Its Gas, Gas, Gas

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Its Gas, Gas, Gas

Its Gas, Gas, Gas

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  • 1. CLE Seminar for In-House Counsel October 11, 2013 Washington, DC "It's Gas, Gas, Gas" President Obama's Climate Change and Energy Regulatory Program: How Will It Impact the Power and Manufacturing Sectors James Rubin Partner Dentons US LLP james.rubin@dentons.com +1 202 408 9146
  • 2. "Start Me Up": President Obama's Climate Change and Energy Regulatory Program: How Will It Impact the Power and Manufacturing Sectors • June 2013 Obama Climate Change Action Plan • What is already in place? • What is proposed and what is to come? • Other relevant regulations and developments • Other players and perspectives • States • International • Congress • Impacts on the Energy and Manufacturing Sectors • Conclusions and Likely Next Steps
  • 3. "Street Fighting Man": Obama’s Climate Action Plan • Major Elements • ***Mitigation -- Clean Air Act greenhouse gas (GHG) regulations • Deadlines for performance standards (NSPS) for new and existing power plants • Clean Energy Initiatives (Executive agency actions) • Increase permitting of renewable projects (doubling of wind capacity by 2020) • Encourage hydroelectric projects, military deployment of renewables (installation of 3 GW) • *$8 billion loan guarantees for advanced fossil energy/efficiency (including CCS) • Efficiency programs; standards for appliances and federal buildings • Fuel Economy (for heavy duty vehicles, advance transportation technologies) • Renewable Fuels Standard (RFS) reform and biofuels development • *Reducing methane and other high GHG emissions - interagency strategy • International efforts • Is US really on track to meet 17% reduction of 2005 emissions by 2020? • Preparing for impacts/adaptation
  • 4. "Hot Stuff": Current GHG Regulatory Landscape • How did We Get Here? • Early efforts to address issue • • • • Clinton Administration and Kyoto Protocol Early efforts under the Clean Air Act (CAA) -- Does EPA Have Authority to Regulate GHGs? ENGO petitions to regulate GHGs Bush Administration inaction • Game changer No. 1: Massachusetts v. EPA (Supreme Court 2007) • Mobile source section 201(a)(1) of the CAA for new motor vehicles • GHGs are “pollutants” within the meaning of the CAA • EPA must make a lawful determination of whether GHGs endanger public health and the environment (Endangerment Finding) • Will it stand?
  • 5. Current GHG Regulatory Landscape cont. • Game changer No. 2: Obama (Re)Election • Active EPA Administrator and staff pursue regulatory approaches • Climate change “cap and trade” legislation proposed in House and Senate • “Cap and trade” bill actually passes House in 2009 but proposal dies in Senate in 2010 • New staff changes bring further "climate hawks" aboard • Game changer No. 3: Hydraulic Fracturing and Unconventional Gas • Transforms energy and manufacturing sectors • Projections on amounts and pricing of natural gas, use in industrial sectors • US as a net exporter of gas? • Low priced, abundant supplies and construction of new natural gas-fired plants, putting pressure on existing and new coal-fired plants • “Bridge” to low/no carbon significantly extended • Game changer No. 4???: Carbon Capture and Storage (CCS) • Is it ready for prime time?
