Posted on January 5, 2015
If you want a sense of emerging developments likely to impact the business community it is important to keep an eye on pronouncements from EPA’s Office of Enforcement and Compliance (OECA). OECA is the “lead” for EPA’s Next Gen compliance initiative, which will continue to set enforcement priorities as it rolls out through 2015. Next Gen is far from perfect and severely underfunded, but since its principles provide the guideposts for compliance policy, being well informed provides an important edge in compliance situations.
For years EPA has been calling on federal and state enforcement managers to develop approaches that go beyond traditional single facility inspections and enforcement. EPA took the lead in its FY 2014 National Program Manager’s Guidance OECA by announcing the Next Generation Compliance Initiative.
Next Gen focuses on five areas:
1. Designing and drafting regulations and permits that are simpler and easier to implement.
2. Using advanced emissions/pollutant detection technology so that regulated entities, government, and the public have prompt access to monitoring data concerning environmental conditions (as well as potential violations).
3. Electronic submission of permit applications and monitoring data.
4. Prompt web-posting of traditional compliance data, and presenting information obtained from advanced emission monitoring and electronic reporting (so-called big data sets) to the public.
5. Developing data analytics to guide enforcement activities.
EPA kicked off Next Gen in style. A major policy statement appeared in the September-October 2013 issue of ELI’s Environmental Forum. The Next Gen strategy was reaffirmed in OECA’s FY 2015 national program manager’s guidance; in numerous interviews and public statements by senior EPA officials and in a compliance plan announced in October 2014. These efforts are continuing. Indeed, George Washington Law School will convene the latest in a series of events focusing on Next Gen compliance on March 26 and 27, 2015. The symposium will address the role of advanced monitoring in environmental compliance and enforcement. In addition, OECA staff have presented a number of Next Gen workshops to state officials.
Despite EPA’s roll-out efforts, Next Gen has had critics who find the initiative too vague to be helpful. The Government Accountability Office found that OECA lacks a strategic plan to implement the initiative. In addition, Next Gen does little to reward good behavior. In fact, Next Gen ignores positive feed-back as a driver of improved compliance.
While increased use of technology and public disclosure sound great, it remains to be seen how OECA will implement Next Gen in practice. Nevertheless, whether Next Gen has staying power or not, there are several themes that need to be considered:
1. OECA’s focus on improved transparency and community participation is here to stay and enhanced community outreach will increasingly find its way into EPA (and state) regulations. To keep pace, the regulated community needs to continuously rethink how to use media (new and old) to inform and engage stakeholders, especially members of vulnerable communities.
2. EPA and delegated states will continue to experiment with ‘innovative enforcement strategies’ using advanced monitoring and data analytics and that rely less upon traditional inspections; self-reporting and tips. Industry should look for opportunities to provide input to these efforts.
3. Monitoring data is now a public resource, easily shared and routinely subjected to new uses. Therefore, rigorous quality assurance and quality control is essential at every step of the data collection and reporting cycle. Use of software that flags inconsistent results or mathematically impossible outcomes (like EPA’s Greenhouse Gas Reporting Tool) should be dramatically expanded.
4. E-reporting cannot be a one-way street based simply on replacing paper reports with electronic submissions. OECA needs to provide guidance and support so that regulators can invest resources and develop policies that ensure that they can use e-reporting to provide relevant compliance assistance in real time.
We’ll need to wait and see whether OECA’s Next Gen Initiative will play a major role in shaping future environmental enforcement. In the meantime, OECA’s framework for achieving more effective compliance can serve as a guide for advanced companies to refine their environmental management systems while helping to focus enforcement efforts on the worst performers.
Posted on November 17, 2014
November 1967: The Moody Blues release their second album, Days of Future Passed, said to be an influential work of the countercultural, psychedelic era. May 2014: Wolverine goes back in time to rally the X-Men against the Sentinels in Days of Future Past. In between: Ed Muskie and Leon Billings roamed the Earth, particularly the U.S. Senate, and modern-day environmental law was born and thrives.
2014 also is the centennial of the birth of Muskie in the old mill town of Rumford, Maine. On November 15, almost exactly 47 years after release of Future Passed, Harvard Law Professor Richard Lazarus and Leon Billings, Senator Muskie’s former chief of staff, spoke on a panel looking back and to the future of laws like the Clean Air and Water Acts that were unanimously passed by the Senate through the guidance of Muskie and Billings.
Billings spoke of how what Muskie was able to shepherd through Congress and into law involved concepts still pervasive and taken for granted today—such as private attorneys general, nondegradation, open decision-making, the public’s right to breathe healthy air and removal of the right to pollute. He described Muskie’s insistence of and ability to achieve bipartisanship, with allies for the CAA and CWA efforts including such Senators as Baker, Eagleton, Cooper, Bayh, Boggs and Dole, as well as the exhaustive efforts to fully vet and document the need for legislation. For example, for the CWA the Senate Committee held 33 days of hearings with 1721 witnesses, 470 statements and 6,400 pages of testimony, followed by 45 sub-or-full-Committee markup sessions and 39 Conference meetings.
Billings then focused on two concepts that he said demonstrate Muskie’s ability over 40 years ago to look to the future. The first, “waters of the Unites States” grew out of the Senator’s knowledge of the 1899 Refuse Act; he successfully convinced his colleagues that the Act supported a broad view of “waters of the US” to include, for example, wetlands. Since then, the Supreme Court has gone “at least as far as we had expected, and more broadly than we could have hoped”, said Billings.
The second concept is that of climate change and the Clean Air Act. Billings was very clear: Section 111(d) was no accident, is not being misinterpreted, and Muskie intended there to be a legislative basis for then-unknown or undefined pollution problems like CO2, what Billings now calls the “epitome of the precautionary principle”. The phrase “selected air pollution agents” almost never made it out of the House-Senate Conference in December 1970, but a compromise was struck so late at night it never made it into the Conference reports. And while no one then envisioned CO2 and climate change, Billings said that if Muskie were alive when the Supreme Court ruled in Massachusetts v EPA that CO2 is a pollutant, he would have said, “Why do you think I put that provision in there in the first place?”
Richard Lazarus then spoke of Senator Muskie’s enduring legacy in the courts as the font of legislative intent underlying many environmental laws, including frequent references to Muskie in court opinions and during oral arguments at the Supreme Court. He also demonstrated that while President Nixon did sign the bills authored by Muskie and had the label of being an environmental President, in fact he was largely using the issue for a short time as a defensive measure to cut off Muskie’s prospects as a potential 1972 Presidential candidate. Richard then showed slides of handwritten notes made by Nixon’s Chief of Staff, H.R. Haldeman of three discussions with the President: in February 1971, even when they thought environmental protection “has to be done”, at the same time they thought it “is not worth a damn”; in June “should take on environment—it’s not a sacred cow”; and by July 1971 they wanted to put the “brakes on pollution bills…when we can without getting caught”, and to “reexamine all pollution bills in terms of current economic impact”.
