Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Procopio and BlueScape Cap-and-Trade Webinar 12-8-11


Published on

John J. Lormon, Partner with Procopio Law Firm, and James A. Westbrook, President of BlueScape, discuss California's final Cap-and-Trade Rule adopted in October 2011. The rule will impact about 350 companies and 600 facilities. Information is presented on how to determine whether a facility is a covered entity, thresholds for inclusion, compliance requirements, allowances and offsets, enforcement, and recent litigation activity. For questions or support, Mr. Lormon can be reached at 619-515-3217 or Mr. Westbrook can be reached at 877-486-9257 or

Published in: Environment, Business
  • Be the first to comment

  • Be the first to like this

Procopio and BlueScape Cap-and-Trade Webinar 12-8-11

  1. 1. The California GHG Cap-and-Trade Rule is Final: What Do You Know?! Webinar: December 8, 2011 James A. Westbrook John J. Lormon President Partner BlueScape Environmental Procopio, Cory, Hargreaves & Savitch LLP jwestbrook@bluescapeinc com john lormon@procopio com www.procopio.com1
  2. 2. James A. Westbrook Bio • President BlueScape President, • Full-service environmental consulting • Experienced with CA and EPA GHG regulations, and p g , carbon offsets • Technical capability to develop and manage climate change programs • Cap-and-trade compliance strategy, GHG emissions and compliance calculations, data monitoring and p , g reporting systems, allowance/credit management2
  3. 3. John J. Lormon Bio • Partner at Procopio, Cory, Hargreaves & Savitch LLP, specializing in environmental, climate change, and air quality law • Managed numerous Clean Air Act cases involving stationary and mobile sources, including energy generation and transmission facilities • W k d on l Worked large scale carbon emission, di l b i i diesel and l d soot projects in Los Angeles and Long Beach Harbor • Experienced in energy project siting and permitting gy j g g • American Bar Association section on Energy, Environment and Resource Vice-Chair Climate Change, Sustainable Development and Ecosystems3
  4. 4. Agenda • Subarticle 3: Applicability pp y • Subarticle 4: Compliance Instruments • Subarticle 5: Registration and Accounts • Subarticle 6: Allowance Budgets g • Subarticle 7: Compliance Requirements for Covered Entities • Subarticle 8: Disposition of Allowances • Subarticle 10: Auction and Sale • Subarticle 11: Trading and Banking • Subarticle 12: Linkage to External Trading Systems • Subarticle 13: Offsets • Subarticle 14: Compliance Instruments from Other Programs • Subarticle 15: Enforcement and Penalties (and Litigation) • Subarticle 16: Other Provisions4
  5. 5. Applicability • Covered Gases -- CO2, CH4, N2O, SF6, HFCs, PFCs, NF3, Fluorinated GHG • Covered Entities – Operators of Facilities, ex. refineries, cement, cogeneration, cogeneration stationary combustion – First Deliverers of Electricity • Electric Generating Facilities in CA • Electricity Importers – Fuel Suppliers • Natural Gas, utility and intrastate , y • Gasoline Blendstock, Distillate (Diesel), LPG – Carbon Dioxide Suppliers • Opt-in, Voluntary, Opt in Voluntary Other Participants5
  6. 6. Importer Power Plant IOU/POU Power Plant Out-of-State Food Co Fuel Supplier Oil/Gas Producer Refinery Power Plant IPP6
  7. 7. First Compliance Period Inclusion Thresholds, Jan. 1, 2013* Covered Entity CO2e Emissions any Year 2008-2011 Operators of Facilities 25,000 25 000 MT/yr Electricity Generation Facilities 25,000 MT/yr Electricity Importers y p 1. All emissions for imports from p specified sources that emit 25,000 MT/yr or more 2. All emissions for unspecified sources are above the threshold Carbon Dioxide Suppliers 25,000 MT/yr, include sum from different capture processes Petroleum and Natural Gas Facilities 25,000 MT/yr *The rule becomes effective Jan. 1, 2012 Jan 17
  8. 8. Second Compliance Period Inclusion Thresholds, Jan. 1, 2015 Covered Entity CO2e Emissions any Year 2011-2014 Fuel Suppliers 25,000 MT/yr, full combustion or oxidation of fuel imported and/or delivered Electricity Importers 1. Zero MT/yr for specified source 2. Zero MWh/yr for unspecified source as of Jan. 1, 2015 How Do I GET OUT!? Not easy: - Less than 25,000 MT/yr during one entire compliance period - Drop out the next compliance period - Sh tdo n Shutdown8