  • 6. "Beast of Burden": Existing Federal Climate Change Regulation • What is in Place? Quite a lot, actually • Mandatory GHG Reporting – 2009 (based on 2008 legislation outside the CAA) • Applies to most industrial sectors - 25,000 MT CO2e threshold • Annual publication of data • Includes sequestration • Endangerment Finding for GHGs under CAA 201(a)(1) • GHGs from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare • Automatic domino effect under CAA • Key finding for future regulations? • EPA/NHTSA Tailpipe Standards for light duty vehicles (cars and light trucks) • • • • Fuel efficiency plus some controls on non-carbon emissions, e.g. A/C systems MY 2012-2016 (2010); MY 2017-2025 (2012) Auto company support (meets CA standards; see 2009 CA waiver) Also standards for medium and heavy duty vehicles (trucks) set for MY 2014-2018 (2011)
  • 7. "Under My Thumb": Existing Federal Climate Change Regulations cont. • What is in Place cont.? • Pre-construction and Operation Permits – GHGs are now “subject to regulation” under the CAA so programs “automatically” apply • Prevention of Significant Deterioration (PSD) and Title V: Pre-construction and Operating Permits • Lengthy, expensive process • Must determine Best Available Control Technology (BACT) • Permits subject to public comment, litigation and delay • Timing Rule (March 2010) – when did GHGs become “subject to regulation” • Tailoring Rule (May 2010) to mitigate automatic application to nearly every source • Jan. 2011 Phase 1 – “anyway” sources with potential (PTE) GHG emissions at/above 75,000 tons CO 2e/yr • July 2011 Phase 2 – PSD also applies to major sources at/above 100,000 tons CO2e/yr (and statutory mass basis) and major modifications of major sources with net emissions increases at/above 75,000 tons CO 2e/yr • CO2 emissions from biomass exempted for three years -- but vacated by court • July 2012 Phase 3 – EPA finalizes rule that it will not reduce threshold further but will seek to streamline permitting, e.g. Plant-wide Applicability Limits and others • Also as of July 2011, Title V applies to sources above 10,000 tons/yr CO2e/yr • This regulatory suite has survived litigation (for now)
  • 8. Existing Federal Climate Change Regulations cont. • What is in Place cont.? • What is Best Available Control Technology (BACT) for GHGs? • Relatively few permits issued to date • Will depend on types of sources • EPA Guidance • Mainly efficiencies, no fuel switching • CCS should be considered but not yet commercially available!!! • New Source Performance Standards would be floor (!!!) see infra
  • 9. Existing Federal Climate Change Regulations cont. • What is in Place cont.? • Others • ***Geologic Sequestration – underground injection allowed in Class VI wells under SDWA (Dec. 2010) • Oil and Natural Gas Air Pollution Standards • VOCs (methane) from hydraulic fracturing (April 2012) • First air pollution regulations for GHGs • Reformulated Fuels Standard (RFS) Program • Biofuels must meet GHG standard • Other CAA programs treating biomass more leniently (for now?) • EPA recently loses PSD exemption for biomass generation, so what now? • Biomass considered BACT for biomass component of facility’s fuel stream
  • 10. "You Can’t Always Get What You Want": Proposed Regulation of New Power Plants • What is Proposed? • NSPS for CO2 emissions from New EGUs (CAA section 111(b)) • • • • • • • • New proposal issued September 30, 2013 (POTUS deadline) Not yet published in Federal Register Originally proposed April 13, 2012 but EPA missed one year deadline for issuance of a final rule Clearest statement to date that new coal-fired power may not be built unless using super-critical boiler technology and CCS technology (partial) Original proposal set standard of 1,000 pounds CO2/MWhr for new EGUs, based on performance of natural gas combined-cycle plants which EPA finds is best system of emission reduction (BSER) Re-proposed to consider new comments and trends in industry -- and to protect rule itself New proposal establishes 2 categories: Natural Gas and Fossil Fuels (Coal and IGCC) BSER for natural gas is Combined Cycle (CCNG) • For large units (above 850 mmBtu/hr) = 1,000 lbs CO2/MWH-gross • For small (at or below 850 mmBtu/hr) = 1,100 lbs CO2/MWH-gross • BSER for Fossil Fuel - advanced technologies with "partial" CCS • 1,100 lbs CO2/MWH-gross over 12-month operating period OR • 1,000-1,050 lbs lbs CO2/MWH-gross over 84-month (7 year) operating period
