Law and the Environment

Climate Change and Environmental Law and Policy in Brazil

I want to introduce Antonio Reis and Luiz Gustavo Bezarra, two of our attorneys in our Rio de Janeiro, Brazil office, who focus on environmental law, sustainability issues, climate change, and carbon trading. They have prepared the following summary of Climate Change and Environmental Law and Policy in Brazil. I hope you enjoy this guest article.

Environmental laws and regulations that have been adopted in Brazil are very strict, however, a long-term effort will be required to improve their enforceability and effectiveness. In the past 50 years, Brazil has developed extensive environmental policies and regulation, promoting innovative solutions and technologies connected with sustainable development and actions to address global warming. Such new trends offer opportunities for socially responsible companies to make sustainable development a standard part of their business practices.

Brazil has developed one of the largest renewable energy programs in the world (PROALCOOL – for the production of ethanol and its use in replacing gasoline in light vehicles). The use of ethanol as fuel powering automobiles, introduced in the 70’s, has evolved incredibly in the last decade with the new flex-fuel light vehicle technology. In addition, the Brazilian government has adopted the Brazilian National Program of Production and Use of Biodiesel that establishes a mandatory addition of 5 percent of biodiesel into petroleum diesel by 2013.  This decision provides a strategic mechanism to stimulate employment and income, to reduce greenhouse gas emissions, and to decrease dependence on fossil fuels.

Other policies include creation of PROINFA – a program with the purpose of increasing the amount of electrical energy generation from wind, small hydro plants, and biomass. Additionally,Brazil has instituted several recycling initiatives and programs to reduce the use of fossil fuels.

In one of the country’s most important environmental initiatives, in early December 2008, Brazil enacted its National Plan for Climate Change (PNMC), introducing ambitious targets for reducing deforestation, Brazil’s main source of greenhouse gases. The goal is to reduce deforestation by 72% in the Amazon by 2017. It is too early to know if these new targets are achievable in a country that faces serious problems with enforceability and effectiveness of environmental laws and policies. The PNMC is also intended to make Brazil a more influential player in global climate change debates, helping to push developed countries to agree to more ambitious emissions cuts and encouraging wealthy countries to essentially pay Brazil to preserve the forest for the benefit of all countries.

With respect to actions linked with the Kyoto Protocol, the country is, together with China and India,, one of the key players helping developed countries to attain their carbon reduction targets through the Clean Development Mechanism (CDM) of the Kyoto protocol. Many CDM projects have already been approved in Brazil and subsequently at the UN CDM Executive Board. The most representative Brazilian CDM projects are flaring of landfill gas and the use of biomass (e.g., sugar cane bagasse) as an energy source.

Brazil has an incomparable potential for CDM projects, which represents an opportunity for developed countries with obligations to reduce their emissions. The Kyoto Protocol has become part of the Brazilian legal system. The country was one of the first to create procedures to approve CDM projects by establishing a strong national authority with the participation of the most important Ministries – Inter-ministerial Commission on Climate Change (Comissão Interministerial de Mudança Global do Clima– “CIMGC”). The CDM projects are also an efficient way to provide the transfer of clean technologies to non-industrialized countries and a great opportunity for Brazil.

Since the negotiations prior to the adoption of the Kyoto Protocol, Brazil has been supporting proposals to include all forest and forestry projects in the CDM. However, due to the controversy associated with these issues, only afforestation and reforestation practices were accepted as possible CDM projects. The main concerns expressed were that forest and forestry activities are difficult to monitor, they provide cheap carbon credits inhibiting stronger domestic mitigation action, and the fear that those projects could lead to deforestation. However, CDM forest and forestry projects can provide benefits that overcome their downsides, such as positive revenue alternatives for local communities.

