that the reductions are additional only if they would not have occurred “but for” the offsite organization’s investment. These different definitions have real consequences for the types of offset projects (i.e., emission reductions) qualifying as “additional.” Energy efficiency projects at a school in an economically disadvantaged city might count as additional under ACUPCC’s definition because the schools are unlikely to undertake the energy efficiency measures themselves. In contrast, such measures are unlikely to count as additional under the Verified Carbon Standard definition because the schools would save money from the efficiency measures if undertaken by themselves.
For unsophisticated organizations with limited resources, using the most conservative criteria for additionality that have been developed by other parties, whether regulatory agencies or voluntary verification programs, makes sense – emission reductions are assured and at minimal transactional cost to the organization. For more sophisticated organizations with resources to experiment and innovate, strict adherence to conservative additionality criteria can be counterproductive. Many large municipalities, large research universities and corporations have the in-house capacity to invest in bold and innovative experiments and to assess whether a given project or investment is in fact reducing emissions. Organizations such as these could use their in-house talent and money to develop creative, bold, innovative and novel projects that could reduce emissions, but will they do so if such projects might fail a strict additionality test? At a university, such projects have the added benefit of complementing the core mission to teach, research, and demonstrate ideas that others beyond the university could leverage. Should an organization abstain from pursuing such projects simply because they would fail a strict additionality test, which the organization is not legally obligated to apply? Should we re-think the circumstances in which strict observance with additionality is necessary to avoid a public relations nightmare (i.e. being accused of not really meeting the voluntary goal)?
The application of additionality in the context of voluntary goals is also complicated by the fact that the electric grid itself is becoming greener. Most organizations include in their greenhouse gas emission calculation the emissions resulting from their electricity consumption. Many organizations first announced their voluntary emission reduction goals five to ten years ago when few predicted that the electric grid would become significantly greener so fast. Here in Massachusetts, largely because of the increased use of natural gas, the electric grid now emits 20% less carbon dioxide per MWh consumed than it did ten years ago. That means that an organization in Massachusetts that has not taken any action designed to reduce its emissions will nevertheless have lowered its emissions by consuming electricity from the local grid. Crediting such emission reductions towards a voluntary goal is in tension with the concept of additionality because the reductions occurred without the need for the organization to take any action designed to reduce its emissions.
Hence, the greening of the grid should cause an organization to re-think the nature of its voluntary emission reduction goal: is the goal simply an accounting objective that can be met by actions external to the organization, such as the greening of the grid by electric utilities, or is it a a bigger, perhaps even moral, commitment to undertake a minimum level of effort to reduce emissions in addition to those resulting from the greening of the grid? If the former, an organization committed to a voluntary goal can celebrate that the utilities have made its commitment cheaper to attain. If the latter, perhaps an organization should make its goal even more stringent to avoid taking credit for emission reductions achieved by others. Is this second approach more consistent with the concept of additionality? Should we applaud an organization that is not required by law to make any emission reductions but that purchases some carbon offsets and declares it has accomplished its voluntary goal of emission reductions? Should we applaud an organization that designs, invests in or otherwise makes an effort to create a project that actually achieves emission reductions even though it is possible that someone somewhere might also have the same idea and be willing to make the same investment?
I do not pretend to have the answers to these questions. But, I do know that many organizations that have set voluntary goals are grappling with these questions now, and others will face them in the future. I welcome your comments.
Posted on June 19, 2015
On June 12, 2015, EPA’s final rule calling for 35 states and the District of Columbia to revise their regulations on excess emissions during startup, shutdown and malfunction was published. This rulemaking saga dates back to a June 30, 2011 petition filed by the Sierra Club. The vast majority of these regulations have been part of State Implementation Plans (SIPs) since the 1970s or early 1980s. As EPA sets out in the rule, the question of how to deal with emissions during startup, shutdown and malfunction (SSM) has also been the subject of guidance issued in 1982, 1983, 1999, 2001, and now 2015. This is a tough issue.
EPA found that a majority of the states have regulations that impermissibly allow a source to assert affirmative defenses to avoid a determination that excess emissions due to SSM events are violations of the Clean Air Act. Similarly, EPA also concluded that regulations providing discretion to the state agency to determine whether excess emissions are violations are improper. Because such provisions deprive EPA or citizens of the ability to pursue enforcement action, EPA concludes the provisions are impermissible. The preamble also points out that broad SSM exclusions under state law would effectively allow state agencies to usurp the authority given to the federal courts by Congress to enforce SIPs and determine penalties. In response to concerns voiced by the regulated community, EPA emphasizes that sources can assert any common law or statutory defenses they believe are supported by the circumstances when they get to court.
With respect to startup and shutdown provisions, the rule reiterates that different emissions limitations can apply to particular modes of operation and the preamble discusses the use of work practice standards rather than numerical emission limitations. EPA recommends seven criteria as appropriate considerations for States as they consider SIP revisions to address startup and shutdown provisions in response to the SIP Call. The criteria seem designed to encourage a series of source category-specific rules to replace regulatory provisions that apply to all types of emission sources. However, EPA also emphasized that each state has discretion to determine the best means by which to make a revision so long as the revisions are consistent with the Clean Air Act. It remains to be seen how states will choose to respond and the extent of administrative burden this process will impose on agency staff.
Affected states have until November 22, 2016 to respond to the SIP Call. Until EPA takes final action on the SIP submittals, the existing SIP provisions remain in effect. SIP calls were issued for Maine, Rhode Island, New Jersey, Delaware, District of Columbia, Virginia, West Virginia, Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Illinois, Indiana, Michigan, Minnesota, Ohio, Arkansas, Louisiana, New Mexico, Oklahoma, Texas, Iowa, Kansas, Missouri, Colorado, Montana, North Dakota, South Dakota, Arizona, California, Alaska, and Washington.
Posted on December 30, 2014
You’ll have to turn to more traditional holiday reading because EPA’s methane reduction strategy for the oil and gas industry won’t be available until next year. On March 28, 2014, the White House released its Strategy to Reduce Methane Emissions and instructed EPA to develop a comprehensive plan to reduce methane emissions from landfills, coal mines, agricultural operations, and the oil and gas industry. The White House further directed EPA to address oil and gas sector methane emissions by building on the emission reduction successes of existing regulations and voluntary programs.
EPA responded to this directive by publishing five white papers on methane emission sources in the oil and gas sector in April 2014, and requesting peer review and comment on each. The white papers address methane and volatile organic compound (VOC) emission mitigation techniques for: compressors, hydraulically fractured oil well completions and associated gas from ongoing production, equipment fugitive leaks, liquids unloading, and pneumatic devices.
Contemporaneously, EPA proposed enhancements to its long-standing and successful voluntary program for methane emission reductions—the Natural Gas STAR Program. EPA initiated the Natural Gas STAR program in 1993 to encourage voluntary methane emission reductions in the oil and gas sector through the application of cost-effective technologies and improved work practices.
EPA seeks to enhance the existing voluntary program with 17 “Gas STAR Gold” methane reduction protocols and a heightened recognition incentive for participating companies. There is a proposed Gas STAR Gold protocol for each of the source activities addressed by a technical white paper, with the exception of methane emissions from well completions following hydraulic fracturing. Other proposed Gold STAR protocols address methane emissions associated with casinghead gas, flares, glycol dehydrators, hydrocarbon storage tanks, and pipelines.
To achieve Gas STAR Gold status, a participating company must certify that at least one of its facilities has implemented all applicable Gold STAR protocols. Companies with at least 90% of their facilities implementing all applicable Gold STAR protocols achieve “Gas STAR Platinum” status.
While few doubt that EPA will pursue methane emission reductions via a regulatory framework, it is speculation only whether EPA’s approach will consist of methane reductions as: (1) a co-benefit of regulations aimed at VOC emissions; (2) direct regulation of methane emissions; or (3) a combination of these approaches. Regardless of the regulatory direction EPA takes, expanded and enhanced voluntary measures will certainly be part of its comprehensive strategy for reduced methane emissions.