  • 11. Proposed Regulation of New Power Plants cont. • NSPS for New EGUs cont. • Does not apply to units that do not burn primarily fossil fuels (biomass), that burn liquid fossil fuels, or with low capacity factors that sell < 1/3rd of power to the grid • Applies to “new” sources, e.g. commenced construction after date of proposal, TBD • Special treatment for plant(s) permitted and commenced construction • Doesn't apply to new or modified units (separate rule) or existing units (commenced pre-proposal) • NSPS sets floor for BACT determination (CAA 169(3)) • To be finalized in "a timely fashion" (by June 2014 because of timeline for existing unit proposal) • 60 day public comment, then hearings: very compressed schedule • Issues: • Are standards attainable and can EPA force technology development? • EPA: yes, merely codifying what is occurring in industry: "in line with investments in clean energy technologies that are already being made in the power sector" • Shift to cleaner next generation of power plants: All new builds will be CCNG for next decade plus • Some companies may build coal for diversity of fuel, flexibility but will use IGCC/CCS • Partial CCS is commercially attainable, based entirely upon 4 plants under construction or in advanced development (an one plant using CCS for enhanced oil recovery) • Transportation and storage sites exist and more will be developed • This is business as usual: no "notable" costs or benefits
  • 12. Proposed Regulation of New Power Plants cont. • Issues: • But: does EPA have authority to force such technological development or transform an entire sector? This is new ground • Are necessary legal and infrastructure predicates in place for commercial deployment of CCS? • Will wide-scale deployment be possible in 7 years? 30 (as in prior proposal)? • Are projections of gas and coal supplies and prices likely to be accurate? • Can new natural gas plants meet the new standards? • Inevitable legal challenge in the D.C. Circuit • • • • Underlying authority BSER Unlikely to be resolved before 2015 Panel? • Reactions by industry and Congress have been strong and immediate: "war on coal" • Congressional efforts to kill rules
  • 13. Proposed Regulation of New Power Plants cont. • Other Related Proposals • Conditional exemption of geologically sequestered GHGs from RCRA Subtitle C (Aug. 2011) • If properly managed, does not present substantial risk • Draft CEQ Guidance on GHGs under NEPA (2010) • Impact of EPA comments on Keystone/social cost of carbon • Legislative uproar over coal exports and social costs
  • 14. "Tumbling Dice": What Federal Regulations Are to Come? • What is to Come? • Federal NSPS "Guidelines" for existing EGUs (CAA 111(d)) • • • • Under Climate Action Plan, proposal due June 1 2014 and final due June 1, 2015 State implementation plans by June 30, 2016 Initially, EPA had agreed to issue with new units by Sept. 2011 A different type of regulation – federal emission guidelines binding on states which set, implement and enforce to meet goals (based on BSER) • • • • Where sources and pollutants not regulated in other programs Used sparingly (only 5 existing sources in 40 years) EPA describes BSER, costs, degree of reductions achievable, etc. States can regulate more strictly or in a shorter timeframe • Obama calls for "market-based instruments, performance standards or other regulatory flexibilities" • EPA emphasizes flexibilities given POTUS plan, nature of pollutant and industry • What flexibility does EPA have?: • Source-based approach vs. systems-based (beyond the fence-line) • Supply-side (including efficiency, heat rate, fuels) and demand side
  • 15. What Federal Regulations Are to Come? • What is to Come? • Federal "Guidelines" for existing EGUs (CAA 111(d)) cont. • EPA emphasizes/flags roles of states as leaders and experienced in area • State programs (GHG limits, RPS, efficiency, etc.) • What flexibility does EPA have for national, regional or state trading? • Very controversial because of potential impact on existing coal plants, costs • EPA formally launched stakeholder discussion on September 20, 2013 • Not much detail other than new EGU NSPS rule not intended as model • CCS will not be required as an add-on control • Very compressed time for rulemaking • Will it be done by 2016? • What happens if new EGU NSPS rule is struck down? • GHG for modified and reconstructed power plants • Same timelines as existing units (6/14, 6/15) but follows new source process (e.g. EPA standards)