Richard also discussed the current EPA rulemaking under 111, especially referencing the term “best system of emission reduction”; EPA’s June 2014 legal memorandum in support of its rulemaking proposal used Senator Muskie’s own words concerning “system” as encompassing the potential for emission reductions to occur outside the fence, and to include more than just controls. He said that for EPA, Muskie is its “Mr. Clean”.
During Q&A, both panelists discussed the partisanship of the past 10-20 years contrasted with during Muskie’s era. Billings mentioned how during Muskie’s opening presentation of the Clean Air Act on the Senate floor, the presiding officer was Senator Barry Goldwater, who sent down a note (now lost to history) saying, “Ed, that is the finest speech I think I have ever heard on the floor of the U.S. Senate.” Turning to NEPA, the concept of an” environmental impact statement” developed through a personal compromise Muskie struck with Senator Jackson.
Afterwards I asked Billings, “If Ed Muskie and you were in the Senate now, what would you be doing?” He said, “If we were the majority party, holding a lot of oversight hearings to bring in all the scientists and evidence; if the minority party, writing speeches.”
And that is how the Past (or Days Passed) in Environmental Law still have major force in today’s many controversies. Oh, by the way: The Moody Blues recently released a new box set, “Timeless Flight”, and are still touring. Long live rock and environmental laws!
Posted on September 25, 2014
Momentum continues to build as investors and fund managers develop and implement policies and investment guidelines favoring sustainability and clean energy, and disfavoring -- and in certain cases shedding -- investments in companies that are major producers of carbon emissions and greenhouse gases.
While legislators and regulators continue to grapple with the means to establish and enforce mandates to fight climate change, sectors of the investment community are weighing in by redeploying capital.
Two recent developments illustrate different approaches to investor action on climate change.
In the first, Yale University’s Chief Investment Officer, David Swensen, reportedly issued a letter to Yale’s outside investment managers requesting that they take into account climate change impacts and greenhouse gas emissions in evaluating investment options. Yale’s Investment Office is reputed to oversee the second largest endowment in the U.S., valued last year at close to $21 billion.
The Rockefeller Brothers Fund (RBF), a philanthropy valued at $860 million this year, announced that it is working to divest itself from fossil fuel investments. RBF, which in 2010 had already committed ten percent of the endowment to investments consistent with the goals of its Sustainable Development program, will focus initially on coal and tar sand investments, with the goal of reducing those exposures to less than one percent of the portfolio by the end of the year, while analyzing exposure to remaining fossil fuel investments in order to implement a strategy for additional divestments in the coming years.
The Yale approach stops short of requiring divestment from existing portfolio holdings, and, as reported by the Yale Daily News, Mr. Swensen’s letter came after the Yale Corporation Committee on Investor Responsibility voted against divesting the endowment’s holdings in fossil fuel companies. Still, the Yale paper quoted the letter as stating: “Yale asks its [investment managers] to avoid companies that refuse to acknowledge the social and financial costs of climate change and that fail to take economically sensible steps to reduce greenhouse gas emissions.”
The RBF announcement follows the growing number of individuals and institutions that have determined to sell off their fossil fuel holdings in the last few years. The announcement came a day after more than 300,000 participants gathered in New York City for The Peoples’ Climate March, and a day before commencement of the U.N. climate change summit in New York.
The New York Times cites a report from Arabella Advisors that investors ranging from wealthy individual to pension funds, and from philanthropic and religious organizations to local governments, have committed to divesting over $50 billion in fossil fuel investments and to turning to investments in cleaner energy.
Socially responsible investment strategies are nothing novel; funds dedicated to such benchmarks have been around for years. But as the Times article pointed out, it is notable that the latest reported entrant in the fossil fuel divestment trend is a fund established by a family whose wealth was substantially derived from the oil industry.
Posted on August 25, 2014
On August 12th, the 9th Circuit Court of Appeals issued a decision that arguably explains everything from why the Tea Party exists to why otherwise calm and sane executives suddenly lose all their hair. Perhaps most astounding, the decision is clearly correct. Perhaps the law is an ass.
In 2008, Avenal Power submitted an application to EPA for a PSD permit to construct a new 600 MW natural gas-fired power plant in Avenal, California. Although section 165(c) of the Clean Air Act requires EPA to act on such applications within one year, EPA failed to do so.
Subsequently, and before EPA ever did issue a permit, EPA revised the National Ambient Air Quality Standard for NOx. Avenal Power apparently could demonstrate that emissions from the new plant would comply with the old NAAQS, but could not demonstrate that it would not cause an exceedance of the new NAAQS. After some waffling, EPA took the position that it could grandfather the permit application and review it under the prior NAAQS. Citizen groups appealed and the Court of Appeals held that EPA had no authority to grandfather the application.
To the Court, this was a simple application of Step 1 of Chevron. The Court concluded that sections 165(a)(3) and (4) and 110(j) of the CAA unambiguously require EPA to apply the NAAQS in effect at the time a permit is issued. Thus, EPA has no discretion to grandfather permit applications, even though EPA was required by law to issue a permit decision at a time when more lenient requirements were in effect.
I think that the Court’s decision is clearly right on the law. The statutory language seems unambiguous. But what did the Court have to say to those who feel that the result is inequitable, because Avenal was legally entitled to a decision in one year, and would have obtained its permit if EPA had acted timely? Pretty much, tough luck:
Finally, EPA relies heavily on the argument that the equities weigh in favor of Avenal Power. In short, we agree. Avenal Power filed its application over six years ago, and endeavored to work with EPA for years, even after filing suit, to obtain a final decision. But however regrettable EPA’s treatment of Avenal Power has been, we simply cannot disregard the plain language of the Clean Air Act, or overlook the reason why an applicant must comply with revised and newly stringent standards —that is, “to protect and enhance the quality of the Nation’s air resources so as to promote the public health and welfare and the productive capacity of its population.” Honoring the statute’s plain language and overriding purpose, we must send EPA and Avenal Power back to the drawing board. (Emphasis added.)
In other words, EPA screwed up, and Avenal Power got screwed. Imagine having to explain that to your client.
Posted on August 4, 2014
For those who may be interested in the interplay of renewable energy, climate change and the public trust doctrine, I have a new article out in the Ocean and Coastal Law Journal on how federal and state public trust doctrines can be more central in the work and advocacy of environmental lawyers. The article (co-written with one of my students, Patrick Lyons), “THE SEAS ARE CHANGING: IT’S TIME TO USE OCEAN-BASED RENEWABLE ENERGY, THE PUBLIC TRUST DOCTRINE, AND A GREEN THUMB TO PROTECT SEAS FROM OUR CHANGING CLIMATE”, demonstrates how the public trust doctrine (PTD) can play a role in protecting ocean and coastal resources from climate change.