EPA’s next step will be to announce the type of regulatory framework necessary to achieve White House goals, and explain how voluntary efforts fit into that framework. Although EPA aimed to announce that planned strategy by the end of the year, recent reports indicate that a January 2015 announcement is more realistic. It looks like we will have to look elsewhere for our leisure holiday reading. (Thanks are due to Karen Blakemore in our Baton Rouge office for all that is good and useful in this post.)
Posted on June 12, 2014
Buoyed by favorable recent Supreme Court and DC Circuit decisions recognizing EPA’s broad discretion under the Clean Air Act, on Monday, June 2, EPA scaled new heights of legal adventurism by proposing the Clean Power Plan, a greenhouse gas reduction program for the power sector that would compel states to implement supply- and demand-side energy strategies. EPA projects that its proposal would achieve approximately a 30% reduction from 2005 levels by 2030.
EPA’s action is under section 111(d) of the Clean Air Act, a little-utilized section that authorizes EPA to set emission guidelines for states to regulate listed source categories whose emissions are not regulated under either the Act’s criteria pollutant program under section 108 or the hazardous air pollutant program of section 112. The College recently prepared an excellent overview of section 111 authority for the Environmental Council of the States (ECOS).
Certain aspects of EPA’s proposal are worth noting. First, in stark contrast to prior stationary source rules, EPA seeks to harness the entire energy system, not just efforts at individual sources. The bulk of the proposed emission reductions will come not from the minor expected heat rate improvements at individual electric generating units (EGUs)(EPA’s first “building block”), but from directing states to increase generation at natural gas plants and renewables while reducing electricity demand. Three of EPA’s four “building blocks” thus address emission reductions that are outside the control of EGUs, the listed source category. Consistent with this approach, EPA proposes a portfolio enforcement approach by which states would be authorized to oblige entities other than the affected source for the reductions in building blocks two through four. The proposal calls for an overall state energy plan, not just for implementing emission reduction opportunities available to individual sources.
Second, the proposal does not establish common performance standards, but sets highly-variable standards for each state based on EPA’s assessment of the state’s individual capacity to reduce emissions under each of the four building blocks. EPA clearly listened to state pre-proposal input regarding material differences in each state’s EGU portfolio, its capacity to harness wind and solar generating technologies and other state differences.
Although the proposal’s projected benefits reflect an estimated 30% emission reduction from 2005 levels, EPA actually uses 2012 as the baseline for measuring a state’s starting carbon intensity. Because EPA sets each state’s interim and future carbon intensity targets based on the state’s capacity for reducing, shifting or avoiding EGU emissions, it is not surprising that the proposal does not provide any state with early action credit in the traditional sense. Some states are further along on their individual progress lines, but as currently designed the proposal does not allow any state to monetize its early reductions nor to avoid future progress based on its prior actions. This means that some states will be expected to do more than others for the foreseeable future. And, unless a true early action mechanism is included in EPA’s final rule, some states, such as California, may continue to incur net energy costs higher than their neighbors.
Several commenters have noted the material legal risk that EPA takes with this proposal. Among the many expected challenges will be that EPA cannot regulate EGUs under section 111(d) because the House version of that section precludes such regulation if the source category already has been listed under section 112. The proposal also could be challenged for including in the “best system of emission reduction” (BSER) emission reductions outside the control of the source and for obliging the state and entities other than EGUs to achieve such reductions. EPA argues in its proposal that it can require states to consider any measure that has the effect of reducing EGU emissions (i.e., an “effects” or “ends” test), but some will argue that section 111 only allows EPA to require those emission reduction options (i.e., “means”) available to the EGU itself.
Should EPA fail to finalize one or both of its section 111(b) new and modified/reconstructed unit proposals, then it may be challenged for a failure to finalize the prerequisite 111(b) rule. Other challenges could relate to an alleged failure properly to subcategorize facilities and for stepping beyond its emission reduction role to, in essence, regulate a state’s energy policy.
EPA has left some important design issues unresolved. EPA strongly encourages interstate cooperation, including the use of emissions trading, but it leaves the actual shape of such linkages undefined. Similarly unresolved is the question of how states can interact if they act alone. Given the regional nature of power markets and the fact that emission reductions occurring in one state often result from investment (on either the supply or demand side) in another, states and companies will need to know the ground rules for adjudicating potentially-conflicting claims for state plan credit and company compliance credit. EPA seeks comment on these and other critical issues.
For those interested, a more substantive analysis of the proposal can be found here.
Posted on April 22, 2014
Apart from a relatively mild editorial in the New York Times, the April 13, 2014 report of the Intergovernmental Panel on Climate Change (IPCC) warning that despite global efforts, greenhouse gas emissions actually grew more quickly in the first decade of the 21st century than in each of the three previous decades, was greeted, let us say, rather tepidly. In essence, the IPCC report declared that meeting the consensus goal limit of two degrees Celsius of global warming by mid-century would require mitigation measures on an enormous scale which, if not begun within the next decade, would become prohibitively expensive thereafter. As the New York Times put it, this is “the world’s last best chance to get a grip on a problem that . . . could spin out of control.”
Humankind’s track record for global cooperation on any scale is not good. When was the last time world peace broke out, or global poverty became a worldwide priority? The 2008 re-make of the 1951 classic film, The Day the Earth Stood Still, illustrates the problem. In the original movie, the alien civilization sent police robots to stop human aggression and nuclear weapons from spreading beyond Earth; in the re-make, the alien civilization decided that our species would have to be eliminated lest it destroy one of the rare planets in the universe capable of enormous biodiversity. In pleading with the alien for another chance, Professor Barnhardt says, “But it’s only on the brink that people find the will to change. Only at the precipice do we evolve.” And, of course, eventually and after a pretty flashy show of power and destruction, the alien rescinds the death sentence, agreeing with the Professor that at the precipice, humans can change.
Are we there yet? At the precipice? Hard to know. As Seth Jaffe pointed out in his April 14, 2014 post, global giant ExxonMobil has recognized the reality of climate change, but doubts there is sufficient global will to do much about it. On the other hand, the American Physical Society warmed the hearts of climate change skeptics in appointing three like-minded scientists to its panel on public affairs. I tend to agree with that great fictional academic, Professor Barnhardt; it will take something that all humankind recognizes as the clear and unmistakable hallmark of the precipice before we collectively put on the brakes. In the meantime, we muddle through to the next opportunity, the 21st Conference of the Parties in Paris in December 2014, the first such summit meeting on climate change since Rio in 1992.
Posted on February 18, 2014
The valleys and mountains of the Great Basin hold cold air in when a high pressure parks itself overhead, with the result that the valleys with significant populations, primarily the 100+ mile Wasatch Front, are subject to a wintertime PM2.5 grunge that builds up until the next storm front moves in to clear it out.
Although Salt Lake City and other parts of the state are in compliance with the annual PM2.5 NAAQS, exceedances of the 24-hour NAAQS have been recorded during inversion periods since 2006, when EPA lowered that standard from 65 μg/m3 to 35 μg/m3. As a result, Utah is going through an arduous PM2.5 state implementation plan (SIP) revision process to address the PM2.5 nonattainment.
Because we can’t change the topography around here or install fans large enough to blow air out of the valleys, the state must seek reductions in emissions that contribute to the wintertime PM2.5 exceedances. Nearly three-fifths of those emissions are from car and truck emissions. About thirty percent of the contributing emissions are from area sources and wood-burning fireplaces and stoves. And the rest of the emissions –only about a tenth of the PM2.5 precursor and direct emissions – are contributed by large industrial sources in the airshed.
The proposed SIP seeks some reductions from the large industrial sources, which must be retrofit not with RACT but with the equivalent of BACT, notwithstanding hundreds of millions of dollars of pollution control improvements already installed over the last decade. The rest of the PM2.5 emissions to be reduced during inversions must come primarily from mobile source and area emissions.