  9. 9. Compliance Program • Certain utilities and energy-intensive industries need energy intensive “Compliance Instrument” (“CI”) per metric ton of GHG emissions • ARB creates CI (§ 95820): – CA GHG emissions allowances – ARB offset credits – Sector-based offset credits – External GHG ETS offset credits – ARB early action offset credits9
  10. 10. Compliance Program (cont.) • Allowances allocated for free to some entities others entities, pay • Primary methods to allocate allowances = auctions • Allowances are tradable • ARB set minimum price - $10 per metric ton • Market demand for allowances will increase – Result: higher prices for certain unwanted goods and services (the “Price Signal”) ( g ) • Goal: more clean and efficient energy compliance10
  11. 11. Compliance Program (cont.) • Auction proceeds used in part for: used, part, – Alternative energy investments – Utility customer rebates • Cost increases for electricity, fuel, and goods passed onto customer • Reduce impact from out of state energy and goods out-of-state by: – Imposing compliance p g p g p program on importers of p electricity – Free allowances to certain at-risk industries11
  12. 12. Allowance Caps • Goal: reduce GHG emission to 1990 levels by 2020 at approximately 3% per year • First Compliance Period: 1/1/2013 – 12/31/2014 – 2013: 162.8M metric tons of CO2e – 2014: 159.7M metric tons of CO2e • Second Compliance Period: 1/1/2015 – 12/31/2017 – Natural gas and fuel distributors added – Cap rises in 2015 to 394.5M metric tons CO2e p – 2020 cap declines to 334.2M metric tons of CO2e12
  13. 13. Compliance Requirements • Reporting and Recordkeeping • Phase-In of Compliance Obligation – 1st compliance period – 2nd compliance period – During a compliance period • Emission Categories f C E i i C t i for Compliance li • Biomass-Derived Fuels • Compliance Obligations Related to Instruments • Timely / Untimely Surrender • Under-Reporting p g13
  14. 14. Emission Categories for Obligations Covered Entity Obligation Considerations Operators of Facilities - Verified or assigned combustion and vented emissions - Liquid fuels not included in 2015 First Deliverers of - Verified or assigned combustion and vented emissions Electricity - Separate calculations for generators and importers - Resource shuffling not allowed - RPS and QE Adjustments j Natural Gas Suppliers - Verified or assigned fuel deliveries, full combustion - Less deliveries to covered entities Gasoline and Diesel - Verified or assigned fuel deliveries, full combustion - Except deliveries outside California14
  15. 15. Compliance Instrument Obligations by Year First Compliance Period* Period Compliance Obligation Prior to 2012 Rule not effective 2012 Register for Trading Allowance Auctions in August and November 2013 Obligations begin 2014 Annual obligation – 30% surrendered for 2013 emissions, by Nov 1. 2015 Remaining obligations for 2013-2014 emissions Surrendered b N 1 S d d by Nov 1. *For a facility with a compliance obligation in the first period.15
  16. 16. Disposition of Allowances • Different sectors – different treatment – Free allocations – Purchases: auctions and trades • Electric distribution sector allocation of allowances: – 2013: 95.8M metric tons of CO2e – 2020: 83.1M metric tons of CO2e – 8 year allowance decrease of 13 3%13.3% • Industrial sector – Remainder of electric and ARB’s reserve allowances – Approximately: • 2013: 64.6M metric tons of CO2e • 2020: 226.9M metric tons of CO2e • 8 year allowance decrease of 20.5% y16
  17. 17. Disposition of Allowances (cont.) • Electric generating utilities – POUs • Free • Used for compliance – IOUs • Initially free • Must be “monetized” by consignment to ARB for auction for monetized benefit of ratepayers • Industrial – First Compliance Period free to ≥ 25,000 metric tons of CO2e 25 000 – Approximately 90% of historical emissions – Purchase 10%17
  18. 18. Disposition Allowances (cont.) • Industrial sector decline in free allowances – “Adjustment factor” to incentivize change in energy use – “Leakage” – risk businesses will move out-of-state • High risk industries – Some 100% free allowances – Others 75% in Second Compliance Period or 50% in Third Compliance Period – Zero allocation sectors • Importers: electricity, natural gas, and covered fossil fuel • Independent power generators • Out-of-state entities18
  19. 19. Auction and Sale • Allowances available at Auction: – IOU allowances – ARB reserves – All Allowances not allocated f f t ll t d for free t industry to i d t • Auction procedure: – Units of 1,000 – One-bid – Bid is blind – Highest bid wins – Financial assurance of bidder – Reserve price (floor)19