More specifically, the Article proposes that both federal and state PTDs can help protect traditional trust values of commerce, navigation and fishing—in addition to modern trust values of protecting tidal wetlands, estuaries, and wildlife—through establishing ocean-based renewable energy (ORE) as a public trust value. In addition to elevating ORE to equal footing with traditional trust values, we call for placing a “green thumb” on the scales of balancing competing trust values to explicitly guide courts and agencies alike to operate under a rebuttable presumption favoring ORE over other PTD values because of its ability to help reduce carbon and other greenhouse gas (GHG) emissions. This way, ocean based renewable energy would benefit public trust resources that are now being damaged by use of non-renewable energy sources—for example, the National Research Council (NRC), using 2005 dollars, that U.S. fossil fuel energy production caused $120 billion in damage, primarily through damages to human health from air pollution, and another $120 billion in damages from climate change, such as harm to ecosystems and infrastructure, insurance costs, negative effects of air pollutants, and national security risks.
The article first provides a brief overview of the history of the PTD in the United States, including its adoption from English common law and its evolution to its present status among the various states, and an introduction to the current legal framework governing federal ocean resources and sets up the argument for recognizing a federal PTD. It then focuses on climate change, how it is currently impacting the earth’s ecosystems, and the potential detrimental effects to our planet if carbon emissions are left unabated. We further document how climate change is affecting public trust resources and highlights the degradation and alteration these resources have already experienced, calling on all levels of government to fulfill their fiduciary obligation to protect ocean and coastal resources from the impacts of climate change.
With that as the foundation, we move to a discussion of offshore wind, tidal and wave energy, and the variety of public trust-like language found throughout the federal legislation that has authority over the permitting and compliance of ORE projects. We then bring PTD, climate change, and ORE together, in order to establish the basis for a federal PTD and legitimize its inception through common law, legislation, and executive order. The Article concludes by providing examples of how ORE can be incorporated into both federal and state PTDs, providing courts and governmental agencies with a doctrine that encourages and requires the utilization of ocean and coastal resources for harnessing clean, renewable energy in an effort to mitigate the impacts of climate change.
I hope you find it useful in your law and non-law work. Ironically, it was exactly fifty years ago that one of the leading songwriters wrote and sang these words:
Come gather around people, wherever you roam / And admit that the waters around you have grown / And accept it that soon you'll be drenched to the bone / If your time to you is worth savin’ / Then you better start swimmin’ or you'll sink like a stone / For the times they are a-changin’.
Isn’t it well past time to heed that warning and combat the rising levels of greenhouse gases, temperatures, seas, health care costs and storm damages by making maximum use of the clean, renewable energy available and waiting off our shores?
Posted on July 10, 2014
Last Monday June 23, it was the Supreme Court’s turn in the UARG case to decide whether EPA could “tailor” its climate policy to fit the PSD and operating permit programs in the current Clean Air Act. Both the Court and EPA faced the issue without any precise guidance from the missing branch: Congress.
As a result, yet another court – the DC Circuit – must next consider the proper remedy in the UARG case and, if past DC Circuit decisions are a sound guide, remand the matter back to EPA to take action consistent with the courts’ decisions. The DC Circuit will almost certainly not tell EPA what it can do, nor should it tell EPA how to exercise its remaining substantial discretion. The courts are only telling EPA what it cannot do in certain respects. Thus, the courts’ guidance to EPA is limited.
EPA will retain considerable discretion when it tries again to regulate GHG emissions from major stationary sources and major stationary source modifications under titles 1 and 5 of the Clean Air Act. EPA has loads of options, as many commenters pointed out during the prior EPA rulemaking. The options may fit the current Clean Air Act to varying degrees. In the words of the Supreme Court in the June 23 UARG decision, though, “Even under Chevron’s deferential framework, agencies must operate ‘within the bounds of reasonable interpretation.’” (J. Scalia for the Court, slip opinion at p. 16)
EPA may try to avoid options that would be most vulnerable to challenge under the principles expressed by the Court in the UARG opinion. One Court majority held that EPA lacked authority to “tailor” the Act’s numerical thresholds governing the PSD and operating permit programs. A different Court majority upheld EPA’s BACT rules for GHGs. Some commenters will undoubtedly urge EPA to continue its drive towards regulating GHGs under titles 1 and 5 of the current Clean Air Act. But, EPA should re-solicit the broadest public comment and carefully consider all options, as the Supreme Court requires under the Chevron standard of judicial review. After all, there will be a national election in 2016 and there will be a new Administration with its own views on the options. If the current Administration wishes to leave a lasting legacy in this area, it would be well advised to act on the basis of the most solid record and adopt moderate, fully vetted polices that can survive. As retiring Congressman John Dingell recently said in a farewell speech held by the National Press Club in Washington, D.C., “Compromise is an honorable word."
Congress is very unlikely to provide any additional guidance in this area any time soon, though. The nation will miss some basic policy decisions and compromises, such as:
• Should the PSD and operating permit programs apply to GHGs? How?
• Which sources should be covered? When? With a phase-in? Tied to what?
• In the PSD program, can and should BACT work the same way for GHGs as for criteria pollutants?
• In the operating permit program, when should sources have to add GHG provisions (since there aren’t yet any substantive requirements for the operating permits to pick up)?
• What substantive requirement should EPA develop and for which sources? When? E.g., should EPA set GHG emissions standards or other requirements for power plants and other source categories under section 111(d) of the Act, as EPA recently proposed?
• What role(s) should state and local agencies and programs play?
In the 1990 Clean Air Act amendments, Congress resolved issues like these in the Act itself. The leading precedent is title 4 – acid rain – where Congress even allocated emissions of SO2 by individual numbered electric power generators in named powerplants in named states. Both houses and both parties held hands and made this deal under the Capitol dome – a deal which has resulted in a stunning and stable policy success. The acid rain deal largely avoided the dilemmas that EPA and the courts now face in dealing with stationary source permitting under titles 1 and 5 of the Clean Air Act. It seems most likely that whatever EPA does next under the current Clean Air Act will be challenged vigorously in court – again and again – until Congress can once again come together under the dome.
Posted on June 27, 2014
Having unleashed EPA rulemaking of unprecedented scale in Massachusetts v. EPA (holding GHGs are “air pollutants” under the Clean Air Act (CAA) that EPA must regulate upon finding “endangerment”) and having further acknowledged EPA’s GHG authority in AEP v. Connecticut (holding CAA displaces federal nuisance common law), early this week in Utility Air Regulatory Group v. Environmental Protection Agency et al., the Supreme Court started the inevitable process of reining in the Agency’s exercise of its potentially boundless GHG authority under a statute designed for regulation of conventional air pollutants. Although interpretive gymnastics would be required whatever direction it took, the Court decided in a fractured decision that the CAA’s preconstruction Prevention of Significant Deterioration (PSD) and Title V operating permit programs allow EPA to impose Best Available Control Technology (BACT) for GHGs only when a source has triggered these programs “anyway” due to its conventional criteria pollutant emissions.