The modeling underlying the SIP shows that attainment will barely be reached by the 2019 attainment date. But, with the D.C. Circuit throwing out the PM2.5 implementation rule a year ago and requiring EPA to promulgate a new one under more restrictive provisions of the CAA and the predictable citizen’s suits, who knows if attainment can be achieved short of literally turning out the lights and leaving town.
The Utah Legislature is in session and legislators are falling over each other trying to show that they care about cleaner air. However, there is not much state legislators can do, given that the emissions and fuel standards for mobile sources are set by the federal government (with states having the option of adopting California standards under certain circumstances). So, the state is squeezed between the Wasatch Mountains on the one side and the Clean Air Act on the other. It might be easier to cart off the mountains than to bring the Clean Air Act requirements into alignment with the real world.
Posted on January 15, 2014
Some regulatory and economic forces are calling into question the business models of some of the world’s largest oil and gas, coal and electric power companies, and posing a new kind of risk to the investors who own them. Variously described as “unburnable carbon,” “carbon asset risk,” “stranded assets,” “peak carbon,” or the “carbon bubble,” this issue has recently become a hot topic among institutional investors, energy analysts, the International Energy Agency (IEA) and a handful of NGOs—and as a result, some of the world’s largest energy companies.
According to the International Energy Agency and UK NGO Carbon Tracker Initiative (CTI), 2/3 of the current proven carbon reserves of the world’s publicly listed fossil energy companies need to be left in the ground to avoid warming exceeding 2 degrees. Yet according to CTI, these oil, gas and coal companies spent over $650 billion in 2012 to explore and develop new reserves. If these reserves are substantially unusable, or if their use causes catastrophic change, this business model and strategy are unsustainable.
The “unburnable carbon” thesis is based in part on the premise that governments will take action to restrict GHG emissions to avoid catastrophic climate change. Alternatively, global demand for fossil fuels may peak and decline due to a combination of advances in energy efficiency, switching to renewables and cleaner fuels (e.g., from coal to gas), and environmental regulation generally.
These regulatory and market forces, in combination with energy companies’ varying production costs for conventional and unconventional (e.g., tar sands, hydraulic fracturing, deepwater drilling) resources, are predicted to cause high cost producers’ reserves to become “stranded assets.” Indeed, we are already seeing some stranded assets in the U.S. coal industry, where demand— and share prices —have fallen significantly. Proven, producible reserves are a key determinant of the market valuation of fossil energy companies. If the “unburnable carbon” theory is even partially valid, some of these companies’ valuations are at risk.
Based on concerns about “Carbon Asset Risk,” in September 2013, 70 institutional investors, who collectively manage assets of nearly $3 trillion and own substantial shares of major energy companies’ stock, sent letters to 45 of the world’s largest oil & gas, coal and electric power companies inquiring about their exposure to this issue. The letters asked the companies to do scenario analyses on the impact on their business of regulations that would limit global warming to 2 or 4 degrees Celsius, to assess their capital expenditure plans for reserve development under differing demand scenarios, and also to assess the impact of unmitigated climate change on their operations, and to share the results of these analyses with their investors.
More than 30 of the recipient companies have made initial responses, ranging from agreeing to do the requested analyses, to requesting clarification on what the investors are seeking. Others claim they have fully assessed these risks, or dismissed the requests and underlying concerns as totally unfounded. The participating investors intend to engage in dialogues with those companies that respond constructively, and initial meetings have occurred with several major oil companies.
It is anticipated that investors will file shareholder proposals seeking the same assessments and disclosures from U.S. listed companies that are unresponsive or decline to cooperate, and nine such proposals have been filed to date. Some of these resolutions will likely be voted on at corporate annual meetings during the 2013-14 proxy season.
It is unlikely that the institutional investors’ Carbon Asset Risk initiative will convince Exxon Mobil or Peabody Energy that they are in the wrong business or to abandon production of oil, gas and coal. But the unburnable carbon thesis and the risk of stranded assets do raise serious questions about the viability of the long-term business strategies of many fossil energy companies. They are effectively betting that governments will not take meaningful action to curb climate change anytime soon, that climate change won’t have serious physical and economic impacts on their businesses, and that demand for their products will continue to increase for the foreseeable future.
As an investor, I would not bet my money that they are right. And as a lawyer I’d ask if there are material SEC disclosure issues about these risks, the value of their reserves and potential liabilities to shareholders should these assets become stranded.
Posted on December 30, 2013
On the eve of the December 10, 2013 oral argument before the U.S. Supreme Court in the litigation involving the Cross State Air Pollution Rule, nine Northeast states – Connecticut Delaware, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island and Vermont (Petitioners) – filed with EPA a petition under Section 176A of the Clean Air Act. Section 176A, a product of the 1990 Clean Air Act Amendments, allows EPA to establish, by rule, a transport region whenever the Administrator has reason to believe that the interstate transport of pollutants from one or more states contributes significantly to a violation of a NAAQS in another state or states.
Petitioners’ Section 176A petition seeks to expand the Northeast Ozone Transport Region (OTR) to include the states of Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia and West Virginia. To review a copy of the petition click here. It alleges that the targeted upwind states have failed to fulfill all Clean Air Act requirements because their air pollution control programs do not require the installation of controls as stringent as required by the OTR and because air pollution from the upwind states is transported into the OTR, thus contributing to violations of the 2008 National Ambient Air Quality Standard for ozone within the OTR states. The Petitioners hope that the petition, if granted, will subject the targeted states to more stringent requirements in the form of revised State Implementation Plans for VOC and NOx emissions, including but not limited to additional requirements for enhanced Inspection and Maintenance of mobile sources, nonattainment New Source Review, and Reasonably Available Control Technology. Those opposed to Petitioners’ action question the technical basis for the petition, noting that it relies so heavily on data published no more recently than 2005. The Administrator of USEPA has 18 months to approve or disapprove of the petition.
The December 2013 Section 176A petition is the latest in a series of actions under the Clean Air Act to address interstate transport issues related to ozone in the Northeast. Many will recall that similar petitions were filed under Section 126 of the Clean Air Act in the late 1990’s even as USEPA was developing the NOx SIP Call. That rulemaking was followed by the Clean Air Interstate Rule and then by the Cross State Air Pollution Rule.
The Cross State Air Pollution Rule, which was struck down by the Court of Appeals for the District of Columbia in August of 2012, sought to address transport concerns by imposing additional pollution control requirements on coal fired power plants in the eastern half of the country. The Court of Appeals held that USEPA didn’t give states enough time to devise their own emissions reduction plans and did not limit the fix to each state’s “significant contribution” to the overall problem. It is that rule that is currently before the U.S. Supreme Court and is the subject of a recent article written by Andrea Field. To review a copy of that article click here.
Posted on December 13, 2013
December 10, 2013 was a banner day in Clean Air Act jurisprudence. On that date, the Supreme Court – which has heard only 19 environmental law cases in the past decade – set aside 90 minutes for argument concerning EPA’s Cross-State Air Pollution Rule (CSAPR). And at virtually the same time, just a short distance away, the D.C. Circuit was hearing challenges to major portions of EPA’s Mercury and Air Toxic Standards (MATS) Rule. If you were unable to attend either argument but want to know more about the arguments than you can learn from the press reports, then this “Advice from Air Act Andy” column is for you.
Question: Based on questions asked by the Justices in the CSAPR argument, the press is predicting that the Supreme Court is going to reverse the D.C. Circuit’s vacatur and remand of CSAPR. What do you think?
Air Act Andy: I learned years ago (in an earlier case involving interstate transport of pollution under the Clean Air Act) that it is unwise (and ultimately embarrassing) to predict what a court will do based on the questions asked at oral argument. That is particularly true of the December 10, 2013 CSAPR argument in the Supreme Court, where the vast majority of the Justices’ questions focused on what role costs should or may play in the drafting of a rule designed to address the interstate transport of air pollution. Admittedly, many of the Justices seemed to be on the same costs-can-play-a-role-in-this-kind-of-rulemaking band wagon; however, the cost issue was not a key part of the D.C. Circuit’s decision. (Indeed, some would say it wasn’t an issue at all in the D.C. Circuit.) Because the Court spent so much time on the cost issue and asked so few questions about the other bases for the D.C. Circuit’s vacatur of CSAPR, it would be foolhardy to predict what the Court will decide on those other crucial issues (including the so-called FIP/SIP issue and over-control issue).
