Rapidly Developing Climate Change Regulations

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This presentation describes the status of the rapidly developing climate change regulation in the United States, particulary the bill proposed by Congressman Waxman on March 31, 2009.

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Rapidly Developing Climate Change Regulations

  1. 1. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA The Rapidly Emerging Climate Change Regulatory System The Carbon and Energy Connection Texas Industrial Energy Management Forum Houston April 2, 2009 Scott D. Deatherage Thompson & Knight LLP Dallas, Texas scott.deatherage@tklaw.com 214-969-1206
  2. 2. Climate Change Regulation Timeline ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA 2005 1992 EU UNFCCC ETS 2007 2009-2010 1997 2003 2006 2008 --Mass v. --US Climate Kyoto Regional --California Bill US Pres. EPA Change Protocol Greenhouse --Western Election --Lieberman- Legislation Gas Climate Initiative Warner 2009 --Post-Kyoto Initiative Voted Out US GHG Climate of Sen. Reporting Change Comm. Regulation Treaty --Greenhouse Gas Reporting Legislation --Midwestern Greenhouse Gas Reduction Accord
  3. 3. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Developing Federal Regulation
  4. 4. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Current US Federal Legislation and Climate Change Massachusetts v. EPA– April 2, 2007, the US Supreme Court ruled that human emissions of greenhouse gases (GHGs) are causing climate change and are thereby an “air pollutant” governed by the federal Clean Air Act. EPA failed to justify not regulating greenhouse gas emissions from automobiles. Cases pending on regulation of greenhouse gas emissions from power plants under the Clean Air Act. EPA recently sent “endangerment finding” to White House for review which would open up GHG regulation under CAA. Major Concern: Clean Air Act structure far from ideal for regulating GHGs. Need alternative legislation.
  5. 5. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA New Federal Greenhouse Gas Reporting Requirement Gases that must be measured and reported: CO2, methane, nitrous oxide and various fluorocarbons Industries and sources that will be required to report: Steel, cement, aluminum, landfills, chemical, petroleum, petrochemical, etc. Oil and gas industry Emitters: Offshore oil and gas production, onshore natural gas processing, natural gas transmission compression, onshore natural gas storage, LNG storage, and LNG import facilities Suppliers: Petroleum products, including refiners, importers, and exporter and natural gas and liquids, including processing plants, importers, and exporters
  6. 6. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Bailout and Stimulus Bills Tax and other incentives for wind, solar, geothermal, biomass, and other renewable energy sources Tax and other incentives for carbon capture and storage Incentives for manufacturing renewable and energy efficiency property Incentives for alternative fuels, such as biofuels, hydrogen, natural gas, and electricity Amounts are in the tens of billions of dollars
  7. 7. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Waxman-Markey Discussion Draft Discussion draft for climate legislation released on Tuesday, March 31, 2009 Not filed as a bill, but released to gain input from interest groups and other House members
  8. 8. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Beyond Greenhouse Gas Regulation “Clean Energy”--promotes renewable energy (including National Renewable Energy Portfolio Standard), carbon capture and sequestration, low- carbon transportation fuels, clean electric vehicles, and a “smart grid” and electricity transmission “Energy Efficiency”—requires actions to increase energy efficiency across all sectors of the economy, including buildings, appliances, transportation, and industry
  9. 9. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Regulated Greenhouse Gases and Relative Global Warming Impact GHG GWP* carbon dioxide, CO2 1 methane, CH4 25 nitrous oxide, N2O 298 hydrofluorocarbons, HFCs 124 – 14,800 perfluorocarbons, PFCs 7,390 – 12,200 sulphur hexafluoride, SF6 22,800 nitrogen trifluoride, NF3 17,200 * Reflects the global warming capacity of each GHG relative to CO2. Other gases may be designated by EPA.
  10. 10. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA GHG Reduction Goals By 2012, greenhouse gas reduction of 3% of 2005 levels (2005 levels = 7,206 million) By 2020, greenhouse gas reduction of 20% of 2005 levels By 2030, greenhouse gas reduction of 42% of 2005 levels By 2050, greenhouse gas reduction of 83% of 2005 levels
  11. 11. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Covered Entities Any electricity source of GHG emissions, excluding emissions resulting from the use of petroleum-based or coal-based liquid or gaseous fuel, natural gas liquid, renewable biomass, petroleum coke or hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, nitrogen trifluoride, or any other fluorinated gas that is a GHG purchased for use at that entity.
  12. 12. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Covered Entities Fuel Producers and Importers of the following: petroleum-based or coal-based liquid fuel, natural gas liquid, or petroleum coke. Fluorinated Gas Producers Geological Sequestration Sites
  13. 13. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Covered Entities Adipic acid production Silicon carbide production Primary aluminum Any source that Ammonia manufacturing Manufactures acrylonitrile, carbon black, ethylene, Cement production ethylene dichloride, ethylene oxide, or Lime manufacturing methanol, and Nitric acid production Emits 25,000 tons CO2e per Petroleum refining year or more Phosphoric acid production
  14. 14. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Covered Entities Any stationary source in the Any fossil fuel-fired following industries: combustion device individually or that as a group Ethanol, ferroalloy, food that processing, glass, hydrogen, iron and steel, Is all part of the same lead, pulp and paper, and industrial source of those zinc, and listed above, and Emits 25,000 tons CO2e per Emits 25,000 tons CO2e per year or more year or more Any local distribution company that delivers 460,000,000 cubic feet or more per year of natural gas to non- covered entities
  15. 15. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Allowance Allocation and Auction Most details of auction and allocation have been left up to future discussion First quarterly auction to be held no later than March 31, 2011 What percentage will be auctioned versus allocated to sources without charge remains to be negotiated