The consolidated cases below challenged a full basket of major EPA GHG rulemakings, including EPA’s endangerment finding, motor vehicle regulations (the Tailpipe Rule) and stationary source permitting rules. But the Court granted certiorari on only one question - whether EPA permissibly determined that its regulation of greenhouse gas emissions from new motor vehicles under one part of the Act triggered permitting requirements under the Act for stationary sources that emit greenhouse gases under another part of the Act. The Court rejected EPA’s PSD and Title V Triggering and Tailoring Rules, leaving intact only the ancillary BACT review of a source’s non-de minimis GHG emissions when a source otherwise undergoes PSD review for conventional pollutants.
The PSD program requires a permit to construct or modify a “major emitting facility”—defined as any stationary source with the potential to emit 250 tons per year of “any air pollutant” or 100 tons per year for certain types of sources—in areas where the PSD program applies. To qualify for a permit, the facility must, among other things, comply with emissions limitations that reflect BACT for “each pollutant subject to regulation under” the CAA. Title V requires a comprehensive operating permit to operate any “major source”—defined as any stationary source with the potential to emit 100 tons per year of “any air pollutant”—wherever located.
Recognizing that applying these thresholds to GHGs would result in permitting for numerous small sources, such as schools, hospitals and even large homes, EPA promulgated the so-called Tailoring Rule with special thresholds for GHGs that would apply in addition to the statutory thresholds and said that it would revisit whether to continue applying these special thresholds after five years, during which time it would study the feasibility of extending permitting to the small sources per the statutory thresholds. Under Step 1 of the Tailoring Rule, commencing January 2, 2011 (the effective date for its Tailpipe Rule), it obligated sources already required to obtain permits under the PSD program or Title V (so-called “anyway” sources) to comply with BACT for GHGs if they emitted at least 75,000 tons per year (tpy) of carbon dioxide equivalent (CO2e) units. Then, under Step 2, commencing July 1, 2011, it obligated sources with the potential to emit at least 100,000 tpy of CO2e to obtain permits under the PSD program and Title V for construction and operation, and sources with the potential to emit at least 75,000 tpy of CO2e to obtain permits under the PSD program for modifications. These higher thresholds were needed on a temporary basis, according to the EPA, because the number of permit applications would otherwise grow by several orders of magnitude, exceeding the agency’s administrative resources and subjecting to the major permit programs sources that Congress clearly did not intend to cover. EPA’s Tailoring Rule also contemplated a Step 3 where GHG permitting would apply to additional sources as well as a five year study on how to extend the program to remaining sources per the statutory thresholds.
Writing for the Court, Justice Scalia, joined by Justices Roberts, Kennedy, Thomas, and Alito, concluded that EPA’s legal interpretation that the PSD and Title V programs were triggered once EPA regulated GHGs under the mobile source program not only is not compelled, but moreover, simply is not reasonable. He reasoned that the “air pollutants encompassed by the Act-wide definition as interpreted in Massachusetts” are not the same “air pollutants referred to in the permit-requiring provisions” at issue. This is so because EPA has routinely given “air pollutant” in the permit-requiring provisions a narrower, context-driven meaning. The same five justices also concluded that EPA is not permitted to augment with additional thresholds – even temporarily, as EPA claimed – the 100 tpy and 250 tpy statutorily-defined thresholds for triggering the PSD program and Title V permitting requirements. He writes that the need for such an adjustment simply demonstrates that the PSD program and Title V were never intended to be expanded in this way, and adds that the EPA does not have the power to “rewrit[e] unambiguous statutory terms” such as the statutorily-defined numerical thresholds for applying the PSD program and Title V.
Justice Scalia, joined in this part by Justices Roberts, Kennedy, Ginsberg, Breyer, Sotomayor, and Kagan, then determined that the EPA reasonably interpreted the CAA to require that those new and modified sources already subject to PSD permitting due to their potential to emit conventional criteria pollutants also must comply with BACT for GHGs. In this context, he emphasizes that the statutory language – once permitting already has been triggered – requiring BACT “for each pollutant subject to regulation under this chapter” contextually leaves less room for interpretations that could limit BACT to a smaller set of pollutants, in contrast to the triggering “any air pollutant” language, which must be read contextually in a more limited manner. Additionally, he argues that applying BACT to greenhouse gases “is not so disastrously unworkable, and need not result in such a dramatic expansion of agency authority, as to convince us that EPA’s interpretation is unreasonable.”
Justice Breyer concurred in part and dissented in part, joined by Justices Ginsburg, Sotomayor, and Kagan. He joins the Court’s opinion as to the application of BACT to greenhouse gases, but asserts that the EPA is also permitted to interpret the CAA so as to trigger permitting requirements for stationary sources that emit an adjusted threshold level of greenhouse gases. Justice Alito concurred in part and dissented in part, joined by Justice Thomas. He argues that neither the EPA’s interpretation of provisions triggering permitting requirements nor its interpretation regarding BACT is permissible.
The Court’s decision to require independent PSD and BACT applicability before subjecting sources to BACT for GHG emissions squares fully with significant industry input to EPA early in its discussion of stationary source permitting. Our National Climate Coalition, for example, urged EPA to embrace such an interpretation in our 2009 Tailoring Rule comments and 2010 PSD White Paper.
Although this decision does not directly affect EPA’s authority to regulate stationary source GHG emissions by establishing New (or Existing) Source Performance Standards under section 111 of the Act, it portends significant challenges for the agency’s recent §111(d) proposal. Most notable are the several statements in the 5-4 portion of Justice Scalia’s opinion in which he cautions the agency not to “rewrite clear statutory terms to suit its own sense of how the statute should operate.” In articulating the Court’s test for whether an agency interpretation of ambiguous terms is reasonable, he stresses that an interpretation is less likely be viewed as reasonable to the extent it:
brings about an enormous and transformative expansion in EPA’s regulatory authority without clear congressional authorization. When an agency claims to discover in a long-extant statute an unheralded power to regulate a ‘significant portion of the American economy,’ [cite omitted], we typically greet its announcement with a measure of skepticism. We expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’
This portion of the Court’s ruling will likely figure prominently in the Court’s inevitable review of the agency’s §111(d) proposal. It thus may behoove EPA to consider in its final rulemaking approaches that bring the existing source program somewhat closer to its traditional rulemakings under that section.
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 April 15, 2014
This week, the Environmental Council of the States (ECOS) publicly announced a memorandum prepared by ACOEL members concerning important issues arising under the Clean Air Act. In May 2013 ACOEL entered into a Memorandum of Understanding with ECOS to facilitate a relationship pursuant to which members of ACOEL will provide assistance on issues of interest to ECOS.
In accord with the President’s June 2013 Climate Action Plan, EPA announced plans to use existing Clean Air Act Section 111 authority to develop greenhouse gas emissions (GHG) standards for new and existing sources. Thereafter, ECOS contacted ACOEL and requested an extensive and neutral review of the history and background of section 111(d) of the Act. A diverse group of ACOEL members from academia, private law firms, and public interest groups volunteered and produced the attached comprehensive memorandum, which was well received by ECOS. This week, ECOS made the memorandum publicly available.