Question: Was the CSAPR argument chocked full of analogies?
Air Act Andy: Indeed, it was. Malcolm Stewart (counsel for the government and apparently a basketball player) used a slew of basketball analogies to describe the concept of “significant contribution.” There were also charitable giving analogies, a pin-the-tail on the donkey analogy (from Justice Scalia), a shooting-and-stabbing the victim analogy (from Chief Justice Roberts), and an extended cow and sheep grazing analogy (from Justice Breyer).
Question: Did the Court take an exercise break in the midst of argument?
Air Act Andy: Yes. After Mr. Stewart’s argument, Chief Justice Roberts announced a “30 second break” during which several of the Justices stood up and did a limited round of Musical Chairs, but without removing any chairs.
Question: Did a lawyer from Texas admit to being an agnostic?
Air Act Andy: Kind of. On the issue of the role that costs should play in interstate transport rules, Texas’s Solicitor General said that the states “are remaining agnostic.”
Question: It has been my experience that the D.C. Circuit initially imposes strict time limits on oral advocates, but it then routinely lets those presenting argument take extra time to address issues of interest to the court. In the MATS case, the court gave the advocates much more time than usual to present their arguments. In exchange for giving advocates more time up front, did the court insist that advocates sit down when the red light went on?
Air Act Andy: That is not how it played out. Chief Judge Garland (who sat on the panel along with Judge Rogers and Judge Kavanaugh), told counsel at the outset that the court would keep to the pre-allotted two hours designated for all 12 arguing attorneys, but – in fact – the MATS argument lasted three hours. The panel peppered petitioners’ counsel and EPA’s counsel with questions, digging into several technical arguments with a fine-toothed comb of the record. Not one petitioners’ counsel had any time left for rebuttal.
Question: I heard that the courtroom had an explosive feel. Is that true?
Air Act Andy: Ah, perhaps you are referring to the moment when Judge Garland’s heavy binder of materials crashed to the floor near the beginning of EPA counsel’s remarks during the first of three phases of the argument. Unflappable as always, though, Judge Garland just told counsel to “Go ahead.” “Don’t mind us,” Judge Kavanaugh added.
Question: What is the appropriate dress for the Supreme Court?
Air Act Andy: I am so glad you asked this question. Based on what I saw people wearing on December 10, I would have said that “appropriate dress” is wearing anything that is black, charcoal gray, or navy blue. Having returned to the Court the next day to hear a colleague of mine argue a case, though, I must now amend my answer. When I arrived at the Court on December 11, wearing a long stylish gray cardigan sweater instead of a suit jacket, I was stopped by guards and politely told I would not be allowed to sit in the section reserved for members of the Supreme Court Bar unless I replaced my fashionable sweater with a suit jacket. Someone from the clerk’s office then graciously provided me with a nice-fitting ladies suit jacket with a label indicating that the jacket was from the “Lady Executive Signature Collection.” This is something Air Act Andy will keep in mind for the next visit to the Supreme Court – which will likely be in February 2014, when the Court is scheduled to hear argument on EPA’s greenhouse gas rules.
Posted on December 3, 2013
On November 21, 2013 the Delaware Supreme Court issued a final ruling on an appeal closing out a long saga of litigation over the scientific evidence proffered in support claims of birth defects among children born to workers in the semiconductor manufacturing industry. In Tumlinson v. Advanced Micro Devices, the Supreme Court affirmed the trial court’s decision to exclude the plaintiffs’ key medical causation expert on Daubert grounds and thus dismissed one of the lead cases advancing the theory that working in so-called “clean rooms,” used for semiconductor wafer manufacturing, is unhealthy and can lead to birth defects in the offspring of such workers.
Wendolyn Tumlinson, one of the two adult plaintiffs, had worked at an AMD manufacturing site in San Antonio, Texas and her son was born with several birth defects, including anal atresia and stenosis, neurogenic bladder, renal agenesis/hypoplasia, imperforate anus and colo-vesicular fistula. The other adult plaintiff was married to Anthony Ontiveros who had worked at an AMD semiconductor manufacturing site in Austin, Texas and her daughter was born with several birth defects, including pulmonic stenosis, congenital pulmonary valve atresia, ventricular septal defect, right pulmonary hypoplasia, lower limb reduction defects, and situs inversus with dextrocardia. Each mother claimed that the exposures to chemicals in clean rooms were the cause of their child’s birth defects.
Plaintiffs filed their complaint on July 11, 2008 and for the next two years the parties engaged in discovery and motion practice. In December 2010, AMD moved to exclude the expert opinion of the plaintiffs’ expert, Dr. Linda Frazier, claiming it was unreliable and not relevant under Delaware Rule of Evidence 702. In April 2011, the trial court held a four-day Daubert-type evidentiary hearing to evaluate the admissibility of Dr. Frazier’s testimony and concluded that because her methodology was inadequate to establish causation under Texas substantive law (including the Texas’ courts’ interpretation of Daubert), it accordingly failed to satisfy Delaware procedural law and was excluded. As a result of the exclusion, judgment was entered for defendant AMD.
On appeal, the Delaware Supreme Court (there is no intermediate appellate court in Delaware), first remanded the case to the trial court with direction to determine the reliability of Dr. Frazier’s opinion under Delaware (as opposed to Texas) law. This time the trial court evaluated the reliability of Dr. Frazier’s testimony under the US Supreme Court’s decision in Daubert v. Merrell Dow Pharmaceuticals case principles as interpreted under Delaware law, and found Dr. Frazier’s opinion failed to meet that standard.
The Delaware Supreme Court then evaluated the trial court’s second decision and affirmed its conclusion. It focused on, among other things, Dr. Frazier’s failure to base her opinion on studies that were specific to (1) the clean room chemicals the parents were exposed to, and (2) the specific birth defect outcomes the plaintiff children suffered from. It also found that neither Dr. Frazier’s methodology for evaluating the medical literature, nor her conclusions, were peer reviewed or had appeared in any peer reviewed journals. It rejected an argument by plaintiffs that an affidavit submitted by other experts retained by the plaintiffs that “endorsed” Dr. Frazier’s opinion sufficed as a peer review. Further, the Court was critical of the expert’s opinion because it was not consistent with her research and writing outside of the pure litigation context.
As a result of this decision, the Tumlinson case is likely over (the deadline for the plaintiffs to seek en banc review by the Delaware Supreme Court is December 2, 2013). The decision may have a significant impact on the multiple other, nearly identical cases pending in Delaware against most of the major semiconductor manufacturers, as well as similar cases pending in many other state court jurisdictions.
Posted on October 30, 2013
Of the 21 separate questions presented in the 9 petitions for writ of certiorari filed in the U.S. Supreme Court in Utility Air Regulatory Group et al. v. Environmental Protection Agency et al., challenging nearly every aspect of the Environmental Protection Agency’s recent greenhouse gas regulations—from the initial “endangerment” finding to the restriction on motor vehicle emissions to the stationary-source permitting requirements—the Court granted review of only a single issue: “[w]hether [EPA’s] regulation of greenhouse gas emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.” Several commentators have interpreted this decision (reported in a prior post by Theodore Garrett) as an implicit affirmation of EPA’s regulatory regime, insofar as the Court chose not to address some of the broader challenges to the agency’s basic authority to regulate greenhouse gas emissions under the Clean Air Act. But, whatever implications might be drawn from the Court’s decision not to grant review of certain issues, far more telling is the Court’s deliberate rewriting of the question presented, narrowly tailored to address the validity of the stationary-source permitting regulations.