  16. 16. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Borrowing and Banking Borrowing—a covered entity can borrow future allowances and pay pack a greater number as “interest” Banking—allowances do not have an expiration date, so 2012 allowances could be used in 2014 or later
  17. 17. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA State Programs Within a year of passage, the Administrator shall pass regulations allowing for conversion of allowances issued by California or RGGI into federal allowances in an amount “sufficient to compensate for the cost of obtaining and holding such state allowances.”
  18. 18. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Offsets Within 30 days of passage, an Offset Integrity Advisory Board will be established to make recommendations to the EPA for use in promulgating offset regulations Within 2 years of passage, the EPA will promulgate relevant regulations A covered entity may satisfy a percentage of its compliance obligations by submitting 1.25 offsets in lieu of an allowance
  19. 19. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Offsets Total offset market may not exceed 2 billion/yr. Split evenly between domestic and international offsets The percentage use of offsets per entity = (2,000,000,000 /(2,000,000,000 + allowances established for previous year)) x 100 Offset limit--half domestic, half international
  20. 20. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Offsets To be recommended by the Advisory Board within 90 days of its establishment and established by EPA within 2 years of passage of law Start date – draft requires, as a matter of additionality, practices commencing only after January 1, 2009, except as provided in 740(a).
  21. 21. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Offsets from Other Programs An offset credit may be issued for reductions occurring after January 1, 2009,from a project started after January 1, 2001 and offsets have been issued under a regulatory or voluntary program that the Administrator determines: Was established by State or tribal law or regulation prior to January 1, 2009; Has developed standards, methodologies and protocols through a public consultation process; Has published standards, methodologies and protocols that require that reductions are permanent, additional, verified and enforceable; Verified by a third party; Registered in a publicly accessible registry, with individual serial numbers assigned for each ton of carbon dioxide equivalent reduction; and Ensures that no credits are issued for activities for which the entity administering the program has funded, solicited or served as a fund administrator for the development of, the project that caused the reduction.
  22. 22. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA International Offsets EPA may, under certain conditions, may allow offsets from a international activities (including CERs) to be accepted within the U.S. program, but only, among other things, if The U.S. is party to an agreement with the host nation; and The project or activity is within a developing country.
  23. 23. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA State Regulation
  24. 24. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Aspects of RGGI Baseline Years: 2002-2004 Cap and Reduction Requirements: Stabilize CO2 emissions from power plants until from 2009 until 2015, then allowances will be retired slowly as the cap is lowered by 10% by 2020. Allocation: Allowances may be largely auctioned to utilities, rather than assigned at no cost; pilot project in 2007, and first auction in 2008. NY, Mass, and Vermont have decided to auction 100% of allowances. Safety valve if allowances become too expensive. Trading and Offsets: Power companies can trade allowances to allow the most cost effective, efficient reductions. However, offsets are limited to specific types of projects capturing landfill gas, eliminating leaks in natural gas distribution systems and propane systems, reducing methane from farming operations, and certain forest plantings.
  25. 25. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA California and Western States California AB 32, The California Global Warming Solutions Act of 2006 Baseline: 1990 greenhouse gas emissions Cap and Reduction Requirements: Reduce emissions to 1990 levels by 2020 Trading: Allowed under legislation, but must be developed by state agencies. Allocation: Not yet determined Western Regional Climate Change Initiative: Members are Arizona, British Columbia, California, Manitoba, New Mexico, Oregon, Utah, and Washington. Several other states have joined as observers: Alaska, Colorado, Kansas, Nevada, Ontario, Quebec, Saskatchewan, Sonora, and Wyoming.
  26. 26. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA California Low Carbon Fuel Standards US has developing renewable fuel standard that in essence requires more ethanol use in transportation fuel for domestic automobiles California is establishing by the end of 2009 a Low Carbon Fuel Standard that allows the use of ethanol, biodiesel, natural gas, hydrogen and other types to meet carbon emission levels in fuels Allows tradable credits for low carbon fuel
  27. 27. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Midwestern States Midwestern Regional Greenhouse Gas Reduction Accord Nine states in the region, Wisconsin, Minnesota, Illinois, Indiana, Iowa, Michigan, Kansas, Ohio, and South Dakota, and the Canadian province of Manitoba. Calls for 2% reduction in energy use by 2015, with a 2% cut every year after that; an increase in the availability of a cleaner ethanol-gasoline mix known as E85; and 10% of the region's electricity to come from renewable sources by 2015, with an increase to 30% by 2030. Reductions in greenhouse gases and establishment of a regional cap-and-trade system.
  28. 28. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA How to Survive in a Carbon-Constrained Economy 1. Understand we are in the midst of a conversion to a carbon- constrained economy—a change as enormous as the Industrial Revolution 2. Understand new regulatory paradigm in the twenty-first century where environmentalists use pension fund investments and shareholder petitions to pressure corporate action 3. Develop a corporate climate strategy 4. Measure and monitor your carbon footprint 5. Develop a strategy for climate risk disclosure 6. Conduct climate change due diligence 7. Develop a carbon offset strategy and portfolio
  29. 29. ALGIERS AUSTIN DALLAS FORT WORTH HOUSTON MACAÉ MEXICO CITY MONTERREY NEW YORK PARIS RIO DE JANEIRO VITÓRIA Scott D. Deatherage Partner 1722 Routh Street Suite 1500 Dallas, Texas 75201 214-969-1206 Scott.Deatherage@tklaw.com Blog Sites: “The New Carbon Cycle” http://lawandenvironment.typepad.com/newcarboncycle/ and “Law and the Environment” http://lawandenvironment.typepad.com/

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