Law and the Environment

EPA Issues Approval to Allow Texas to Take over Greenhouse Gas Permitting Program

Effective as of Nov. 10, 2014, the U.S. Environmental Protection Agency (EPA) approved the Texas program to issue permits for greenhouse gas (GHG) emissions under the Prevention of Significant Deterioration (PSD) program established by the Federal Clean Air Act. In January 2011, EPA had issued what is known as a Federal Implementation Plan (FIP) to allow EPA to issue GHG emission permits in Texas when Texas initially refused to implement the federal program. The Texas legislature subsequently required the Texas Commission on Environmental Quality (TCEQ) to take action to implement the program in Texas.

The TCEQ submitted to EPA a modified State Implementation Plan (SIP) relating to GHG permitting. EPA has now approved the part of the modified SIP relating to GHG permits and will withdraw the FIP. As a result, the program is being transferred to the TCEQ. Sources required to obtain GHG permits under the EPA program will be able to seek a permit for both conventional air emissions and GHG emissions from the TCEQ.

The EPA approval eliminates the dual permitting system with both EPA and TCEQ issuing permits for major projects exceeding the applicable GHG emissions threshold. This change should stream line the air permitting system for large projects and reduce the time it takes to obtain permits required to start construction of new or modified sources subject to GHG permitting requirements. One of the key elements of the Texas legislation is that it exempted the TCEQ GHG permitting process from contested case hearing provisions in order to make the process more efficient.

EPA and the TCEQ will be working cooperatively to address GHG permits now pending before EPA.

The U.S. Supreme Court recently reviewed the EPA GHG permitting program and concluded that GHG permits could only be required of new or modified sources that would have to obtain federal permits anyway for conventional pollutants under the PSD program. These “anyway” sources may be required to include GHGs in their permits depending on the amount of GHG emissions.

Under the Supreme Court decision, EPA is required to develop a de minimis threshold level for GHG sources. In the meantime, EPA is applying a threshold level for PSD permits for new sources that emit or have the potential to emit 75,000 tons per year (tpy) or more of GHGs on a carbon dioxide equivalent (CO2e) basis. For modified sources, a permit would be required when the following apply: (1) the modification is otherwise subject to the PSD for a pollutant other than GHGs; and (2) the modification results in a GHG emissions increase and a net GHG emissions increase equal to or greater than 75,000 tpy CO2e.

Client Receives Greenhouse Gas Permit for $1.2 Billion Natural Gas Power Plant in West Texas

EPA Region 6 just issued the following press release for a permit granted to our client governing green house gas emissions.

 

Permit allows construction of $1.2 billion natural-gas fired plant; will add hundreds of construction jobs and over 30 permanent jobs                                     

DALLAS – (April 29, 2014) This week, the U.S. Environmental Protection Agency (EPA) issued a final greenhouse gas (GHG) Prevention of Significant Deterioration (PSD) construction permit to FGE Power for the FGE Texas project near Westbrook, Texas. The permit allows the company to build a new natural-gas fired combined-cycle electric generation plant.   

“This facility will bring clean-burning electricity to the people of Texas,” said EPA Regional Administrator Ron Curry. “The FGE plant is an example of how electricity providers can meet customer demand while reducing harmful greenhouse gas emissions.”

“We look forward to putting people to work and helping to power Texas’ economic future,” said FGE Power’s CEO, Emerson G. Farrell. “EPA’s thorough review and thoughtful findings demonstrate that new technology, combined with a fresh approach to developing clean energy and sustainable infrastructure, can make a positive difference on our economy and the environment.”

The facility, in West Texas between Midland and Abilene, will generate 1,620 megawatts of gross electric power. The facility will operate almost entirely on clean-burning natural gas, with some emergency equipment using diesel fuel.

In June 2010, EPA finalized national GHG regulations, which specify that beginning on January 2, 2011, projects that increase GHG emissions substantially will require an air permit.

EPA believes states are best equipped to run GHG air permitting programs. Texas is working to replace a federal implementation plan with its own state program, which will eliminate the need for businesses to seek air permits from EPA. This action will increase efficiency and allow for industry to continue to grow in Texas.

This permit is the 36^th GHG permit EPA has issued in Texas. The agency has proposed an additional five permits and has 19 more in development.

Supreme Court to Review Narrow, But Critical Aspect of EPA Greenhouse Gas Permitting Rules

On October 15, 2013, the U.S. Supreme Court granted the appeal of various entities challenging the EPA's greenhouse gas permitting rules for stationary sources under the federal Clean Air Act (CAA).  In 2007, in Massachusetts v. EPA, the court ruled that EPA may regulate greenhouse gases as air pollutants under the CAA.  The decision led the EPA to regulate greenhouse gas (GHG) emissions emitted by auto mobiles, and then EPA concluded that once those gases were regulated, the EPA was required to regulate GHGs emitted from stationary sources, such as power plants and refineries. EPA then issued a series of regulations leading to permitting standards for certain very large sources that emit above a certain amound of GHGs when a new plant is constructed or an existing plant is modified.

On appeal, various state and industry groups challenged these rules on the grounds that they were based on an improper construction of the Clean Air Act and are arbitrary and capricious because they are based on an inadequate scientific record.  The DC Circuit Court of Appeals rejected these appeals.  The Supremen Court now has granted review of the EPA regulations, but not as to whether GHGs may be regulated at all, but on a much narrower ground. 

Did the EPA permissibly determine that its regulation of greenhouse gas emissions from new motor vehicles under the Clean Air Act also triggered permit requirements for stationary sources of greenhouse gas emissions?

While narrow, the decision by the Supreme Court is an important one with respect to the EPA's program for regulating GHGs from various stationary sources.  The EPA is in the process of developing standards for new power plants and existing power plants in the near future.  Thus, the decision will be another landmark environmental ruling when issued.

EPA Issues Final Greenhouse Gas Monitoring and Reporting Rule

On September 22, 2009, the United States Environmental Protection Agency (EPA)  issued its final greenhouse gas monitoring and reporting rule that will require as many as 10,000 facilities in the United States to measure their greenhouse gases (GHGs) and start reporting them in early 2011 (GHG Reporting Rule).  Some industry groups had asked EPAfor a delay until 2011 to start monitoring and 2012 to start reporting their GHG emissions.  EPA chose not to provide such a delay and regulated facilities only have three and a half months to prepare for the monitoring that they must begin January 1, 2010.  This may be particularly challenging for those companies that must install or modify continuous emission monitors.

Following a Congressional amendment to the Omnibus Spending Bill in December of 2007 that required the EPA to issue a proposed rule by September of last year and a final rule by June of this year, the EPA under the Obama Administration has now moved forward with an initial step in establishing a GHG regulatory system.

In the GHG Reporting Rule, EPA has adopted a substantial program of GHG monitoring and reporting with a publicly available registry.  The program is “economy wide” and covers 85-90 percent of GHG emissions in the United States.

The EPA is in part implementing the GHG Reporting Rule to gather information for future regulatory and policy decisions. Thus, many of those sources that would be required to report under the GHG Reporting Rule may also be those that would be regulated under a federal GHG cap and trade system being discussed by Congress and the Obama Administration.

While the rule does not impose any reduction obligations, as prior reporting rules, such as the Toxic Release Reporting of SARA Title III, have shown, companies reporting emissions “manage what they measure.”  In other words, once companies must publicly report their emissions, they start to invest in ways to reduce those emissions.

I.     WHEN MUST YOU START MONITORING?

As stated above the monitoring must begin on January 1, 2010.

 

II. WHEN MUST YOU START REPORTING TO EPA?

The first report will have to be submitted to EPA by March 31, 2011, and then for subsequent years thereafter.

 

III.    WHAT GASES ARE COVERED?

The EPA has identified the traditional GHGs for reporting: carbon dioxide (CO2), methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons, chlorofluorocarbons, perfluorocarbons, and certain other fluorinated gases. For purposes of comparing emissions of the various gases using a single unit, the gases are converted into the equivalent GHG impact of CO2. The conversion is based on the principle that the other gases have a greater impact in terms of causing the greenhouse effect and thereby global warming. As an example, one metric ton of methane emissions would be reported in terms of the carbon dioxide equivalent (CO2e) of 21 metric tons. This is critical in understanding the threshold levels for application of the reporting requirements, as the non-CO2 GHG emissions may need to be converted to CO2e before determining whether the GHG reporting obligations apply to a particular facility.

IV.   WHAT FACILITIES ARE COVERED?

Four categories of facilities are required to measure and report their GHG emissions. In addition, vehicle manufacturers would be required to report the GHG emissions of their vehicles. We will focus on facility-based emitters in this Article.

1. Source Categories

The first category of facilities required to report under the GHG Reporting Rule are facilities that fall under a list of source categories identified by the EPA. These sources include, among others,

• coal-fired electric generating plants subject to the Acid Rain program,
• aluminum,
• ammonia,
• cement,
• electronics,
• lime,
• petrochemical,
• petroleum refining,
• certain underground coal mines, and
• municipal landfills.

2. Other Facilities That Emit 25,000 Tons Per Year or More of CO2e of Combined Emissions From Listed Source Categories

The second category of sources required to report are facilities that emit 25,000 or more metric tons of CO2e per year of combined emissions from stationary fuel combustion units, miscellaneous uses of carbonate, and all source categories that are listed and located at the facility in any calendar year.

These sources include, among others,

• electricity generation,
• electronics,
• ethanol production,
• food processing,
• glass production,
• iron and steel production,
• ferrous alloy production,
• oil and natural gas systems,
• pulp and paper,
• industrial landfills, and
• wastewater treatment.

3. Facilities That Do Not Meet the First Two Source Categories, but That Emit 25,000 Metric Tons of CO2e Per Year From Stationary Fuel Combustion Sources

The third source of facilities required to report are those that meet all of the following conditions:

(1) the facility does not contain any source category designated for the first two groups of categories;

(2) the aggregate maximum rated heat input capacity of stationary fuel combustion units at the facility is 30 mmBtu/hr or greater; and

(3) the facility emits 25,000 metric tons of CO2e per year or more from all stationary fuel combustion sources.

4. Entities That Sell, Import, or Export Fossil Fuels, Industrial GHGs, and CO2

The final category of entities required to submit GHG emission reports under the proposed GHG Reporting Rule are suppliers of coal, coal-based liquid fuels, petroleum products, natural gas and natural gas liquids, producers of industrial GHGs as listed in the Rule, importers and exporters of industrial GHGs and CO2, and importers and exporters of industrial GHGs and CO2 exceeding 25,000 metric tons of CO2e per year.

V. WHAT MONITORING AND MEASUREMENT APPROACH MUST BE USED?

The EPA reviewed several monitoring or measurement options in developing the GHG Reporting Rule. The EPA selected the option of combined direct emission measurement and facility-specific calculations. Facilities that already have continuous emission monitoring (CEM) devices are generally required to add a GHG measurement capability. Those that do not have CEM devices would have the choice to install them or to use facility-specific calculation methods.

VI.   WHAT CERTIFICATION AND VERIFICATION IS REQUIRED?

The EPA reviewed several options regarding certification and verification of the GHG emissions reported to the EPA. The agency decided to require certification by a designated representative of the facility submitting the report and to have the EPA verify the emissions report. No third-party verification is currently proposed.

VII.     WILL THE INFORMATION REPORTED TO EPA BE AVAILABLE TO THE PUBLIC?

The information provided by the regulated facilities will be made available to the general public by a website developed by EPA.