In announcing the memorandum, Dick Pedersen, the President of ECOS and Director of the Oregon Department of Environmental Quality, thanked the members of ACOEL for their significant time and effort in preparing the memorandum, and added that ECOS looks forward to working with ACOEL in the future. ACOEL hopes that this memorandum will serve as a valuable resource in connection with EPA’s anticipated rulemaking efforts in this area.
ACOEL: Memorandum for ECOS Concerning Clean Air Act 111(d) Issues pdf
Posted on April 14, 2014
Last week, in response to shareholder requests that it disclose information regarding how climate change might affect it in the future, ExxonMobil released two reports, one titled Energy and Climate, and one titled Energy and Carbon – Managing the Risks. They actually make fascinating reading and seem to represent a new tack by ExxonMobil in its battle with those seeking aggressive action on climate change.
The reports do not deny the reality of climate change. Indeed, the reports acknowledge climate change, acknowledge the need for both mitigation and adaptation, acknowledge a need to reduce fossil fuel use (at some point), acknowledge the need to set a price on carbon, and acknowledge that ExxonMobil in fact already is making future planning decisions utilizing an internal “proxy” price on carbon that is as high as $80/ton of CO2 in the future.
The reaction of the shareholder activists who pushed for the disclosures? They are not happy. Why not?
Because ExxonMobil has said explicitly that it doesn’t believe that there will be sufficient worldwide pressure – meaning government regulations imposing very high carbon prices – to reduce fossil fuel use sufficiently quickly enough to limit global temperature rise to 2 degrees Celsius. It also does not believe that worldwide carbon regulation will leave it with any “stranded assets.”
I understand the moral case against fossil fuel use. Personally, however, I’d rather rely on a carbon price that provides the appropriate incentives to get the reductions in CO2 emissions that we need to mitigate climate change. On that score, sadly, it’s not obvious to me at this point that ExxonMobil’s analysis of likely outcomes is actually wrong.
My biggest complaint with the reports is the refusal to recognize that markets react dynamically to new regulatory requirements. The history of big regulatory programs is that they pretty much always cost less than the predictions made before the regulations are implemented. The lesson then is that the current projections of energy cost increases resulting from a high cost of carbon are likely to be overestimated.
Time will tell. At least I hope so.
Posted on March 31, 2014
Quarles & Brady recently represented Wisconsin Energy Corporation and Wisconsin Electric Power Company (doing business as "We Energies") in the construction and commencement of operation of a $250 million biomass-fueled co-generation plant. The project is located at Domtar Corporation's paper mill facility in Rothschild, Wisconsin. Wood, waste wood and sawdust are now being be used to produce 50 megawatts of electricity. The new co-generation project also supports Domtar's sustainable papermaking operations.
The new facility adds another technology to We Energies' renewable energy portfolio. That portfolio includes the 145 megawatt (MW) Blue Sky Green Field Wind Energy Center in Fond du Lac County and the 162 MW Glacier Hills Wind Park in Columbia County. Under Wisconsin law, utilities must use renewable energy to meet 10 percent of the electricity needs of their retail customers by the year 2015. With the start of commercial operation of the Rothschild biomass plant, We Energies estimates that it now has secured enough renewable energy to remain in compliance with the state mandate through 2022. Together, We Energies' three renewable energy operations are capable of delivering nearly 360 MW of renewable energy, enough to supply approximately 120,000 homes.
The Rothschild biomass project created approximately 400 construction jobs and 150 permanent jobs in the surrounding community. This includes independent wood suppliers and haulers from northern and central Wisconsin who are now securing waste wood for the project. We Energies appeared in proceedings before the Public Service Commission of Wisconsin in support of the Company's application for a Certificate of Authority for approval for the biomass plant. The Company filed an application for an air permit and other environmental approvals for the project, including the preparation of environmental assessments in support of the regulatory decisions.
The air permit for the project was issued on March 28, 2011. We Energies obtained one of the first PSD BACT (Prevention of Significant Deterioration - Best Available Control Technology) determinations for this project for Greenhouse Gas (GHG) emissions in the U.S. under EPA's GHG Tailoring Rule. The Company worked with the Wisconsin Department of Natural Resources (DNR) in developing a novel case-by-case Maximum Available Control Technology (MACT) determination for the biomass boiler under the Section 112 (hazardous air pollutant) provisions of the federal Clean Air Act. The permit was challenged by several environmental groups. The Company prevailed in the permit appeal process. The appeal was dismissed on the merits by the Marathon County Circuit Court in October, 2011. The facility started commercial operation on November 8, 2013.
Posted on March 17, 2014
How far can an agency deviate from a statutory scheme in order to achieve what it sees as the goals of that scheme? Can the regulatory structure “improve on” the statute? These issues are currently playing out in two closely watched cases.
Last year these pages described a then-undecided Massachusetts state court case that had attracted a surprising degree of national attention. Pepin v. Division of Fisheries and Wildlife began as a relatively straightforward challenge to an agency determination that the plaintiffs’ land provided habitat for the Eastern Box Turtle and that construction of their planned retirement home was therefore subject to regulation under the Massachusetts Endangered Species Act (MESA). In the course of judicial appeals of the agency decision, the plaintiffs, with new counsel, shifted the focus of their argument to a challenge to the regulations themselves. When the Massachusetts Supreme Judicial Court (Mass SJC), acting sua sponte, transferred the case to its own docket, interest in the case spiked dramatically. Amicus curiae briefs were filed not only by state-based groups, on both sides of the issue (Massachusetts Audubon Society, Development Council of Western Massachusetts, Home Builders Association of Massachusetts), but also by those from farther afield (Pacific Legal Foundation, Defenders of Wildlife, National Association of Homebuilders, The Nature Conservancy). Clearly, something was at stake. And now, just as the Mass SJC has reached a decision in Pepin, very similar arguments are being made, with even more at stake, in this year’s most closely watched environmental case, Utility Air Regulatory Group v. EPA, the United States Supreme Court’s review of the Obama Administration’s attempt to regulate greenhouse gas emissions from stationary sources.
To understand these issues, some background on the Massachusetts endangered species regulatory scheme and the challenge to it is necessary. (These are described in more detail in the earlier posting.) The challenged regulations established a process for mapping “priority habitats,” areas that are important for species that fall into any of the three categories established under MESA – in descending order of the peril that they face, endangered species, threatened species, and species of special concern. These Priority Habitat regulations require that before a project is undertaken in such an area, it must be reviewed by the Division of Fisheries and Wildlife to determine whether it will result in a “take” of a species falling into any of the three categories. (“Take” is very broadly defined in the statute and includes habitat alteration.) If a take will occur, the regulations provide, the project may nevertheless proceed if it can be conditioned in such a way as to avoid that result or, in more difficult cases, if the project proponent takes other steps that will result in “a long-term net benefit to the conservation of the impacted species.”
