Law and the Environment

Air Permit for Coal-Fired Power Plant Denied in Kansas as a Result of Greenhouse Gas Emissions

For what appears to be the first time in the United States, an air emissions permit has been denied on the basis of greenhouse gas emissions in Kansas.  The Kansas Department of Health and Environment citing carbon dioxide emissions rejected an air permit for a proposed coal-fired power plant.  The agency stated that the greenhouse gas threatens public health and the environment.  See Washington Post article.

Al Gore and the UN Intergovernmental Panel on Climate Change Win Nobel Prize

Former Vice President Al Gore and the United Nations Intergovernmental Panel on Climate Change won the 2007 Nobel Peace Prize for their efforts to build and spread knowledge about man-made climate change, and to lay the foundations for programs to reduce greenhouse gas emissions. See Wall Street Journal article.

Federal District Court Upholds Vermont's Adoption of California Greenhouse Gas Controls for Automobiles

A federal district court in Vermont ruled against all of the auto industry challenges and upheld under the Clean Air ACt, Vermont’s adoption of California’s standards for reducing greenhouse gas emission. The opinion can be found here.

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.

Climate Change Due Diligence: A New Aspect of Environmental Due Diligence?

           Now that California and six western states and ten northeastern states have passed laws and entered into regional programs to limit greenhouse gas emissions, the United States is entering a carbon-constrained economy.  Nine or more bills have been filed in Congress.  As companies enter into mergers and acquisitions, the potential costs of large carbon footprints at facilities or companies being acquired is becoming a significant concern.

            Not only the regulatory costs of potential emission reductions or offsets, but the “license to operate” may in jeopardy.  The case of TXU and it’s attempt to gain permitting for eleven coal-fired power plants demonstrates that the public and many legislators may prevent the construction of large greenhouse-gas-emitting facilities. The Wall Street Journal reports that Mirant, a utility that just emerged from bankruptcy, is facing limits on its profitability as a result of carbon regulation in the northeastern states.

            Many investment companies looking to acquire facilities in Europe are evaluating greenhouse gas emissions and the allowances and credits that have been purchased to ensure the ability to continue operating.  In the US, some companies have begun entering contracts to secure carbon credits to offset expected limits on greenhouse gas emissions.

            As we appear to be moving to increasing constraints on carbon dioxide and other greenhouse gases here, the need to begin conducting greenhouse gas evaluations and considering the ability to reduce emissions or the availability of offsets will begin to be a significant part of environmental due diligence.  It will become critical to evaluate not only compliance risks arising from carbon emissions, but also the very the value of facilities and companies being acquired.

Australian Article Reports Company Frustration That Investors Are Not Valuing Their Reductions in Carbon Emissions

The article below from the Herald Sun discusses concern of certain Australian companies that their actions ahead of a carbon cap-and-trade system in Australia to reduce their carbon emissions has not been recognized by the markets and investors.  The article suggest not only the potential of the market to not fully recognize and appreciate the risk from carbon or greenhouse gas emission limitations, but suggests actions take to reduce carbon emissions in preparation for climate change legislation may not be appreciated by the market as yet.  This throws a new wrinkle in the issues relating to environmental governance and disclosure in the sense that companies are usually worried about the need and effect of disclosing risks from carbon emissions and climate change regulation.  Here the issue is not the failure to disclose or the concern of a reduction in stock price because of carbon exposure, but the concern that proactive steps have not been reflected in an increase in stock prices.

The global warming debate may be in from the cold in Australia, but some companies are accusing the share market of freezing them out with sluggish attitudes to climate change liabilities.

More than a fortnight after the Federal Government gave carbon emissions trading the nod, brokers and fund managers are being described as too slow to value the upside of listed companies that have taken steps to minimise climate change risks to their earnings.

"A number of organisations cannot understand why the market is refusing to factor these initiatives into share prices," Joanne Saleeba, chief executive of Investor Group on Climate Change, told BusinessDaily. ASX rules prevent these companies from speaking on the record about some aspects of their share prices. But Ms Saleeba said behind the scenes there was a growing frustration among companies that have implemented carbon reduction programs in recognition that global warming carries risks to investor returns.

Origin Energy communications chief Tony Wood told BusinessDaily that he had seen no evidence of the market factoring in the $40 million worth of investments Origin has made in solar sliver technology.

Origin, whose other investments include gas-fired generators, geothermal technology and some hydro-electric interests in New Zealand, believes the Australian share market has proved it is sceptical about the earnings potential of clean energy.

Greg Pritchard, finance director at Energy Developments - one of the largest listed renewables companies - said the group's power generation from coal mine, methane and landfill gas sites around the world had helped it offset about nine million tonnes of emissions.

"When carbon trading starts here in 2012, this will become a valuable part of our balance sheet," Mr Pritchard said.

But not everyone believes the market should wait four years to put a value on abatement.

"These efforts are being overlooked by the market and it is very frustrating for companies leading the charge into an era of carbon restraint," said Ms Saleeba, whose organisation represents institutions with $225 billion of funds under management.

The group's membership includes AMP Capital Investors, Babcock & Brown, BT Financial Group, Colonial First State and Goldman Sachs JBWere.  It was established two years ago to bring to the market's attention the fact that big investors viewed climate change liabilities as a serious risk to the earnings of companies.  Those risks are divided into five categories: regulatory, physical, litigation, competitiveness and reputation.

Goldman Sachs JBWere head of quantitative research Andrew Gray said there was a "disconnect" between companies that had advanced their business strategies to address these risks and stockbrokers and fund managers that were not reflecting this in their analysis.

"When you consider that many institutional investors have for years taken climate change risk seriously, the disconnect becomes more pronounced," Mr Gray said.

Part of the problem lies in the fact that the federal government is yet to set carbon emissions targets and decide how permits will be distributed.

The uncertainty makes it too difficult for researchers to make a call, according to Dr Ian Woods, senior research analyst at AMP Capital Investors.

He acknowledged that institutions were years ahead of the market on the issue.

"We have been looking at how well companies plan for climate risk for five years because it gives us a good idea of how they plan for risk generally," Dr Woods told BusinessDaily.

Scott Marshall, head of industrial research at Shaw Stockbroking, confirmed that "clean" initiatives were not being factored into valuations by most analysts.

"Being green may be good for the environment, but the only way it is going to be good for the share price is if companies can show it saves money," Mr Marshall said.

"Until we know more about emissions trading, there's no value assigned to stocks for being green.

"It is just too hard to value at the moment."

Mr Shaw said there was "a lot of paperwork estimating the cost of emissions going around between stock brokers and a lot of office commentary on carbon trading", but at this stage this information was not being used to assess risk profile, despite client concerns.

A number of brokers have admitted that big clients and institutions are leaning on advisers for more clarity on how portfolios are likely to be affected when carbon trading starts.

BusinessDaily is aware that numerous organisations have already conducted extensive modelling under different scenarios to assess the impact of carbon trading on different sectors and even individual companies.

But for a number of reasons, the view is that it is premature to reveal this information until the government releases more details on how emissions trading will work.

One organisation that refused to be named said it had already done thorough economic modelling but had been pressured by a government department to not release its findings.

"We used a grant to do the research and now that we have finished, some people are dragging their feet about making it public," the unnamed source said.

But the lid is likely to lift in coming weeks as a number of reports are released in answer to rising demands from institutions for information.

The Climate Institute, which published a climate change report on the electricity sector last month, is expected to produce more detailed analysis at the end of this month on how other sectors are likely to be affected by carbon pricing.

Also at the end of June, institutional investors will begin to have a better idea of how much carbon most of Australia's top 100 companies are emitting thanks to a voluntary reporting exercise.

The investors hope to be able to assess and compare strategies the companies are using to protect shareholder returns from global warming liabilities.

The information will be collated by the London-based Carbon Disclosure Project into a global report and publicly released in September.

Among the project's Australian signatories are AMP Capital Investors, ANZ Bank, BT Financial Group, National Australia Bank, Hastings Funds Management, Portfolio Partners and a number of the biggest superannuation funds.

Last year, just 10 per cent of companies surveyed provided sufficient information for the institutions to gain an insight into how they will manage environmental liabilities.

This year, the response rate from top 100 companies is greater.

The Australian end of the disclosure project is being organised by Goldman Sachs JB Were and the Investor Group on Climate Change.

Mr Gray said responses reveal which companies are fully integrating global warming issues into their planning and are likely to be "better able to turn the climate change issue into a source of competitive advantage and therefore shareholder value".

In a report on the project last year, Mr Gray named 20 Top-100 companies that produced the strongest inclination to embrace environmental risks.

Mainstream investors want to, and need to, consider how exposed they are to climate change liabilities, Mr Gray wrote.

Thompson & Knight Announces New Climate Change and Renewable Energy Practice

DALLAS

— The international law firm of Thompson & Knight LLP is continuing its role as one of the top energy law firms in the world with the launch of the firm’s Climate Change and Renewable Energy Practice Group.

The potential impact of the recent announcement from President George Bush about the administration’s new stance on global climate change already is raising questions from businesses nationwide.

 

Firm partner Scott Deatherage will lead the group, which is made up of 26 attorneys with broad experience in handling renewable energy projects and regulatory issues.  The group includes attorneys from the Firm’s environmental regulation and emissions trading, project development, finance, corporate, and national and international energy practices.

 

The Climate Change and Renewable Energy Practice Group includes attorneys from Thompson & Knight’s U.S. offices and international offices in in Mexico, Brazil, Algeria and England. Members of the group will assist clients in the development of business opportunities related to greenhouse gas emission reduction credit projects and credit trading markets, as well as helping companies in the growing renewable energy markets, including firms involved in wind, solar and biofuel technology.

 

"This initiative will allow our Firm to combine its significant energy, project development, tax and finance experience with our experience in wind energy projects, biofuels such as ethanol and biodiesel, and landfill gas capture," says Pete Riley, managing partner of Thompson & Knight.

 

Mr. Deatherage, the practice group leader, says regulation of greenhouse gases and trading in emission reduction credits have created significant opportunities in new markets. “This is a new era for business in terms of environmental risks and regulations, but also environmental opportunities,” says Mr. Deatherage. “Limits on greenhouse gas emissions, energy efficiency requirements, renewable energy mandates and trading in renewable energy credits are just a few of the many issues that corporate America will be facing in the coming years.”

 

About Thompson & Knight

 

Since 1887, Thompson & Knight LLP has consistently made a positive impact on its clients’ successes. With its practice focused on the energy industry, the Firm has extensive resources in litigation, tax, insolvency, and international energy matters. The Firm has approximately 420 attorneys, and has offices and alliances in North America, South America, Europe, and Africa. Thompson & Knight represents companies, government entities, and individuals in local, regional, and national markets around the world.

New Article on the Implications of Massachusetts v. EPA

I recently completed a Client Alert for clients of Thompson & Knight LLP to assist them in understanding the implications of the recent US Supreme Court case Massachusetts v. EPA, which ruled that EPA failed to follow the federal Clean Air Act in deciding not to regulate greenhouse gas emissions from vehicles.  In this alert, I outline how the opinion will likely affect other litigation with EPA over regulation of greenhouse gas emissions, the developing climate change legislation in Congress, private tort litigation, environmental financial disclosure, and other areas of law and business.

I am leading the new Climate Change and Renewable Energy Practice Group at Thompson & Knight, and see the Supreme Court case as a catalyst for significant changes in the coming years in terms of the regulation of greenhouse gas emissions in the United States and potential litigation over the effects of global warming. 

The article can be found by clicking here.

Implications of the Recent US Supreme Court Ruling That EPA's Decision Not to Reglate Greenhouse Gases from Automobiles Was Inconsistent with the Clean Air Act

In the recent landmark US Supreme Court case, Massachusetts v. EPA, the Court ruled that EPA's decision not to regulate greenhouse gas emissions from automobiles was inconsistent with the federal Clean Air Act.  The implications of this ruling are numerous, and range from new regulation under the Clean Air Act and other federal statutes, corporate environmental disclosure, and litigation alleging climate related damages.  The implications that I observe are as follows:

• Symbolic or political significance:  The symbolic or political significance of the case derives from the ruling of the highest court in the United States that “the harms associated with climate change are serious and well recognized.”  The Court further agreed with Massachusetts that “A reduction in domestic emissions would slow the pace of global emissions increases, no matter what else happens.”  Such a ruling of cause and effect by the US Supreme Court may significantly increase public support for congressional action to regulate greenhouse gas emissions and embolden members of Congress to enact climate change legislation.  The Chief Justice chided the majority for stepping into this area that he believed should have been left for the political branches of government to resolve.

• Greenhouse gases are air pollutants and EPA has the authority to regulate them:  The Court’s ruling that greenhouse gases are “air pollutants” under the Clean Air Act and the narrow room left to EPA not to regulate the emissions of these gases from automobiles puts the matter square in EPA’s hands to decide how it will address greenhouse gases.  With the historical objection of the Bush Administration to mandatory restrictions on greenhouse gases and the multitude of greenhouse gas bills before Congress, it would not be surprising if, unless Congress acts, the Administration delayed deciding the issue before the current presidential term is up--leaving the issue to the next president.

• Effect on other vehicle-related greenhouse gas lawsuits:  California, Vermont, and Rhode Island enacted their own limitations on vehicle emissions and these regulations were challenged by the automakers.  The cases were stayed pending the decision in Massachusetts v. EPA.  Based on the Court’s ruling, the challenges to the states greenhouse gas limits on cars appear less likely to succeed.

• Effect on challenges to EPA’s decision not to regulate greenhouse gases from power plants:  In addition to the challenge of EPA’s decision not to regulate greenhouse gas emissions, ten states, including Massachusetts, three environmental groups, and two cities, have sued EPA for its refusal to regulate emissions from certain utility and industrial power plants in its promulgation of New Source Performance Standards under the Clean Air Act.  In that case as well, EPA determined it did not have the authority to regulate greenhouse gas emissions under the Act.

• Effect on tort suits filed by individuals claiming damages from greenhouse gas emissions:  A variety of tort suits have been filed claiming that the emissions of greenhouse gases have resulted in climate change that has damaged the plaintiffs in those cases.  For example, in a case known as Comer v. Murphy Oil, filed in Mississippi by Hurricane Katrina victims against defendant classes of oil, coal, chemical and insurance companies, the plaintiffs claim that the emissions contributed to the force of Hurricane Katrina.  In another case, eight states, the City of New York, and three land trusts have sued the utilities that are the five largest carbon dioxide largest emitters in the United States.  The plaintiffs assert that the emissions of greenhouse gases constitute a nuisance.  The perceived challenge in these cases is one of causation, which was a central issue Massachusetts v. EPA and the dissenting opinions—how do you connect certain emissions into a global atmosphere to injuries alleged by specific plaintiffs for a global warming effect.  However, plaintiffs attorneys apparently considering the opportunities in this area for some time, may see the decision on standing in the Supreme Court’s climate change decision to open the door to new suits to argue the causation issue.

• Environmental financial disclosure by publicly-traded companies:  With the ruling that greenhouse gases are air pollutants and the opinion’s potential to constrain the latitude of EPA in terms of regulation, the case raises the need for companies with significant greenhouse gas emissions, electricity usage, or that produce fossil fuels to review their disclosures in their filings with the Securities and Exchange Commission and perhaps make clarifications or additional disclosures. Combined with the numerous bills in Congress to regulate greenhouse gas emissions and international pressure being on the United States to take action, particularly after the issuance of the International Panel on Climate Change, the potential for regulation has never been greater.

• Broadening standing for States to challenge federal administrative agency action: The majority in Massachusetts v. EPA, adopted a new view of standing or the ability of states to challenge federal administrative action. Responding to this standing analysis, Chief Justice Roberts scathingly criticized the majority’s view in his dissent, joined by Justices Scalia, Alito, and Thomas—as exceeding any previous Supreme Court opinions.  The degree to which this beginning of a reduced standard for state standing will thrive and prosper is unclear.  The majority did not elucidate as to what it meant by this reduced standard.  To the extent it develops in future Supreme Court cases, it could lead to a new level of state power in our federalist system.

Wall Street Green Trading Summitt Demonstrates Nascent Market for Carbon Credits, Clean Technology, and Renewable Energy in the United States

I recently attended the The Wall Street Green Trading Summit in New York.  The program was a sell out, but reveals a still startup market in carbon trading, clean technology, and renewable energy.  It is clear there is a growing number of capital providers who are watching this space and the larger investment houses and investment bankers are beginning to assign people to work on getting into this space.  Names such as Goldman Sachs and JP Morgan have joined smaller, less known companies in setting up investments capabilities in this area.  New hedge funds have been set up to take advantage of the nascent market that is wide open at this stage to new entrants. 

Not surprisingly, the comments on the carbon trading market (markets in CO2 and other greenhouse gas emission reduction credits) were that it is still forming until the United States enacts a carbon cap-and-trade system to address climate change, which all believe is a only few years away.  (For a discussion of this market, please refer to my carbon trading and climate change law blog  The New Carbon Cycle.)   It is clear that the enactment of such a program will unleash a substantial amount of capital, in the billions if not tens of billions of dollars, to invest in projects that reduce greenhouse gas emissions and generate carbon credits.  These credits can be bought and sold in the carbon trading market domestically, and if set up properly, in the global markets under the Kyoto Protocol or what comes after Kyoto.

Is is clear the adoption of a cap-and-trade system will unlock a huge pent up level of capital to address greenhouse gas emissions and global warming.  Wall Street is preparing for the establishment of a greenhouse gas regulatory system in the United States, and the ability to trade carbon credits with other countries.

Because no such system currently exists, many at the Wall Street Green Trading Summit referred to carbon trading, clean technology, and renewable energy as "the Wild West", since the markets are so new and developing.  All the speakers and attendants believe that carbon markets and the clean technology and renewable energy markets present an immense investment opportunity in the future as renewable energy requirements increase at state and federal levels, biofuels, such as ethanol and biodiesel, requirements are established through proposed EPA rules, and as limits on greenhouse gas emissions go into effect and carbon markets are established.  As we await what this Congress and this or a future president will do to address these issues, capital markets are positioning for potentially huge investments in this space.