Those regulations rest on an exceedingly questionable interpretation of the Clean Air Act. The stationary-source provisions of the Act require any industrial facility that emits an “air pollutant” in “major” amounts—defined by the statute as 250 or more tons of the pollutant per year—to obtain pre-construction and operating permits from the local permitting authority. 42 U.S.C. § 7475. EPA acknowledges that it would be “absurd” to apply these provisions by their terms to sources of greenhouse gas emissions, since nearly every business in the country (including even small commercial enterprises and residential facilities) emit greenhouse gases at more than 250 tons per year, and the agency can offer no reason why the statute should not be interpreted instead to apply only to the large industrial facilities that emit “major” amounts of a pollutant otherwise subject to regulation under the permitting provisions—i.e., one of the so-called “criteria pollutants” for which a national ambient air quality standard has been issued. Nevertheless, EPA has interpreted the statute to apply to sources of greenhouse gas emissions and, to address the acknowledged “absurd results” created thereby, has decided that for these purposes the threshold for a “major” emissions source should be increased from 250 tons per year—as stated in the statute—by 400-fold, to 100,000 tons per year. The agency has, in other words, literally rewritten the express terms of the statute in order to justify its preferred interpretation.
The dissenting judges in the D.C. Circuit severely criticized the result. That is most likely the reason the Supreme Court granted review of the case, to correct the agency’s interpretation of the Act and ensure that neither EPA nor other agencies attempt to redo legislative power in this way in the future. Whether or not the limited nature of the certiorari grant can be viewed as an approval of EPA’s authority to regulate greenhouse gases from mobile sources, it almost certainly reflects suspicion—if not disapproval—of the agency’s stationary-source regulations. The definitive answer should come by June 2014, when the Court is expected to rule.
Posted on October 15, 2013
The Supreme Court agreed today to review the EPA’s authority to regulate emissions of greenhouse gases from stationary sources. The Justices accepted six petitions for review of the D.C. Circuit’s decision in Coalition for Responsible Regulation v. EPA (No., 12-1146 et al.), consolidated them for argument, and limited review to a single question:
“Whether EPA permissibly determined that its regulation of greenhouse gas (GHG) emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit greenhouse gases.”
The six petitions granted were filed by the Utility Air Regulatory Group, the American Chemistry Council, the Energy-Intensive Manufacturers, the Southeastern Legal Foundation, the U.S. Chamber of Commerce, and a number of states.
EPA’s position, as presented in the DC Circuit and in its opposition to certiorari, is that regulation of greenhouse gas emissions under Title II triggered permitting requirements under the PSD program and Title V of the Act, which apply to stationary sources emitting “any air pollutant” above the statutory threshold. EPA has interpreted “any air pollutant” to mean “any air pollutant regulated under the Clean Air Act,” and thus when the EPA’s regulation of emissions from new motor vehicles took effect in January 2011, the permitting requirements under the PSD program and Title V automatically applied to stationary GHG sources above the statutory threshold.
In its petition, the US Chamber of Commerce noted that EPA acknowledged that its tailoring rule would create a result “so contrary to what Congress had in mind — and that in fact so undermines what Congress attempted to accomplish with the [statute’s] requirements — that it should be avoided under the ‘absurd results’ doctrine.” With respect to the issue upon which cert was granted, the Chamber argued that EPA incorrectly determined that all “air pollutants” regulated by the agency under the Clean Air Act’s motor vehicle emissions provision, 42 U.S.C. § 7421(a)(1), must also be regulated under the Act’s Prevention of Significant Deterioration of Air Quality and Title V programs when emitted from stationary sources.
The Utility Air Regulatory Group petition expressly did not ask the Supreme Court to revisit its holding in Massachusetts v. EPA. However, the UARG petition did ask the Court to consider whether its decision in Massachusetts v. EPA compelled EPA to include GHGs in the PSD and Title V programs when inclusion of GHGs would expand the PSD program to cover a substance that does not deteriorate the quality of the air that people breathe. UARG emphasized EPA’s admission that regulation of GHGs under the Title I and Title V permit programs subjects “an extraordinarily large number of sources” to the Act for the first time, “result[ing] in a program that would have been unrecognizable to the Congress that designed PSD.”
A coalition of environmental groups opposed certiorari, emphasizing that EPA’s endangerment and contribution findings and emissions standards for motor vehicles simply implement the Supreme Court’s mandate in Massachusetts v. EPA. They emphasize that the Petitioners’ arguments ignore the “air pollutant” definition that the Court in Massachusetts v. EPA held “unambiguous[ly]” (549 U.S. at 529) covers greenhouse gases.
It is worth noting that four justices dissented in Massachusetts v. EPA, and the successful petitioners in Coalition for Responsible Regulation argue that Massachusetts does not compel the regulations at issue here. The granting of the petitions for certiorari is sobering news for EPA. Stay tuned.
Posted on October 4, 2013
EPA is still working the kinks out of its New Source Performance Standards (NSPS) for the Oil and Natural Gas Sector, i.e., 40 C.F.R. 60 Subpart OOOO, referred to by many as the “Oil and Gas NSPS” and by some as simply “Quad O”. EPA first published the proposed Oil and Gas NSPS on August 23, 2011, in conjunction with proposed revisions to three other air regulations affecting various segments of oil and natural gas operations. The proposal prompted more than 150,000 public comments and kindled a national discussion on emissions at natural gas well sites. The final Oil and Gas NSPS rule was published in August 2012. Although the rule is most famous for establishing the first federal air standards for hydraulically-fractured natural gas wells, the rule also set significant volatile organic compound (VOC) standards for “storage vessels” used by the oil and natural gas industries.
Several stakeholders responded to the August 2012 rulemaking by filing petitions for administrative reconsideration of the Oil and Gas NSPS. On April 12, 2013, EPA published a notice granting reconsideration for a number of issues and proposing revisions to the storage vessel standards, in particular. Evidently, EPA significantly underestimated the number of storage vessels coming online in the field when it developed the August 2012 final rule, which required individual storage tanks with VOC emissions of 6 tons or more per year to achieve at least 95% reduction in VOC emissions. Tanks are commonly used at natural gas well sites, for example, to store condensate, crude oil, and produced water. In light of an updated tank estimate, EPA recognized that additional time would be needed for manufacturers to produce a sufficient number of VOC control devices.
Most recently, on September 23, 2013, EPA published final revisions to the storage vessel requirements in the 2012 Oil and Gas NSPS. Per the revised rule, which was immediately effective, an individual tank may be considered an affected facility if its construction, modification or reconstruction commenced after August 23, 2011; it has potential VOC emissions of 6 tons or more per year; and it contains crude oil, condensate, intermediate hydrocarbon liquids, or produced water. EPA made a number of important adjustments in the revised rule, chief among them an extension of the compliance date to give tank owners and operators more time to purchase and install controls. For the so-called “Group 1” storage vessels (which were constructed, modified or reconstructed between the August 2011 original proposal and the April 2013 proposal), the deadline to control VOC emissions is now April 15, 2015. For “Group 2” storage vessels (i.e., vessels that come online after April 12, 2013), the compliance deadline is April 15, 2014. Notably, pursuant to the revised Oil and Gas NSPS, operators only have until October 15, 2013 to estimate potential VOC emissions of Group 1 storage vessels for purposes of determining whether the rule applies.
Meanwhile, the agency is continuing to evaluate other issues raised in the reconsideration petitions that were submitted in response to the August 2012 rulemaking. EPA has stated in the past that it intends to address the remaining issues by the end of 2014.
Posted on August 26, 2013
On August 20, 2013, the U.S. Court of Appeals for the 3rd Circuit in Bell et al. v. Cheswick Generating Station, GenOn Power Midwest, L.P. answered a question of first impression: “whether the Clean Air Act preempts state law tort claims brought by private property owners against a source of pollution located within the state?” In this case, Plaintiffs filed claims under state tort law against the GenOn’s Cheswick Generating Station, a 570-megawatt coal-fired electrical generation facility in Springdale, Pennsylvania for allegations of ash and contaminants settling on their residential property (located within a mile of the plant). The Appeals Court held that “(b)ased on the plain language of the Clean Air Act and controlling Supreme Court precedent, we conclude that such source state common law actions are not preempted.”
This decision was based upon the U.S. Supreme Court precedent found in Intl. Paper Co. v. Ouellette. The question presented by Intl. Paper Co. v. Ouellette was “whether the [Clean Water] Act pre-empts a common-law nuisance suit filed in a Vermont court under Vermont law, when the source of the alleged injury is located in New York.” The U.S. Supreme Court held that: (1) Clean Water Act preempted Vermont nuisance law to extent that that law sought to impose liability on New York point source, but (2) Act did not bar aggrieved individuals from bringing nuisance claim pursuant to law of source state.
The Supreme Court of Appeals of West Virginia has previously applied the Intl. Paper Co. v. Ouellette decision to the Clean Air Act in Ashland Oil, Inc. v. Kaufman. In the Ashland Oil case The Supreme Court of Appeals of West Virginia held that Intl. Paper Co. v. Ouellette “requires the application of the statutory or common law of the source state to an interstate pollution dispute when the pollutants in question are regulated by the Clean Air Act. However, the procedural law of West Virginia shall be followed when the issues are being litigated in this State's courts.”
Thus, it appears, at least in the 3rd Circuit, that while interstate common law disputes are preempted by the Clean Air Act, intrastate disputes are not.
Posted on August 23, 2013
The Columbia and Snake River federal network of dams, and the abundance of low cost electricity it produces, has long been the cornerstone of the Pacific Northwest manufacturing economy. It has also supported another industry—the legions of lawyers fighting over the environmental effects. The latest iteration is an attack brought by Columbia Riverkeepers against the Army Corps of Engineers for oily discharges from the dams.
Riverkeepers filed lawsuits in U. S. District Courts in both Oregon and Washington alleging that oils released from the dams are discharges of pollutants for which a National Pollutant Discharge Elimination System (NPDES) permit is required under the Clean Water Act (CWA). The oils are used for lubricating turbine equipment, which Riverkeepers allege are released every day through spillways and penstocks at Bonneville, John Day, McNary, Ice Harbor and other federal dams. The suits seek declaratory and injunctive relief, mandating that the Corps secure NPDES permits.
Oily discharges are common among hydroelectric facilities. For the most part these are minor releases, though the complaint does allege a spill of 1,500 gallons of transformer oil containing PCBs from the Ice Harbor Dam on the Snake. Most privately owned dams in the region operate under general permits encompassing the small-volume releases. A few have NPDES permits.
As I have noted in prior blogs, courts have held that dams are “nonpoint” sources of pollution, which do not require a NPDES permit. These holdings were in the context of dams merely passing through pollution flowing into reservoirs from upstream sources, as opposed to adding pollutants. However, there have been cases where the discharge below the dam was not simply a pass through, and the court found a permit was required.
In relation to the ongoing litigation over the dams’ effect on salmon spawning, rearing and, migration, the Riverkeepers case will not likely have a significant effect on Corps operations. Even if the suit is successful, oily discharges can be managed, if not wholly eliminated. These cases should settle.
Posted on August 5, 2013
Enforcement with a Flair
EPA has seen the smoke.
This certainly is no joke.
Benzene is a neighborhood scare,
With upsets going to the flare.
On July 10, the Department of Justice and EPA announced the lodging of a consent decree with Shell Oil Company to resolve alleged Clean Air Act violations at Shell’s refinery and chemical plant in Deer Park Texas. This agreement represents the fourth “refinery flare consent decree” in the past year. More are expected.
Shell will spend $115 million to control emissions from flares and other processes, and will pay a $2.6 million civil penalty. EPA alleged that Shell was improperly operating its flaring devices resulting in excessive emissions of benzene and other hazardous air pollutants. Shell will spend $100 million to reduce flare emissions.
These flare consent decrees represent a new chapter in EPA’s national Petroleum Refinery Initiative (“PRI”), which, beginning in 2000, resulted in the entry of 31 settlements covering 107 refineries in 32 states, affecting 90% of the domestic refining capacity. EPA did address refinery flares as one of the marquee issues in PRI consent decrees – compliance with the New Source Performance Standards (“NSPS”) for Petroleum Refineries.
EPA is now pushing the envelope to impose “regulatory requirements plus.” Through an enforcement alert in August of last year, EPA warned industry that there were significant issues with flare efficiency and excessive emissions. EPA Enforcement Alert: EPA Enforcement Targets Flaring Efficiency Violations.
What is EPA doing? What is the basis of this Petroleum Refinery Initiative 2.0 and the imposition of “regulatory requirements plus”?
EPA bases this new initiative on the “general duty” requirements. NSPS requires that at all times owners and operators should operate and maintain a facility or source consistent with “good air pollution control practices.” In addition, Section 112r of the CAA requires owners and operators to maintain a safe facility by taking such steps as are necessary to prevent releases of hazardous air pollutants (“HAP”), and to minimize the consequences of accidental releases which do occur. Accordingly, with no threshold amount, any release of a listed HAP (e.g. benzene) that could have been prevented violates this general duty. If a flare smokes, there must be a violation.
This general duty is used to require control measures that go beyond those specified in the regulations. The consent decrees include conditions addressing flare combustion efficiency limits incorporating automated controls with complex and expensive monitoring systems, flaring caps for individual flares and the overall refinery, and flare gas recovery systems for individual flares.
The enforcement train has left the station. Who will be next in line? How much will the ticket cost? Are there rulemaking or other actions that may be taken to slowdown or stop the train? Flares are not unique to petroleum refineries and petrochemical plants (e.g. flaring in oil and gas production facilities). Will EPA provide other industries the opportunity to go for a train ride?
Posted on July 10, 2013
In April of 2013 the Arkansas legislature put an end to the ad hoc policy of implementing the NAAQS through stationary source permitting based upon source specific NAAQS modeling. The Arkansas legislature did not need a crystal ball to predict the chaos that was about to occur when the new NAAQS (PM2.5, one hour SO2 and one hour NO2) were swept into the existing Arkansas regulatory program. Arkansas’ environmental agency, the Arkansas Department of Environmental Quality (ADEQ) has relied upon its stationary source permitting program to implement the NAAQS for years, as opposed to relying upon state implementation plan (SIP) development. ADEQ has required every permit applicant to submit air dispersion modeling, and thereby demonstrate that the source will not cause a NAAQS violation. By comparison, EPA generally requires only PSD permit applicants to submit NAAQS dispersion modeling, and requires the states to otherwise address NAAQS compliance through their SIPs.
When Arkansas’ SIP permit procedures were last updated in 2000, minor (non-Title V) sources, and “minor modifications” at major sources were not required to undertake NAAQS modeling. Arkansas’ policies regarding NAAQS modeling were generally in sync with the Clean Air Act and most other states. Over the ensuing years regulatory creep expanded Arkansas’ NAAQS modeling program to the point that nearly every stationary source permit application was involved. ADEQ permit engineers required NAAQS dispersion modeling for minor sources, for minor mods at major sources, and then for any permit renewal—even no change renewals, “just to make sure that the source is still OK.” For example, a facility that had operated in full permit compliance for decades, without any modifications, could face permit renewal problems for no reason other than background conditions or recent meteorological data changed the NAAQS modeling results. Suffice to say this development was unpopular, making permitting expensive, time consuming, and uncertain.
The uncertainty was predicted to become chaos in September of 2012 when ADEQ proposed to drop the new NAAQS into its existing SIP. ADEQ’s “plan” was that the new NAAQS would also be implemented through stationary source permitting, including ADEQ’s expansive NAAQS modeling policies. Of particular concern is the PM2.5 standard, which, at 12 ug/cm3, is already near or exceeded by the background levels measured at the majority of the ambient monitoring stations throughout the state—background that is rarely, if ever, the result of any stationary source activity, but more likely the result of rural road dust and other non-stationary sources.