Besides the regulatory market for carbon credits (under Kyoto Protocol’s CDM and other flexible trading mechanisms), there has been renewed interest for credits from reducing emissions from deforestation and degradation (REDD) that are eligible for credits traded in voluntary carbon markets, operating outside international agreements. Brazil has a key role to play in developing future REDD projects that produce voluntary carbon credits. The benefits of carbon credits must always be analyzed in light of environmental benefits and not as an end in themselves. Emission trading programs cannot replace strong domestic policies toward ambitious emission reduction targets. At Thompson & Knight, we are involved with clients in developing carbon credit projects under the CDM and voluntary standards. Our projects include avoided deforestation projects, fuel switching, landfill gas projects, and other means of reducing emissions and monetizing those emissions in the form of carbon credits. Our Firm further provides advice as to existing and possible future local, national, and international environmental laws and treaties, including those relating to climate change and greenhouse gas emissions.

Thompson & Knight assists its clients in all of these areas whether involving transactions, financing, project development, carbon trading, and litigation or arbitration. Our experience extends to renewable energy projects as well. For further information on developments on Climate Change Law and Policy in Brazil, you may contact Luiz Gustavo Bezerra and Antonio Augusto Reis.

FTC Reviewing Environmental Marketing Guidelines

The Federal Trade Commission (FTC) is reviewing its Environmental Marketing Guidelines or "Green Guides."  One of the issues it considered earlier this year and conducted review of are carbon offsets and renewable energy certificates.  Walmart commented on the FTC's proposed regulations of marketing of carbon offsets and renewable energy credits, which resulted in criticism from some green groups.  Some non-governmental organizations are accusing companies of engaging in "green washing" or making statements in pubic documents or advertisements claiming environmentally beneficent programs or actions that do not result in any real environmental benefit.  Critics of carbon offsets assert they often do little to reduce greenhouse gas emissions. 

While certain programs have not been effective, carbon offsets can serve to reduce global greenhouse gases (GHGs) by making capital available for GHG reduction projects.  Walmart was resisting a specific definition of carbon offsets by the FTC for purposes of regulating marketing claims related to the sale or use of carbon offsets.

What Walmart appeared to be concerned about was that parties who take action to address environmental, energy efficiency, or climate issues, not be put at risk of significant penalties because of any narrowly drawn rules on green products, green advertising, or the use or sale of carbon credits or renewable energy credits. 

The British Advertising Standards Authority apparently has taken action against Lexux, Volkswagen, and Citron for environmental advertising with respect to lower emission and alternative-fuel vehicles.

As the so-called "green movement" continues, companies will be producing and selling products, asserting actions they have taken to address environmental harm and climate change.  It appears what assertions are made are becoming not only subject to question by environmental groups or other non-governmental organizations, but also the FTC and other governmental agencies in various countries that regulate advertising and product claims.  Unfortunately, companies trying to make a difference may be drawn into attacks on the legitimacy of their actions.  Thus, care should be taken in developing these product and advertising strategies and making sure any assertions can be backed up with evidence of their environmental benefit and accuracy. 

Representative Markey Announces Plan to File Climate Change Legislation That Would Reduce US Greenhouse Gas Emissions by 85 Percent

Representative Edward Markey, Massachusetts Democrat, announced that he is going to file a bill that would require an 85 percent reduction in greenhouse gas emissions in the United States by 2050.   Like almost all other bills filed in Congress, Markey’s bill would rely on a cap-and-trade system to achieve the emission reductions.  Markey is chairman of the House Select Committee on Energy Independence and Global Warming.

Guest Column on EnergyLaw360

I recently published a guest column on EnergyLaw360 entitled Laws Set Stage for Carbon Trading Opportunities.  The article discusses the new federal greenhouse gas emissions reporting law that was enacted and how EPA must publish final rules by September 2009.  These rules will serve as the foundation for coming climate change legislation that will create a cap-and-trade system for regulating greenhouse gas emissions, and create significant opportunities in developing greenhouse gas emission reductions that can be monetized in the form of carbon credits.

John McCain Traveling through Europe Discussing Greenhouse Gas Restrictions

Senator John McCain has been traveling in Europe, and has met with the current Prime Minister Gordon Brown of the United Kingdom and former Prime Minister Tony Blair.  Their talks were wide ranging, but included discussions of actions to address climate change and the use of a cap-and-rade system to achieve greenhouse gas reductions.  They also discussed a post-Kyoto treaty.