  • 16. "Satisfaction (Can’t Get No)": Regulation in Other Sectors • What is to Come? • NSPS for Other Sectors • NSPS for Oil refineries • EPA had agreed to issue by Dec. 2011; pending lawsuit • Oil and gas production? Methane leaks • Other sectors • • • • Cement Aviation Shipping Refrigerants • Will depend in large part on post-2016 political world (and may impact those elections) • Balancing the impacts of other programs (benefits and tradeoffs) • E.g. Tier III engine standards, impacts of other air quality standards and emission limits on energy use and efficiencies/parasitic load
  • 17. "When the Whip Comes Down": Other Relevant Regulatory Programs and Developments • Cross-State Air Pollution Rule • Relatively modest requirements for existing controls, some new controls for NOx and SO2 • DC Circuit stayed then vacated, currently before US Supreme Court • Mercury and Air Toxics Standards (MATS) • • • • • Only for coal and oil Requiring new controls and significant emissions reductions in 2015 (or 2016 or…) Rules for existing units in litigation now Rules for new units re-issued in April 2013 and will be litigated Likely to have significant impact on retrofitting, refiring or retiring older plants • Other programs with impacts on coal, favoring gas • • • • New national standards for fine particulate matter (PM2.5), ozone Coal combustion residue (CCR) - EPA vs. Congress Cooling water intake (Nov. 2013), effluent standards (May 2014) ***Hydraulic fracturing (BLM, TSCA, OSHA, water)
  • 18. "Respectable": Other Actors and Perspectives • State Perspectives • How will state programs fit in a federal scheme? • California and AB32, related programs and Canadian link • Regional Greenhouse Gas Initiative (RGGI) • New cap with 45% reduction and 2.5% annual reductions through 2020 • State and Local Programs • International Perspectives • UNFCCC Process • 2015 Agreement? • US Position • Montreal Protocol
  • 19. "Heart(s) of Stone": Congress and Climate Change • Legislative Perspectives • What is role of Congress? • • • • House is strongly critical of any climate regulation, EPA, social costs of carbon, Keystone Will current Senate support stand, especially from Democratic coal states? Pro-climate forces -- climate caucus Hydraulic fracturing • Current proposals • Clean energy • Efficiency (see e.g. travails of S. 1392 energy savings in building/industry) • Preparation/adaptation • Any future in “cap and trade?” • Carbon Tax/Fee?
  • 20. "Time Waits for No One": Impacts of Climate Program • Transformative Impacts on and from natural gas generation and use • New generation makes GHG regulation possible, but extends bridge to clean fuels • NSPS rule further extends the bridge • Domestic sourcing for petrochemicals, etc. • Impacts on existing and new coal plants • • • • Retirements based on economics, rules No new builds but IGCC, CCS in future? Is EPA's projection accurate? How will turn from coal affect other sectors? • Role and development of CCS • What will it take to make commercially operational and when? • Long term liability issues
  • 21. Impacts of Climate Program Cont. • Role of hydraulic fracturing • Water and other issues • Methane emissions • How are these to be balanced along with other concerns? • Precedents in other sectors -- which sector is next (if any)?
  • 22. "Not Fade Away"? Conclusions and Questions • President Obama has established ambitious goals and agenda: what is realistic? • Substantial federal GHG regulation is already here but more is coming • How much more can be done and put in place by 2016? • NSPS for new units is proposed, due in 2014 and heavily dependent on natural gas • NSPS for existing units, due in 2015, greatly more complicated and will be more controversial • Other regulatory responses are well behind • Congress unlikely to act positively but might act negatively • Congressional balance is key for action in either direction • Courts will continue to play a key role in development of programs • Programs staked on new gas economy • Will gas prices stay low viz coal and be fuel of choice? • Tied up with future of hydraulic fracturing • Will natural gas effect a permanent change or will we be able to move beyond carbon?
  • 23. Thank you James W. Rubin james.rubin@dentons.com Dentons US LLP 1301 K St., N.W. Suite 600, East Tower Washington, D.C. 20005 USA © 2013 Dentons Dentons is an international legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices.