E2 Law Blog : Environmental Lawyers & Attorneys : Greenberg Traurig Law Firm : Climate Change, Energy Legislation

From Sherry Spiers, GT Tallahassee.  Thanks and Welcome to Sherry!

Title VI of the Power Act, titled "Community Protection from Climate Change Impacts," seeks to comprehensively address climate change impacts on fish, wildlife, plants and associated habitats, and coastal systems at the federal level by requiring development of a Natural Resources Climate Change Adaptation Strategy to be implemented by all federal departments and agencies with natural resource management responsibilities through development of specific agency plans consistent with the Strategy, and through environmental reviews, programs, and activities, with updates to the Strategy and the agency plans every five years. 

Title VI creates the National Climate Change and Wildlife Science Center within the US Geological Survey to assess current physical and biological knowledge, conduct necessary research, develop approaches and models to address the impacts of climate change, and provide standardized data to all federal agencies and the states.  Funding is available to states to develop state plans that meet detailed criteria in the bill.

Title VI should be costly to the federal government in several respects. Developing and periodically updating the new Natural Resources Climate Change Adaptation Strategy required by Section 6004 of the bill will require significant effort and expense. Significant effort and expense will also be required to develop, periodically update, and implement the federal agency adaptation plans required under Section 6006 of the bill. 

Title VI also will burden States and Indian Tribes that elect to seek federal funding for climate change mitigation activities because, to be eligible for funding, Section 6007 of the bill requires development and adoption of a separate state or tribal adaptation plan to be approved by the Secretary of Commerce and the Secretary of the Interior.  Among other things, the state adaptation plan must establish programs for long-term monitoring of the impacts of climate change on the ocean and coastal zone; assess and adjust adaptive management strategies; and consider and, if appropriate, integrate goals and measures in other designated federal, state and Indian plans and insurance programs, all of which requires funding to implement. 

Title VI, Section 2006(d), requires that the agency adaptation plans be implemented through existing or new plans, policies, programs, activities, and actions.   Accordingly, the Power Act will be costly to regulated companies and individuals who must now address climate change issues consistent with the applicable agency adaptation plan in order to obtain federal permitting for development activities on their properties.  Implementation of an additional layer of state or tribal adaptation plans will only increase both the time and expense of development that supports economic growth in all US States and territories.

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Title II creates an economy-wide, comprehensive GHG cap and trade system. (When Sen. Graham said cap and trade is dead, he apparently meant only the term and not the program.)  The Power Act's cap and trade provisions are immensely complex and thus it is very difficult on a first pass to meaningfully summarize this Title.  Here is an overview - a more detailed analysis of all relevant subtitles will follow in a few days. 

To begin with, the Power Act will substantially increase energy costs, perhaps 8 - 10% or more per year for each year between 2013 and 2030.  Title II sets a shrinking cap on CO2 emissions - which are, after all, only a surrogate for energy consumption - that will by 2020 require the US to emit no more than 83% of the CO2 emitted in 2005.   By 2050, the US must emit no more than 17% of the CO2 emitted in 2005.  The Power Act empowers the federal government to throw billions and billions of dollars into subsidies for "alternative energy" projects.  However, the Power Act's drafters do not rely on new technology to meet the self-imposed energy consumption cap.  Instead, they ensure compliance by raising energy costs so substantially that the average consumer cuts his or her energy consumption by the requisite amount (17% by 2020, 83% by 2050).    

Consequently, the Power Act will increase costs and lead to job losses across the board as businesses, farmers, trucking companies, landlords, utilities, and gasoline refiners, among others, pass along the higher costs of energy to consumers, and consumers devote more of their disposable income to energy-related expenses.  The potential cost increases will likely run into the trillions of dollars over the next ten to fifteen years.  High energy costs generally correlate with a reduction in economic activity.  Therefore, there is good reason to believe the Power Act will, at least in the short term, depress US economic performance to a significant but uncertain extent.  

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From Tracy L Weiss, GT Phoenix.  Thanks and Welcome To Tracy!