"I want to make clear again we will not have a global agreement that is effective unless India and China are part of it," McCain said.  "I am convinced that if we work at it, we will convince India and China that it is in their interests to be part of a global agreement to reduce greenhouse gas emissions.  I think that there will be sufficient international pressures and domestic pressures as well as the facts of the environmental challenges that will bring them into a global agreement."

Senator McCain also met with the European Union environment commissioner Stavros Dimas, who oversees Europe’s emissions trading scheme.

Pension Funds Reach Agreement with Dynegy to Disclose Climate Risks by the End of the Year

Two of the largest pension funds have forced Dynegy Inc., to agree to report on climate risk by the end of this year, and how the company will address this risk.  The California State Teachers' Retirement System and North Carolina Retirement Systems, both of which owned substantial shares in the company, filed a shareholder resolution with Dynegy in January to require the company to report on the feasibility of adopting specific greenhouse gas reduction goals for its existing and proposed power plants.

In exchange for an agreement by Dynegy to make the report, the two pension funds withdrew the resolution.  Dynegy is apparently developing a plan to disclose climate change information to its shareholders, which likely will include the company’s annual greenhouse gas emissions, as well as a plan for mitigating those emissions.  The mitigating steps may include purchase of greenhouse gas offsets or carbon credits.

At the same time, Dynegy is planning to construct coal-fired power plants in Arkansas, Georgia, Iowa, Michigan, Nevada and Texas. Two plants are under construction in Arkansas and Texas.

This development indicates a growing capability of institutional investors to force climate change disclosure from major companies.

Congress Includes Greenhouse Gas Reporting Requirement and Registry in Omnibus Spending Bill

On December 21,2007, Congress moved forward with the foundation of any future greenhouse gas regulatory system by including in the Omnibus Spending bill a requirement that EPA promulgate an economy-wide greenhouse gas reporting regulation and create a greenhouse gas registry.  President Bush has signed this spending bill, making this obligation law.  A proposed regulation is due nine months from December 2007, and a final regulation 18 months from December 2007.  The details of this system will be developed by EPA unless additional legislation is passed in the next nine months further defining the parameters of the reporting requirements and registry.  Absent such legislation, how EPA will handle this mandate under the current Administration is not clear, particularly with respect to which industries and sources will be required to submit reports, what de minimis level of emissions will be set, and what other exemptions will be provided.  In any event, it would appear that a greenhouse gas reporting requirement will go into effect in less than two years.

Nine Midwestern States and the Province of Manitoba Enter into Greenhouse Gas Accord

Governors of nine midwestern states, along with the Canadian province of Manitoba today signed the Midwestern Regional Greenhouse Gas Reduction Accord to establish a regional multisector cap-and-trade program to reduce greenhouse gas emissions and to promote the use of renewable energy.  With the Western States Climate Initiative and the Regional Greenhouse Gas Initiative in the northeast, the action by the Midwestern states brings the number of states to 22 that have committed to reducing greenhouse gas emissions. 

The governors were Governor Jim Doyle of Wisconsin, Governor Tim Pawlenty of Minnesota, Governor Rod Blagojevich of Illinois, Governor Mitch Daniels of Indiana, Governor Chester J. Culver of Iowa, Governor Jennifer Granholm of Michigan, Governor Kathleen Sebelius of Kansas, Governor Ted Strickland of Ohio, Governor M. Michael Rounds of South Dakota.  The Premier of Manitoba, Gary Doer, also signed the agreement.

Some of the key aspects of the Accord are as follows:

·     Establish greenhouse gas reduction targets and timeframes consistent with MGA member states’ targets;

·     Develop a market-based and multi-sector cap-and-trade mechanism to help achieve those reduction targets;

·     Establish a system to enable tracking, management, and crediting for entities that reduce greenhouse gas emissions; and

·     Develop and implement additional steps as needed to achieve the reduction targets, such as a low-carbon fuel standards and regional incentives and funding mechanisms.

These Midwestern states now must set firm emissions reductions targets and timetables for reducing greenhouse gas emissions.

The governors are also calling for greater use of non-petroleum energy sources such as wind power and grain-based ethanol.    Under the agreement, 15 percent of all gasoline stations in the region would be selling ethanol mixes by 2015, and one-in-four by 2025. 

These states combined are the fifth largest emitter of greenhouse gas emissions behind the United States as a whole, Russia, China and India. 

This new accord puts even greater pressure on Congress, as almost half the states have already committed to restricting greenhouse gas emissions.

ConocoPhillips May Be First Company in the US Required to Reduce or Offset Greenhouse Gas Emissions at California Refinery

In what may be the first payment for mandatory greenhouse gas emission reduction credits or “carbon credits” in the United States, ConocoPhillips agreed to pay around $10 million to offset greenhouse gas emissions that will be emitted by the expansion of its Bay Area refinery. On Tuesday, September 11, Jerry Brown, the California Attorney General, announced that an agreement had been reached between the State and ConocoPhillips by which the company pay over $7 million for a carbon offset program that includes buying and scrapping older cars that generate more greenhouse gas emissions. The company will donate $2.8 million to reforestation efforts in California, donate $200,000 for restoration of the San Pablo Bay wetlands, and conduct an audit all of its California refineries to identify potential additional greenhouse gas reductions that could be implemented. 

The State has agreed to dismiss its appeal of the approvals that the company was seeking in order to expand it Contra County Refinery.  ConocoPhillips' proposed oil refinery expansion, known as the Clean Fuels Expansion Project, includes a hydrogen plant that will help make an estimated 1 million gallons per day of cleaner-burning gasoline and diesel fuels from the heavy portion of crude oil.

Interestingly, the battle was fought over land use, rather than environmental permits, such as air emission permits.  In September 2005, Contra Costa County prepared an environmental impact report, which was later certified by the county's planning commission. However, the Attorney General challenged the environmental documentation for the project this May, saying it did not adequately address the extra 500,000 to 1.25 million metric tons of carbon dioxide that would be emitted each year.

The agreement comes before the California climate change legislation goes into effect. The legislation will call for reducing greenhouse gas emissions in California to 1990 levels by 2020, a 25% reduction. The agreement with ConocoPhillips will stay in effect until 2012, when that mandatory cap goes into effect.

Positioning Yourself for Opportunities in Emerging Carbon Markets Seminar to Be Held in Dallas September 20th

The greenhouse emission reduction credit or “carbon credit” market has become a multi-billion dollar industry for credits issued under the Kyoto Protocol internationally and for voluntary reduction credits in the United States. This market is projected to be worth $2 trillion by 2012, with new legislation, potential litigation, as well as new business opportunities on the horizon. To provide insight into this important topic, Sustainable Dallas hosts a luncheon and seminar, Positioning Yourself for Opportunities in Emerging Carbon Markets on Sept. 20, 12-5 p.m., at the Nasher Sculpture Center in Dallas, Texas.

The event features nationally recognized experts who will offer an introduction to carbon trading and discuss how businesses and law firms are making moves to profit from this new market. Speakers include Tom Cushing of the Chicago Climate Exchange, Garrett Boone of Texas Business for Clean Air, Tim Smith of Element Markets of Houston, Josh Margolis of CantorC02e, and Scott D. Deatherage of Thompson & Knight LLP.

This conference is designed for business executives, legal counsel, investment advisors, members of the media, university professors and students, and other professionals with an interest in carbon markets, cap and trade systems, legislation, regulation and litigation that will come as governments and businesses continue to address climate change. CLE credit for attorneys is pending. Sustainable Dallas is a nonprofit sustainable business organization serving the Dallas/Fort Worth region, providing education, networking, entry-level sustainability consulting and promotional services to its members.

This conference is designed for business executives, legal counsel, investment advisors, members of the media, university professors and students, and other professionals with an interest in carbon markets, cap and trade systems, legislation, regulation and litigation that will come as governments and businesses continue to address climate change. Registration is available at www.sustainabledallas.org