It became apparent to the regulated community that each permit review following adoption of the new NAAQS would generate ad hoc findings of modeled exceedances of the new NAAQS. By implementing the NAAQS through stationary source permitting rather than SIP planning, ADEQ eliminated any evaluation of regional cause and effect, and precluded any consideration of comprehensive solutions that involve all contributing sources. Under ADEQ’s “plan,” the unwitting permit applicant is forced to stand alone and face the consequences of a failed NAAQS modeling exercise. Concerns raised by the regulated community fell on deaf ears.
The Arkansas legislature stepped in, and in April of 2013 it enacted Act 1302, which required ADEQ to stop “protecting the NAAQS” by requiring stationary source permit applicants to undertake dispersion modeling, except in enumerated circumstances. Act 1302 prohibits ADEQ from using modeling for stationary source permit decisions or requiring retrofit pollution control technology. With the exception of PSD and other limited situations, dispersion modeling can only be used when there is a source or pollutant-specific SIP requirement. The Clean Air Act requires states to develop a SIP “for maintenance and protection of the NAAQS,” and Act 1302 requires ADEQ to implement the NAAQS as required by the Clean Air Act. The legislature did not neuter the agency’s efforts to protect clean air (which was the agency’s unsuccessful lobbying position). The legislature just said quit implementing the NAAQS through ad hoc permit decisions based on source specific air dispersion modeling. The legislature told ADEQ to use its ambient monitoring network, area modeling, and other tools to evaluate NAAQS compliance, and where non-attainment occurs, do the comprehensive planning that is required by the Clean Air Act to address it. Act 1302 was carefully drafted to compliment the Clean Air Act, and serves as a good model for any state facing similar NAAQS implementation issues.
During the two months since Act 1302 has been the law in Arkansas the agency has gone through some needed growing pains. The proposed rulemaking to enact the new NAAQS in Arkansas is being re-evaluated in light of the requirements of Act 1302. Much of the regulatory creep that occurred over the past decade has been curtailed, such that minor sources, minor modifications and no change permit renewals are no longer being required to submit dispersion modeling or demonstrate NAAQS compliance.
There is nothing like the heavy hand of the legislature to bring reason back into agency decision making. It appears that ADEQ now recognizes (much like most other states) that modeling has its limitations, and these minor stationary source projects are not causing, nor are they likely to cause any NAAQS problems. There is still a lot of work to be done as the new NAAQS are adopted, and real SIP planning commences. But sometimes it takes a pre-emptive strike to get the process started on the right track.
Posted on July 3, 2013
On June 13, 2013, U.S. EPA announced its enforcement priorities for the next three years. Among other things, the Agency decided to continue its ill-fated, 15-year old "New Source Review (NSR) Enforcement Initiative." This effort has targeted coal-fired power plants and other large manufacturing facilities for alleged violations of the Clean Air Act. The allegations often pertain to projects which were implemented over twenty and thirty years ago.
Not surprisingly, EPA has not fared very well in the courts with cases like this. The Agency has run into problems, including: 1) statute of limitations concerning projects completed more than five years before legal action has been commenced; 2) successor liability issues when the current owner/operator of a facility did not own or operate the facility when a targeted project was undertaken; and 3) serious evidentiary questions as to whether a decades-old project caused the requisite actual air emissions increase which triggers the requirements for NSR review under the Clean Air Act. See generally "EPA's Utility Enforcement Initiative: The MetED Decision May Pose Problems for Plaintiffs," BNA Daily Environment Report, June 13, 2013; U.S. v. Midwest Generation, LLC, 694 F. Supp. 2d 999 (N.D. Ill. 2010), appeal pending in 7th Circuit Court of Appeals.
A recent notice of violation illustrates some of the unfairness and waste of resources connected with EPA's NSR Enforcement Initiative. EPA issued the notice in 2012. It alleged a number of NSR violations against the owner/operator of a manufacturing facility (not a utility). One of the allegations pertained to a change made at that facility in 1982. Since 1982, the ownership of the facility has changed four times. The current owner has been targeted in EPA's enforcement action. Records regarding the 1982 project are scant, and the personnel involved in the work in 1982 are all either long-retired or deceased.
To make matters worse, EPA had received the available information about the 1982 project in 1999 from the party who owned the facility at that time. This was done in response to a Section 114 Information Request issued by EPA. That owner heard nothing further from EPA about any of the projects covered in the 1999 inquiry.
In 2011, EPA issued a new Section 114 Information Request to the current owner who had acquired the facility in 2006. The request covered projects that occurred after 1999, but it also covered projects which were done prior to 1999, including the 1982 project discussed above.
A reasonable person could ask: 1) Why did EPA wait for 13 years to allege a NSR violation regarding the 1982 project when the Agency was given information about it in 1999? 2) Why is EPA taking action now on a change made at the facility over thirty years ago? 3) Why is EPA targeting the owner who acquired the facility in 2006 -- some seven years after EPA was first given information about the 1982 project? 4) Has EPA considered that the current owner/operator of the facility is four times removed from the owner/operator who implemented the change in 1982?
Substantial amounts of money and countless hours of valuable employee time have been expended by the current owner in dealing with EPA on this case. Both the money and the time could have been better utilized in helping to keep the facility competitive in a very challenging global marketplace.
EPA should consider whether the continuation of the NSR Enforcement Initiative is justified with respect to projects that occurred decades ago. With most of these cases, fair-minded decision-makers at EPA will find that "Enough is Enough!"
Posted on June 25, 2013
Congress said EPA and the States are partners in implementing the Clean Air Act. It’s simple: EPA sets pollutant-by-pollutant standards for clean air (NAAQS) and each State develops and implements a state-specific plan to meet and maintain those NAAQS. Each partner is well-positioned and equipped to perform its assignment and Congress included appropriate “carrots and sticks” in the Act to ensure that both do their job. The Supreme Court has extolled Congress’s partnership approach and EPA routinely professes its deep appreciation of its State partners and their important role. So wassup with EPA suddenly demanding that thirty-six States delete rules about excess emissions during startup, shutdown and malfunction (SSM) that have been EPA-approved for 30 to 40 years?
On February 22, in response to a 2011 petition by Sierra Club, EPA proposed to “call” thirty-six state implementation plans (SIPs) because they contain affirmative defense, exemption, or director’s discretion rules for excess emissions during periods of SSM. EPA’s previous approval of the offending rules wasn’t even a speedbump. EPA also rejected any obligation to connect the offending rules with air pollution problems in the affected States. EPA’s legal position on how the States should enforce their CAA permits was enough to shuck the partnership and impose the federal will. And EPA didn’t even ask nicely. State requests for information about EPA’s consideration of their SIPs were ignored and States were given 30 days to comment on a proposal EPA took more than a year to develop. EPA gave its State partners another 45 days only after more than a dozen State Attorneys General jointly asked for more time and the Senate Committee considering the new Administrator’s confirmation made the same request.
When comments were filed on May 13, thirty affected States filed comments; none of them supported EPA’s proposed call of their SIP. Not even EPA’s regular supporters on issues like tougher NAAQS thought EPA’s dictation was a good idea. Complaints from EPA’s partners ranged from being wrongfully excluded from EPA’s evaluation of their SIP to EPA trampling on the States’ planning and implementation responsibilities to EPA creating a lot of work that could have been avoided if EPA had just talked to them. No amount of spin can make this look good for state–federal relationships.
So why? Well, Sierra Club did ask for it. Maybe because an obvious compliance impact is on emission limits with continuous monitoring and short averaging times like opacity. And maybe because coal-fired power plants always have opacity limits and deleting common excess emission rules will set those sources up for widespread enforcement litigation. Or, maybe the States and the previous EPAs had it wrong for all these years and someone finally straightened everyone else out. Like so many conundrums of this type, it might take some judges to give us the answer.
Pursuant to a settlement agreement with Sierra Club, EPA must finalize the SSM SIP Call by August 27, 2013.