  20. 20. Auction and Sale (cont.) • Price controls: – Auction price • 2012 and 2013: ARB maintains certain allowances in a “price “ i reserve” account t control spikes: $40/ ll ” t to t l ik $40/allowance with 5% over inflation/year • 2014-2020: reserve price plus 5% per year above CPI • Limit on use of agents to hold allowances • Corporate affiliation disclosure required • Li it on number of allowances th t can b h ld b Limit b f ll that be held by regulated entity or affiliated parties – 2.5M plus 2.5% above 25M = 5.9M for 2013 p20
  21. 21. Linkage • Refers to external trading systems • ARB procedures for approval • Linkage options might include: g p g – Western Climate Initiative (WCI) – Regional Greenhouse Gas Initiative – E European Union U i21
  22. 22. Offsets for Compliance • Up to 8% offsets for compliance obligations • Project offsets can come from only the US • Project p j protocols are currently limited – forestry, y y, urban forestry, dairies, ODCs • Offsets may be available from sector-based programs such as REDD • Offsets must meet extensive, stringent requirements • Early Action Offsets22
  23. 23. Enforcement and Penalties • Failure to submit allowances for emissions or late submission 4x the original requirement plus other penalties • Failure to properly report allowance allocations – No penalty up to 5% – 75% replacement of allowance23
  24. 24. Enforcement and Penalties (cont.) • Criminal penalties per H&S Code § 42400: – Strict liability: up to $1,000 and/or 6 months – Negligence: up to $25,000 and/or 9 months – Knowing: up to $40,000 and/or 1 year – Willful and intentional: up to $75,000 and/or 1 year • Injunctive relief and civil action not dismissed upon filing of criminal complaint24
  25. 25. Enforcement and Penalties (cont.) • Civil penalties per H&S Code § 42401: – Violation of abatement order: $25,000 – Strict liability: up to $10,000 – Negligence: up to $25,000 – Knowing: up to $40,000 • Falsifies document: up to $40 000 $40,000 – Willful and intentional: up to $75,000 • Unreasonable risk of great bodily injury: up to $125,000 ($500,000 for ($ 00 000 f corporation) )25
  26. 26. Enforcement and Penalties (cont.) • Bounty hunter reward equal to 10% of civil or criminal p y q penalties up to $5,000 • Administrative penalties up to $10,000 per day up to $100,000 • In determining amount, ARB considers all relevant circumstances, including H&S Code § 42403(b) criteria: – Extent of harm – Nature and persistence of violation – Length of violation – Frequency – Record of maintenance – Unproven or innovative nature of control equipment – Mitigation actions taken by defendant, including nature, extent and time of response26
  27. 27. Legal Challenges to Compliance Program • Legislative, regulatory & judicial – Illegal discrimination against out-of-state fuel and electricity suppliers – Violates Interstate Commerce Clause – Imposes state mandated fees upon imports – Prop 26, CEQA, consistency with federal CAA GHG regulations – Compliance program not consistent with AB 32’s mandate: • Cost effective equitable distribution of cost burden q • Environmental justice claims – State Case – Assoc. of Irritated Residents – St t /F d Case: Our Children’s Trust “Public Trust” State/Fed C O Child ’ T t “P bli T t”27
  28. 28. Action Items and Summary • Recommend you PLAN for compliance now y p • Threshold issues - are you a covered entity or not? • How do you plan to comply? How will you satisfy financial assurance obligation? • Do D you need t b offsets, go to auction or plan to reduce emissions? d to buy ff t t ti l t d i i ? • How can you reduce cost and future risk and collateral impacts? • When will you get registered for trading? • What is your compliance management system? – Information management and verification – Trading plans – Reporting p p g procedures • Monitor rule changes and court decisions? • You need a team behind you! Role of Legal, Technical and Financial28
  29. 29. Contact with Questions • James A. Westbrook President BlueScape Environmental 11440 West Bernardo Court, Suite 300 San Diego, CA 92127 office: 858.695.9200 x201 mobile: 858.774.2009 j tb k@bl i • John J. Lormon Partner Procopio, Cory, Procopio Cory Hargreaves & Savitch LLP 525 B Street, Suite 2200 San Diego, CA 92101 direct: 619.515.3217 direct fax: 619.744.5417 i The Webinar presentation will be posted on and the Procopio website.29