In practice, the evidence showed, 75% of projects proposed in Priority Habitat have been approved without conditions, 22% have proceeded with conditions, and 3% have required that other measures, resulting in a “long-term net benefit,” be taken in order to permit the project to proceed. Because of this history, at least parts of the development community in Massachusetts had accepted the Priority Habitat regulations as a reasonable way of accommodating both developers’ interests and the purposes of MESA.
This acceptance was likely based on something else as well: As a practical matter, the Priority Habitat regulations were promulgated in lieu of regulations under another scheme, specifically set out in the legislation but never put into effect by the Division of Fisheries and Wildlife. MESA authorizes the Division to designate as “Significant Habitat” areas that are important to the survival of endangered and threatened species (but not species of special concern). And MESA severely constrains development in areas that the Division has so designated. But, because of the severity of the constraint, the Act also establishes substantial procedural protections before a particular property can be designated as Significant Habitat.
Rather than designating any Significant Habitat, the Division, relying on a general grant of authority to adopt regulations, created the Priority Habitat scheme, with its less severe restrictions on development and its less burdensome (for the agency) procedural requirements. In short, the Division chose not to adopt regulations specifically contemplated in the enabling legislation and adopted instead regulations that were easier to administer, less intrusive for those in the regulated community who would have fallen under the legislatively-contemplated scheme and, as a consequence, arguably more effective at protecting at-risk species in Massachusetts. Doing that, though, made the Priority Habitat regulations subject to challenge by those who might prefer that there be no regulation of land use in the interest of protecting at-risk species at all.
The challenge in the Pepin case to the Massachusetts wildlife agency’s rulemaking power is very like the industry challenge to EPA’s rulemaking in Utility Air Regulatory Group. On February 18 of this year, the Mass SJC upheld the validity of the Priority Habitat regulations. On February 24, the United States Supreme Court heard argument on the challenge by industry and certain states to the Environmental Protection Agency greenhouse gas regulations. (Other states intervened in support of the regulations, and there was extensive amicus participation.) At the heart of the challenge in the Supreme Court is an attack on EPA’s determination that it would raise very substantially the threshold at which emitters of greenhouse gases would be regulated; the emission levels specified in the Clean Air Act are much lower, but they were intended for “conventional” pollutants, not greenhouse gases. Using the Congressionally-specified levels would have been an administrative nightmare for EPA. And it would have been enormously burdensome for businesses and even individuals. EPA therefore determined to use higher thresholds. This presumably benefits the industry petitioners and the states that support them. But that is not the point. EPA’s action leaves it subject to the accusation leveled at the Massachusetts Division of Fisheries and Wildlife: That it re-wrote a statute in order, in its view, to make it work better, and that an administrative agency may not do that.
The Mass SJC had little difficulty rejecting this claim. The unanimous opinion begins its discussion of the validity of the Priority Habitat regulations by noting that “[d]uly promulgated regulations . . . are presumptively valid and ‘must be accorded all the deference due to a statute.’” And in analyzing whether the plaintiffs had overcome that presumption, the court “look[ed] to the statute as a whole to determine the scope of the agency’s power.” In the recent United States Supreme Court argument, EPA sought to invoke these principles in defense of its greenhouse gas regulations. And it received some support from the Court. Justice Elena Kagan, according to the New York Times, acknowledged that what the agency did “was true to the law’s larger purpose.” But other Justices were less comfortable: Justice Anthony Kennedy “couldn’t find a single precedent that strongly supports [EPA’s] position.” And Justice Samuel Alito insisted that the agency’s use of its own threshold numbers, rather than those in the Clean Air Act, was unprecedented “in the entire history of federal regulation.”
The two cases are not the same, of course: the statutes are different; the agencies’ actions and choices were different; and the governing administrative law principles may be different in some respects. But it seems likely that the outcomes in the cases turned and will turn less on any of those factors and more on the views of the judges deciding them about the appropriateness of administrative agencies making their own judgments about how best to accomplish broadly-stated legislative objectives.
One could easily argue that the Massachusetts Division of Fisheries and Wildlife took a more dramatic step, in declining to promulgate regulations that the enabling legislation called for and instead promulgating regulations that were not specifically contemplated by that legislation, than EPA did in adopting the regulatory model that Congress had called for but limiting its reach when it was clear that not doing that would be havoc-making. Perhaps if the Massachusetts Supreme Judicial Court had reviewed EPA’s actions and the United States Supreme Court had reviewed the Priority Habitat regulations, the results would reflect that distinction. But they didn’t. And what we got, and likely will get, are decisions that reflect as much the views of the members of those courts as they do the substantive nuances of the cases themselves.
Posted on February 13, 2014
A former federal district judge was fond of telling his law clerks that Fifth Circuit Court of Appeals opinions were like the Old Testament. “You can find something there to support about any proposition you want.” The January 31, 2014 release of the State Department’s Final Supplemental Environmental Impact Statement for the Keystone XL Pipeline Project brought Judge Roberts’ words to mind.
The Keystone XL Pipeline Project backers tout the report’s conclusion that because the Canadian tar sands oil will be developed with or without the construction of the pipeline, it will not “significantly exacerbate the effects of carbon pollution” (to use the President’s avowed standards for pipeline permit approval). On the other hand, pipeline opponents point to the fact the report does not specifically address the project’s greenhouse gas emissions. Both are valid points, but the gist of the report appears to be the project has finally cleared its environmental hurdle.
That said, other hurdles remain. While this long-awaited environmental impact statement is an important step in the process, it is just that, a step. Ultimately, the final decision on the pipeline permit will involve something more akin to the common standard for law firm attorney compensation, the so-called “all factors considered” standard. In this instance, that decision will involve economic and national and international political concerns, as well as how the project affects U.S. and international climate policy.
With the issuance of the report, the 90-day interagency consultation period begins. Once EPA, and the Departments of Energy, Defense, Transportation, Justice, Interior, Commerce, and Homeland Security weigh in, the Secretary of State will at some point make to President Obama a permit recommendation. The President, of course, has the final say.
Stay tuned; the project appears to have cleared another hurdle, but the five year and counting race is far from over.
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 5, 2013
For the first time, the Office of Management and Budget ("OMB") is soliciting public comment on the Social Cost of Carbon ("SCC"). The SCC is a series of published values that represent the monetary impacts of marginal reductions in carbon emissions reductions, which are to be used by federal agencies when conducting cost-benefit analysis for rulemaking activities.
First published in 2010, the SCC is prepared by an interagency working group and is based upon three different integrated assessment models that project the economic impacts of climate change. The 2010 document setting for the SCC called for periodic review and update of the SCC as the science and economic understanding of climate change improves over time. The SCC values were updated in November of 2013 and have been increased to reflect improvements in the underlying integrated assessment models, including incorporation of the projected costs of sea level rise. Although OMB guidance directs that regulatory cost-benefit analyses should normally focus upon domestic costs and benefits, the SCC is a measure of the global benefits that are projected to result from marginal reductions in GHG emissions. The interagency working group concluded that the use of a global measure for carbon was appropriate because greenhouse gas emissions create a global externality, and the United States cannot resolve the projected impacts of climate change acting alone.
OMB is seeking public comment on the technical support document that explains how the SCC is set and specifically requests comment on (i) the selection of the integrated assessment models, (ii) how the distribution of SCC estimates should be used in regulatory impact analyses, and (iii) the strengths and limitations of the overall approach. The SCC is likely to be increasingly important as EPA proceeds with rulemaking activities to regulate greenhouse gas emissions from various sources. In fact, EPA employs the SCC in the regulatory impact analysis for the currently-pending proposal for New Source Performance Standards for power plants. The public comment period on the SCC runs through January 27, 2014.
Posted on December 4, 2013
After more than a decade of laying a foundation for sustainability activities, the American Bar Association is poised to take its act to a higher level with a presidential level Task Force on Sustainable Development. The Task Force is intended, in no small part, to help mainstream sustainable development into the practice of law.
Within the practice of law, there is already a small group of lawyers whose work focuses intensively on sustainable development—including renewable energy and energy efficiency, biodiversity conservation, green building, climate change, and smart growth. They are doing so in response to growing demand from clients, government, and the private sector, as well as rising public expectations about environmental and social performance. Yet sustainable development remains something of a mystery to many environmental lawyers. And some environmental lawyers think they understand sustainability when they do not.
The critical task of sustainable development is to integrate environmental and social considerations and goals into otherwise conventional development decisions. Environmental goals include reduced greenhouse gas emissions, a smaller overall environmental footprint, climate change resilience, reduced toxicity or pollution, and conservation of species and ecosystems. Social goals include workforce diversity, employee safety and development, and contribution to charitable or community activities.
Over the past decade, the American Bar Association has developed two tools to enable lawyers to help lawyers move their offices in a sustainable direction and to recognize law organizations that use them. They are:
• The ABA-EPA Law Office Climate Challenge, a program to encourage law offices to conserve energy and resources, as well as reduce emissions of greenhouse gases and other pollutants.
• The ABA Section on Environment, Energy, and Resources (SEER) Sustainability Framework for Law Organizations, in which a law organization commits to take steps over time toward sustainability.
In August, the ABA House of Delegates, which has a significant policy-making role, adopted a resolution that builds on these and other steps toward sustainability. The resolution — the third major resolution on sustainability it has adopted since 1991--“urges all governments, lawyers, and ABA entities to act in ways that accelerate progress toward sustainability.” The resolution also “encourages law schools, legal education providers, and others concerned with professional development to foster sustainability in their facilities and operations and to help promote a better understanding of the principles of sustainable development in relevant fields of law.”
In conjunction with this resolution, ABA President James R. Silkenat appointed a Task Force on Sustainable Development to “focus on ways that the ABA can provide leadership on a national and international basis on sustainable development issues.” The Task Force is chaired by Lee A. DeHihns, a member of the Environmental & Land Development Group at Alston & Bird in Atlanta, Georgia and a former chair of SEER. The Task Force has 20 members (including me), representing government, the private sector, nongovernmental organizations, and academia.
The Task Force is planning to create a user-friendly website that contains a variety of sustainability resources for lawyers. It is also looking at a range of different kinds of educational materials and tools for lawyers and law students on sustainability issues.
It is increasingly important for lawyers to be able to communicate with clients about sustainability in general, the growing number of sustainability issues that are affecting law practice (including but certainly not limited to climate change), and the ways in which lawyers and others are creating tools and approaches for sustainability. Law firm innovations for sustainability include the combined use of low income housing tax credits and renewable energy tax credits to finance low income housing that uses solar energy, and legal and financing packages for municipalities that invest in green infrastructure.
The Task Force is also examining a wide variety of other ways that lawyers and the ABA can “accelerate progress toward sustainability.” Because the Task Force has one year to complete its work, it is also looking at projects and activities it can complete in that year and longer term projects and activities that can be started in that year but that would need a longer time to finish. If you have suggestions, contact Lee DeHihns or me. And stay tuned.
Posted on November 22, 2013
Commentary on the Supreme Court’s grant of certiorari in the greenhouse gas case has addressed the question taken for review: whether EPA permissibly decided that regulating motor vehicle greenhouse gas emissions triggered permitting regulations for stationary sources like power plants. (See Garrett and Buente blogs). This is an interesting question of statutory interpretation, but it may be more important that the Court declined to review EPA’s fundamental finding that greenhouse gases “may reasonably be anticipated to endanger public health or welfare.” The D.C. Circuit panel in the case agreed with EPA that the scientific evidence amply supported action under the precautionary standard of endangerment which allowed the agency to act in the face of scientific uncertainty and without a complete quantification of risks, costs, and benefits of regulation. Relying on its 1976 decision upholding EPA’s regulation of lead additives in gasoline under the same part of the Clean Air Act, the D.C. Circuit panel had no difficulty concluding that EPA had made the case for control of greenhouse gases from motor vehicles as a precautionary rule. This holding and its reasoning will be important support to EPA as the agency moves forward with the more complex and costly initiative to set emission standards for power plants. Electric generating plants contributed over 38% of U.S. CO2 emissions in 2012, with coal-fired plants accounting for nearly three quarters of those emissions.
Some observers may have dismissed the possibility of Supreme Court review of the endangerment finding considering the strength and complexity of the scientific evidence. However, a Court that has eviscerated federal campaign finance and voting rights law, disregarding congressional intent and its own precedents, can’t be counted on to defer to a science-based EPA decision just because the overwhelming majority of scientists endorses the agency’s conclusions. Some of the justices may well agree with Judge Janice Rogers Brown’s vigorous dissent from the D.C. Circuit’s vote to deny rehearing en banc of the panel decision. Invoking memories of living near Los Angeles in the seventies when smog hid the mountain views, Judge Brown argued that the Clean Air Act is aimed at “inhaled” pollution of the type that kills people and not pollution that harms public health or welfare less directly through impairment of natural resources like water resources or crops by climate change—harm, as she put it, coming “at the end of a long speculative chain.” Though mistaken in her interpretation of the Clean Air Act, Judge Brown’s opinion illustrates the challenge of educating both the courts and the public on the more complex chains of causation involved in defining harm from ecological damage and less traditional pollutants. Her opinion is a good reminder that advocates of regulation to safeguard ecological resources, including our climate, have work to do to build greater understanding of profoundly serious risks.
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 16, 2013
The UN’s Intergovernmental Panel on Climate Change (“IPCC”) has more bad news for us. Its long range forecast still looks hot, and the IPCC is more confident than ever that humans are largely the cause. On Friday, September 27, the IPCC issued a Summary for Policymakers on the “physical science basis” of climate change. This is the first part of the IPCC’s Fifth Assessment Report to be published. The summary report contains numerous findings, but you may want to begin by thinking about five aspects of them.
1. It is “extremely likely” that we’re the culprit. The IPCC observes that warming in the climate system is unequivocal. But there has been debate about its cause. Based on growing evidence, the report finds it is “extremely likely” that human influence has been the dominant cause of observed global warming since the 1950s. In the IPCC’s previous report, issued in 2007, the IPCC was 90% certain of this conclusion. Now it is 95% certain.
2. We need a carbon budget. For the first time, the IPCC takes a stab at calculating essentially a global limit on anthropogenic CO2 emissions. Science has long estimated that a temperature rise of 2 degrees Celsius above the temperature of preindustrial times is the point after which the most damaging effects of global warming would happen. The report estimates the level of total CO2 emissions since the industrial revolution that would trigger a temperature rise of this magnitude. That number is subject to variation of course, but the report projects it is likely that no more than about one trillion tons of CO2 could be released without triggering this rise in temperatures. We have released about one half of that amount so far, and projections are that at current rates, the other half trillion tons could be released from anthropogenic sources in the next several decades.
3. Temperatures of the last fifteen years are not that comforting. Climate change skeptics have focused on the fact that the rise of global surface temperatures leveled out in the last fifteen years. The IPCC report explains that this recent trend may be due to natural variability. It observes that trends based on records of short duration are very sensitive to beginning and end dates and may not reflect long term climate trends. Nonetheless, in identifying possible explanations for the fifteen year hiatus in warming, IPCC recognizes that the possible explanations for it are not proven. It also recognizes the possibility that in some models, there may be an overestimate of the response to increasing greenhouse gas.
4. There is much we do not know. We don’t know the cause of the fifteen year leveling of global warming. We don’t know how quickly the oceans will rise. We don’t know the likelihood and rate of extinctions. We cannot accurately predict the localized effects of warming temperatures. Much of the report is a detailed exercise in characterizing probabilities and confidence levels of predicted global climate trends over time. The report characterizes the likelihoods of trends it identifies, and they range from the virtually certain to low confidence levels, depending on the trend and timeframe.
5. We will hear more from the UN. The Summary Report for Policymakers focuses on the physical science basis of climate change, and the full version of this part is expected soon. This physical science part is only the first of three that will together comprise the IPCC Fifth Assessment Report. The Fifth Assessment Report follows the Fourth Assessment Report which was published in 2007. In 2014, the two additional parts of this Fifth Assessment Report will be issued concerning (1) likely impacts and (2) steps to limit climate change. As the report is issued, it likely will prompt renewed efforts for a global climate treaty. The UN Secretary General, Ban Ki-moon, urged world leaders to work toward a new global agreement to cap greenhouse gas emissions and declared his intention to call a meeting of world leaders next year.
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 June 7, 2013
On the night of his re-election, President Obama told the nation that he wanted “our children to live in an America…that isn’t threatened by the destructive power of a warming planet.”
In the past year, we’ve seen extreme weather, fueled by carbon pollution, cost hundreds of American lives and nearly $100 billion in damage across the country. Yet right now we have no national standards to control carbon pollution from the biggest emitters—the 1500 existing power plants which are responsible for 40 percent of U.S. carbon pollution. NRDC has developed a plan for how the President could use his existing authority under the Clean Air Act to cut this climate-changing pollution from power plants, quickly and cost-effectively.
In a 2011 Supreme Court decision, American Electric Power v. Connecticut, the court ruled that it is the EPA’s responsibility to curb carbon pollution from power plants, new and existing. Carbon pollution limits for new power plants have been proposed and the EPA needs to make them final. But the step that will make the biggest difference is cutting pollution from existing power plants. Under section 111(d) of the Clean Air Act, the EPA could set state-specific standards for average emissions from existing power plants based on each state’s current energy mix. Then states and power plant owners would have broad flexibility in deciding how to meet those standards, using a range of cost-effective measures and technologies.
Not all states line up at the same starting point when it comes to carbon emissions—some are heavily coal dependent, while others rely more on lower-carbon fuels and clean, renewable energy. Developing state-specific standards will give heavily coal-reliant states more realistic targets, while still moving them toward a cleaner energy supply. In addition, states and power plant owners can keep costs down by using a variety of measures to achieve compliance, whether it’s installing a new boiler in an old coal-fired plant, or investing in a home-weatherization program to reduce energy demand. These efficiency measures will help keep energy bills low and also create thousands of jobs that can’t be outsourced.
All in all, NRDC’s flexible, cost-effective proposal can achieve a 26 percent reduction (from 2005 levels) in carbon pollution from power plants by 2020, according to modeling done by the same firm the EPA uses for much of its air pollution modeling. The cost of compliance, about $4 billion, is comparatively low, and is vastly outweighed by the benefits--$25 to $60 billion in savings. These benefits come in the form of 3,600 lives saved, and thousands of asthma attacks and other illness prevented each year due to less air pollution, as well as the value of reducing carbon pollution by 560 million tons. This is twice the reduction that will be achieved by clean car standards.
The President has been very clear about the need to do something to curb global warming. This cost-effective proposal could be his biggest opportunity to take decisive action. He can dramatically reduce carbon pollution from power plants--while creating major health benefits and jobs--using his existing authority under the Clean Air Act.
Posted on June 3, 2013
Four votes. That is the number of votes required to grant a Supreme Court petition for a writ of certiorari. And because that is the same number of Justices who dissented from the Court’s landmark 2007 ruling in Massachusetts v. EPA, EPA has reason to worry over the summer.
Pending before the Court are nine petitions seeking review of a wide ranging set of challenges to EPA’s regulation of greenhouse gas emissions from new motor vehicles and new stationary sources. Petitioners include most every significant part of American industry, 14 States, and numerous political leaders. Some petitions, consistent with Judge Brett Kavanaugh’s dissent from the D.C. Circuit’s denial of rehearing en banc in Coalition for Responsible Regulation v. U.S. EPA, are strategically narrow; they ask the Court to review only a relatively narrow issue regarding the applicability of the Clean Air Act’s Prevention of Significant Deterioration Program to greenhouse gas emissions. Others, by asking the Court to overturn EPA’s determination that greenhouse gas emissions from new motor vehicles endanger public health and welfare seek, as a practical matter, to topple the Obama Administration’s effort to address global climate change in the absence of new federal legislation. But a few of the petitions jettison even any pretense of modesty by directly asking, consistent with D.C. Circuit Judge Janice Rogers Brown’s blistering dissent from en banc denial, the Court to do no less than overrule Massachusetts v. EPA.
The Solicitor General and other respondents (including 18 States) will no doubt oppose cert on all issues in their responsive filings this summer. They have nontrivial arguments, especially given the serious questions they can raise concerning the Article III standing of petitioners to raise the particular legal claims that would likely otherwise have the most force on the merits. But EPA is likely to be less concerned with whether review is granted than, if granted, on what issues. The legal stakes for some issues raised are far less consequential than they are for others, which are quite enormous.
Any cert grants will likely be announced in late September, shortly before October’s “First Monday” to allow for expedited briefing and argument as early as January 2014 and more likely in February. Otherwise, all petitions will be denied on that First Monday. It will be a long summer’s wait for all parties.
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.