As its name suggests, Title IV addresses job protection and growth. Subtitle A of Title IV focuses on job protection. Specifically, it establishes the Emission Allowance Rebate Program to rebate emission allowances to eligible industrial sectors.  Theoretically, this will compensate these sectors for costs incurred as a result of compliance with the Power Act's emission caps.  Also, Subtitle A empowers the President to establish an International Reserve Allowance Program, which will require specified foreign entities to buy carbon allowances to help counterbalance the costs incurred by U.S. companies.    The success of this industrial policy depends on EPA's ability to establish effective guidelines to both meaningfully measure emissions and manage the rebate program, as well as the Federal government's ability to monitor, implement, and enforce the International Reserve Allowance program, which at least facially raises significant WTO/free trade concerns.

Subtitle B focuses on clean energy technology and jobs as a means to both protect and grow U.S. job opportunities.  Theoretically, increasing government funding for America's "clean energy" (non-fossil fuel) technology might generate jobs and reduce dependency on foreign energy sources.  Even if this theory proves to be true (and the initial data creates some grounds for uncertainty), with the exception of the Clean Vehicle Technology Fund, which shall receive monies from the auction of emission allowances, the other proposed clean energy technology and jobs policies "shall be appropriated" without specifying the anticipated amount or source of funds.  As a result, the cost-benefit analysis of these proposed reforms is hard to predict. 

Between the proposed rebates, tax incentives, and program creation, the Power Act seems likely to prove very expensive. More information is necessary to determine if the benefits  warrant the expense.

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Title I, Subtitle F, authorizes the DOE to distribute 2% of all CO2 allowances "on a competitive basis" to universities, foundations, and private companies for the purpose of promoting the development and deployment of  "clean energy technology" while "taking into account the goals of ARPA-E."  (Sec. 1801(c)).  "Clean energy technology" means a technology that produces energy from something other than a fossil fuel; "more efficiently" stores, transmits, or distributes energy or reduces emissions; enhances energy efficiency for buildings or industry; enables development of the "Smart Grid"; produces an advanced or sustainable material with an energy or energy efficiency application; enhances water security and conservation; or improves energy efficiency for transportation. (Sec. 1801(a)(3)).

Interestingly, the Power Act references the "goals" of ARPA-E, which is basically a non-political research and development program, while reserving power and control over the allowance fund (which is substantial) for DOE's political leadership.   The rationale for this approach is not immediately clear.  Also, water "security and conservation" have historically been EPA's purview.  It seems Congress, through its definition of "clean energy technology," aims to expand DOE's portfolio a bit.  Again, the rationale for this change is not immediately clear.

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Title I, subtitle E, is titled "Clean Transportation" and contains three parts.  Part I directs DOE to study electric car infrastructure, run pilot projects, and hire one dedicated worker to do planning, all with an "aspirational goal" of deployment by 2020.  No money is appropriated for these efforts. (Sec. 1701).  Part III (Sec. 1721) references the allocation of CO2 allowances to the Highway Trust Fund to "promote the safety, effectiveness, and efficiency of transportation in the United States..."The key provisions, however, are in Part II (Sec. 1711) and relate to GHG emission reductions through "transportation efficiency." 

Essentially, the Power Act authorizes EPA and the Department of Transportation to set emissions limits for the transportation sector, and then requires States and empowers "Metropolitan Planning Organizations" (MPOs) to develop strategies to meet these limits, subject to DOT review. (Sec. 803b and 803c).  These "strategies" include ride-share mandates, mass transit requirements, and so forth.  Funding for the strategies is in the form of a distribution of CO2 emission allowances from DOT to qualifying States and/or MPOs.  Paradoxically, the Power Act explicitly provides land use authority remains in the hands of local governments. 

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The US Chamber of Commerce has announced its support for S.J. Res. 26, sponsored by Sens. Murkowski and Lincoln to prevent EPA from implementing any GHG rules.   The Chamber's decision to support this measure, coming hard on the heels of the Kerry-Lieberman energy bill roll out and the final EPA GHG rule, suggests there now may be enough votes to get the Resolution passed.  The political waters are becoming extremely murky. 

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The EPA GHG Rule is 16 pages long, but it is accompanied by 499 pages of explanation and justification.  This is the EPA website link  to a copy of the rule, a fact sheet, and an implementation time line.  Here is a summary and a brief analysis based on a quick first read and an EPA telephone briefing.  

To begin with, EPA admits that the Clean Air Act PSD and title V requirements presumptively apply, as of January 2, 2011, at the 100 or 250 tons per year (tpy) levels of CO2 or its equivalent ("CO2e").  On its face, this means just about every business, restaurant, and apartment building in the country is theoretically subject to EPA permits and control.  (p.15).  Therefore,  ostensibly for reasons of administrative convenience, the agency is attempting to buy time by "tailoring" the GHG rule to phase in the permitting requirements.  Thus, the rule bites in stages.  

Step 1 - beginning January 2, 2011, facilities currently subject to Clean Air Act new source review (primarily power plants and refineries) and that also will emit or will have the potential to emit 75,000 tpy CO2e or more, and existing major stationary source for a regulated NSR pollutant that is not GHGs, and also will have an emissions increase of a regulated NSR pollutant, and an emissions increase of 75,000 tpy CO2e or more, are subject to EPA GHG regulation, including PSD.

Step 2 - beginning July 1, 2011, EPA phases in additional large sources of GHG emissions. New sources as well as existing sources not already subject to title V that emit, or have the potential to emit, at least 100,000 tpy CO2e will become subject to the PSD and title V requirements. In addition, sources that emit or have the potential to emit at least 100,000 tpy CO2e and that undertake a modification that increases net emissions of GHGs by at least 75,000 tpy CO2 will also be subject to PSD requirements.  EPA said on the briefing call this will capture at least 550 new facilities, "mainly" municipal landfills, plus 900 additional PSD permits.  

Step 3 – EPA will “solicit comment” on lower GHGs thresholds for PSD applicability and issue a small source rule by July 1, 2013.  EPA has promised not to regulate emitters of less than 50,000 tpy CO2e until this "small source" rule is final.

Step 4 - No later than April 30, 2015 EPA shall complete a study projecting the administrative burdens that remain with respect to all other sources.  EPA promises to issue a small sources rule no later than April 30, 2016.  EPA says "We cannot say at this point how close to the statutory thresholds we will eventually reach. Because this rule establishes only the first two phases of the tailoring approach, we do not find it necessary to answer these questions in this rule, and instead we expect to resolve them through future rulemaking."  It also reserves the right to "exempt" small sources from regulation altogether, based on findings of "absurd results" and "administrative necessity."  

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EPA's long-anticipated GHG emissions rule is out.  For the first six months of 2011, GHG PSD  requirements are limited to stationary sources that already must comply with its requirements for other pollutants.  These facilities will be required to include greenhouse gas emissions in their PSD permit if they increase those emissions by 75,000 tons per year.  Starting in July 2011, the tailoring rule will apply PSD requirements to new sources that emit more than 100,000 tons per year of carbon dioxide-equivalent and to modified sources that emit more than 75,000 tons per year.  

Expect environmental groups to sue because EPA's rule sets limits that are contrary to the plain language of the Clean Air Act.

More on this Rule to come.

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The Power Act's Title I, Subtitle D, is titled "Renewable Energy and Energy Efficiency."  In Section 1601, Congress states that "large-scale deployment of renewable energy and substantial improvement in energy efficiency" is critical to "improved energy security", among other things.  However, this part of the Power Act is actually very limited in scope. 

First, Section 1602 of the Power Act authorizes EPA to give allowances to power districts, public utilities, and electrical co-op participating in the Rural Utilities Service loan program to be used to fund no-interest loans to consumers for energy efficiency measures.  This section also creates a permanent funding mechanism for a  "national" nonprofit organization with "significant experience" in providing "advice in legal and regulatory matters affecting electric service and the environment" to provide "verification services."  Second, Section 1603 authorizes EPA to distribute emissions allowances (i.e., permission to consume energy) to State governments to offset their higher energy costs.  One-third of the allowances are to be divided among the States equally, one-third shall be distributed ratably based on population, and one-third distributed ratably based on energy consumption.  The allowances are to be used "exclusively" for energy efficiency purposes, deployment of alternative energy projects, funding "Smart Grid" programs, and interestingly, "Providing the non-Federal share of support" for surface transportation capital projects.

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The coal provisions of  the Power Act appear to be designed to substantially increase the cost of coal and other forms of fossil fuel-based energy in the immediate near term, and, given the limits of available and anticipated carbon capture technology, to close down coal-fired power plants ten years from now. 

Title I, Subtitle C, titled "Coal" has three key provisions.  First, in Section 1415, it directs the Department of Energy to levy a $2 billion tax on "all fossil fuel-based electricity sold to electric consumers."  In other words, all electricity is taxed unless it is generated by nuclear, wind, solar, or hydroelectric plants. The tax will be paid by utilities but the bill is designed to allow utilities to pass-through the cost to consumers.  

Second, in Section 1441, the Power Act amends the Clean Air Act to set strict performance standards on coal-generated power plants, mandating CO2 emission reductions of either 50% or 65%, based on the date the plant is "permitted," beginning no later than January 1, 2020.   Given the state of carbon capture and sequestration technology, this will require coal-based electricity generating plants to reduce production or shut down, thereby reducing energy supplies and increasing consumer costs.  

Third, the Power Act generally confers EPA with extremely broad powers to regulate coal use in the United States.  Notably, the Power Act, in Section 1413, creates a "Council" to hand out federal funds to "support projects to accelerate the commercial availability" of carbon capture technology.  This "Council" will be a political body.  Its members must include, among others, "nonprofit organizations", "consumer groups", and unions.   Notably, private companies are not eligible for federal research funding, but "nonprofit organizations" are.

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Nuclear power and offshore drilling kick off the American Power Act.

The Power Act was supposed to include a "robust" nuclear title.  The good news is more government money is made available for nuclear grants and loan guarantees.  The bad news includes the following: (1) Although provisions for streamlining the permitting process are included, but the conditions for expedited approvall include construction of the reactor "based on a design approved by the Commission" and more importantly on "a site at which an operating nuclear power plant exists."   The Power Act thus hamstrings construction of new plants.  (2) Also, the Power Act reaffirms NEPA's applicability to nuclear plant siting and construction.  This means plant construction will be delayed by litigation from NIMBY and anti-nuclear zealots.  In other words, don't expect to see new nuclear plants anytime soon.

The rumor was offshore drilling might be "out" of the bill.  It seems to be in.  In an odd turn of language, the Power Act states that  "The purposes of this Act are...to consider through this Act or accompanying legislation (A) a moratorium on any new offshore drilling activities" until: (1) the cause of the Deepwater Horizon accident is determined; (2) the Secretary of the Interior certifies that it is safe to continue proposed drilling plans; (3) liability mechanisms to ensure adequate funds are available to pay for cleanup; (4) new safety measures are in place to protect oil workers; and (5) allowing States to determine whether offshore drilling should take place.  However, the Power Act does not prohibit drilling.  In fact, it explicitly allocates to the States 37.5% of any offshore lease rental and royalty payments, with 20% of that allocable share going directly to "certain coastal political subdivisions."

More to follow.     

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The "Discussion Draft" (whatever that means) of the Kerry-Lieberman energy bill, now called "The American Power Act," is available here.  The bill is 900+ pages long.  We'll have an analysis shortly.

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Here's the latest rumors about the contents of the Kerry-Lieberman Senate Energy Bill.  It used to be the Kerry-Graham-Lieberman Senate Energy Bill, but Sen. Graham has bailed out.  It is not clear whether this information is accurate, but here it is, for what its worth.  This is being sold as a "transformational" law.  The drafters don't want to do much - just fundamentally remake the entire US economy.

1. This is a cap and trade bill covering the entire economy. When Sen. Graham said "cap and trade is dead," he meant the term, not the program.  In any event, the caps are phased in by sector. First utilities, then transportation, then manufacturing. There is a "five year plan" (honestly) for the caps. There will be a "price collar" pegged to CPI. Secondary and derivative carbon trading will take place regulated by the CFTC. There will be international and domestic agricultural offsets. The government will take about 20% off the top from the allowance fund to cover its increased energy costs and for deficit reduction. However, the drafters were very vague about how the money will be handled, who will actually sell the allowances, whether a new agency is required, what the revenue projections are, etc. Apparently, the Environmental Defense Fund is doing the economic modeling for the bill

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This is why some carbon-cappers oppose trading and favor a tax.    According to the EUObserver:

Traders involved in Europe's flagship climate change programme [sic], the Emissions Trading System - some of whom work at Germany's biggest banks and energy firms - were the focus of a series of raids and arrests by British and German prosecutors in part of a massive pan-European crackdown on CO2-credit VAT fraud...The criminal activity the raids focussed [sic] on relates to what is known as 'carousel fraud.' Criminals establish themselves in one EU member state and open a trading account with the national carbon credit registry. They then buy carbon credits in a different country, which makes them exempt from VAT. These are then sold to buyers in the original country, but with VAT slapped on, although the VAT then just disappears along with the trader and the money never arrives in government coffers.

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