Posted on May 21, 2013
Climate tort plaintiffs cannot catch a break in the Fifth Circuit Court of Appeals. In a May 14, 2013, decision, the Fifth Circuit found—once again—that a group of Mississippi Gulf Coast property owners is barred from suing energy companies for tortiously emitting greenhouse gases (“GHGs”).
The case, Ned Comer, et al. v. Murphy Oil USA, et al., has a long and twisting history. At one point the case was widely viewed as in the vanguard of a handful of cases with the potential to radically realign the legal framework under which companies emit GHGs.
Comer was originally filed in the Southern District of Mississippi in 2005. Plaintiff coastal property owners alleged that the defendant companies’ emissions exacerbated climate change, which intensified Hurricane Katrina, which in turn damaged the plaintiffs’ property. Invoking the federal courts’ diversity jurisdiction, the plaintiffs sought compensatory and punitive damages, asserting state law claims of nuisance, trespass, and negligence, among other claims. The district court dismissed the claims on the grounds that the plaintiffs lacked standing and that the matter was not justiciable under the political question doctrine.
In November 2009, a Fifth Circuit panel reversed, in part, the district court’s dismissal of the claims. The Fifth Circuit panel found that plaintiffs had standing to bring the state law claims, which the court found did not present political questions.
The Fifth Circuit panel’s decision came in the wake of the Second Circuit’s precedent-setting September 2009 decision in State of Connecticut, et al. v. American Electric Power Company Inc., et al., in which the Second Circuit recognized the validity of federal common law public nuisance claims challenging the emission of GHGs, found that a number of states and private environmental groups had standing to press such claims, and rejected the argument that the claims are nonjusticiable. Together, these cases were viewed as potentially ushering in a new era in which companies emitting GHGs would need to contend not just with EPA’s regulations but also with common law climate tort claims seeking injunctive relief or money damages.
The new era was not to be. As to Comer, before the panel opinion’s mandate issued, a majority of the Fifth Circuit’s active, unrecused judges voted to rehear the case en banc. Under Fifth Circuit rules at the time, this vacated the panel opinion reversing the district court’s dismissal. Before the Fifth Circuit reheard the case en banc, however, another Fifth Circuit judge was recused, leaving the court with only eight active, unrecused judges. Five of the remaining eight judges then determined that, with the additional recusal, the court lacked a quorum to proceed, and the judges issued in May 2010 an order dismissing the plaintiffs’ appeal from the district court’s decision for lack of a quorum.
Plaintiffs petitioned the Supreme Court, seeking review of the Fifth’s Circuit dismissal of their appeal. The Supreme Court denied the petition in January 2011, at which point one might have expected the case to be over.
However, the same group of property owners proceeded to file a new complaint in May 2011 alleging many of the same nuisance, trespass, and negligence claims against the same energy company defendants. The District Court again dismissed the claims, finding them to be barred by res judicata and the applicable statute of limitations, and also to fail to establish proximate causation and be preempted by the Clean Air Act. In addition, as it had in Comer I, the court found that the plaintiffs lacked standing and that the claims raised nonjusticiable political questions.
The Fifth Circuit’s May 2013 decision in Comer II upholds the district court’s dismissal of the climate tort claims. The Fifth Circuit agreed the case is barred by res judicata, and did not address the district court’s other grounds for dismissal. Despite the procedural quirks of Comer I, the Fifth Circuit found the district court’s decision in that case to represent a final judgment, never modified on appeal. In addition, the Fifth Circuit found the district court’s final judgment to be on the merits because it adjudicated the jurisdictional issues of standing and justiciability.
Fall of 2009 may turn out to have been an apogee of sorts for climate tort claims. In June 2011, the Supreme Court issued a decision in Connecticut v. American Electric Power, holding that the Clean Air Act and the EPA actions it authorizes displace any federal common law right to seek abatement of GHG emissions. Climate tort plaintiffs in a third case, Native Village of Kivalina v. Exxon Mobil Corp., et al., were also on the losing end of a September 2012 Ninth Circuit panel decision which found the plaintiffs’ claims that climate change would result in erosion and flooding of the island where they live to be a matter that should be left to the legislative and executive branches of government. The Kivalina plaintiffs petitioned the Supreme Court in February for a writ of certiorari.
As GHG levels in the atmosphere approach their highest levels in hundreds of thousands of years or longer, the prospects for new legislative or executive branch action are uncertain. Although California recently implemented an economy-wide GHG cap and trade scheme, which began imposing compliance obligations earlier this year, that program is being challenged in the courts and there appears to be little appetite for comprehensive federal climate change legislation. EPA proposed in April 2012 a GHG performance standard for new power plants pursuant to its Clean Air Act authority, but the timing for action with respect to existing power plants and other emitting sectors is unclear. In light of the uncertainty on the regulatory and legislative fronts, and given the massive alleged harms involved, it may be too early to say if the climate tort is essentially finished or will in the future be resuscitated in a new and more potent guise.
Posted on May 14, 2013
Cheap gas prices driven by a boom in new shale gas development, coupled with more stringent emissions controls for coal fired plants, are causing a shift from coal to natural gas as the primary source of electric power in the United States. In the short term, most welcome this shift because natural gas produces significantly fewer greenhouse gas (“GHG”) emissions. But it appears increasingly certain that in the long run, this shift will result in decreased energy grid reliability and significantly higher electricity costs due to natural gas price volatility.
A recent Duke University study concludes that the cost of compliance with new emissions standards could make almost two-thirds of existing coal fired plants “as expensive as natural gas even if natural gas prices rise.” This combination of low gas prices and the high cost of coal emissions compliance already has resulted in replacement of many coal plants instead of retro-fitting them with expensive environmental controls. Add to that the uncertainty of potential future GHG emissions standards, and construction of new coal fired power plants is at a near standstill.
The Rocky Mountain Coal Mining Institute (“RMCMI”) estimates that these factors will combine to force closure of up to 100 gigawatts of coal plant capacity, or approximately one third of the coal-fired fleet, resulting in a net increase of 32 gigawatts of gas capacity in the next three years. By 2020, RMCMI estimates that gas generating capacity will exceed that of coal, nuclear, and hydroelectric combined. The RMCMI further projects that the shift to natural gas generation will cause the demand for natural gas to exceed even the most rosy new shale gas production predictions, causing volatile natural gas price swings.
Grid reliability problems and gas price volatility were highlighted by Gordon van Welie, the head of New England’s power grid, during recent testimony before Congress. He observed that more than half of New England's electricity is generated from natural gas, which has displaced a more diversified mix of oil, coal, gas and nuclear power over the past ten years.
He testified that even though natural gas generally is plentiful, New England’s inadequate gas pipeline capacity limits supplies during peak usage. For example, during a recent extreme cold snap in New England, “natural gas prices in late January spiked to $34/MMBtu, in contrast to prices below $4/MMBtu across most of the country.” The high gas prices caused wholesale electricity price spikes of more than 100% in January and 300% in February 2013 compared with 2012. There also were “multiple instances where generators could not get fuel to run,” including one instance when more than 6,000 MW were offline due to fuel shortages. Testimony at 7. To avoid even worse problems in the future, he urges increased construction of pipeline infrastructure, but construction of gas pipelines will take time. In the short and intermediate term, he predicts continued price volatility and grid reliability problems during peak usage.
In addition to pressures from increased usage of natural gas in the United States, there also is increasing support within the Obama Administration to side with those seeking to export liquefied natural gas because prices in foreign markets are much higher. If the export of natural gas becomes a reality, then domestic gas prices likely will increase even more.
Although the vast shale gas reserves are fueling a shift to natural gas power generation with a corresponding reduction in GHGs, over-reliance on natural gas will almost certainly have the unintended consequence of causing grid reliability problems and volatile price spikes. This likelihood argues for a more balanced energy portfolio with a broad mix of power from renewable, hydropower, coal, oil, nuclear, and natural gas. To insure future stable energy prices and reliable energy production, electric utilities and state and federal regulators should take a long term view when deciding whether to shift to natural gas generation and decommission existing coal and nuclear plants.