VIII. WHAT CORPORATE FINANCIAL DISCLOSURE AND CORPORATE STRATEGIES SHOULD BE DEVELOPED AS A RESULT OF THIS NEW REGULATION?

The GHG Reporting Rule is one of the significant steps made by the Obama Administration into climate change regulation and extends GHG measurement and reporting to a large part of the economy. As companies continue to review and develop their strategies for evaluating the potential risks and opportunities that a GHG regulatory system and potential cap and trade system will present, the GHG Reporting Rule is the one of the first salvos in what will be a concerted effort by Congress and the President to impose a GHG regulatory system in the United States.  Since establishing a company’s “carbon footprint” is now mandatory, understanding the implications of the reporting and public disclosure of the amount of greenhouse gas emissions raises several issues.

With this rule and potential future legislation that may be passed as early as this year or early next year, many publicly traded companies should also consider their disclosures in their filings with the Securities and Exchange Commission to determine if any further description of the risks or opportunities presented by climate change legislation should be discussed in their public filings.

Companies that may be regulated by any future climate change legislation, whether state, federal, or both, should develop a climate change strategy. Such strategies should include an evaluation of the number of GHG or carbon allowances that may be required to comply with climate legislation. One allowance would be required for every ton of emissions of CO2e equivalent. In addition, those companies selling or importing fossil fuels may be required to obtain allowances for every ton of CO2e equivalent of fuel sold. In engaging in this planning, companies should consider the extent to which low cost offsets purchased today could reduce the ultimate liabilities of the company in the future.

Many utilities, oil and gas companies, and other potentially regulated companies are already investing in carbon offset projects or purchasing credits now. In what could be one of the most significant environmental regulatory programs in the history of the United States, planning today could pay off with significant savings or dividends in the future. For many companies, climate change impacts should be a key strategic issue for the board and management.

EPA Issues Finding That Lays Foundation for Regulating Greenhouse Gas Emissions under the Federal Clean Air Act

In a long expected finding, the U.S. Environmental Protection Agency (EPA) issued a regulatory decision that lays the foundation for EPA to regulate greenhouse gas emissions under the federal Clean Air Act (CAA).  The decision announced on Friday, April 17, 2009 is entitled Proposed Endangerment Finding and Cause or Contribute Findings for Greenhouse Gases  and was published in the Federal Register.  This is a major step by the Obama Administration to attempt to force Congress to pass a climate change bill regulating greenhouse gases.  Time magazine may have said it best in an article entitle EPA's CO2 Finding: Putting a Gun to Congress's Head.  Whilee it was known that EPA was working on and would announce the finding, the actual announcement has gained enormous coverage in the media and serves as the Administration's opening salvo in its ultimate work to try to convince enough senators to vote for a bill to get beyond the 60 votes need to bypass a filibuster.

The EPA regulatory decision follows a U.S. Supreme Court decision two years ago that concluded the EPA under the Bush Administration had failed to articulate why greenhouse gases should not be regulated as emissions from automobiles.  In so doing, the Court indicated that greenhouse gases were pollutants under the Clean Air Act.  Now that EPA is going to issue a final regulatory decision after 60 days of public comment and several public hearings, it is clear that EPA can, and will, take action absent Congressional action.

Regulation under the Clean Air Act is messy and may not include a cap and trade program, but simple command and control in the form of emission reductions without the ability to trade for other facility allowances or domestic or international offsets.  This would not be good for industry.

Certain industry groups have already begun to work to promote their version of a cap and trade program.  The group USCAP, which stands for United States Climate Action Partnership, has issued a document entitled A Blueprint for Legislative Action, providing a general outline of a climate change program based on cap and trade.

The one question that will likely play out is how the world will look if Congress does not pass a bill or passes late next year or even later.  Permits for coal=fired power plants and other greenhouse gas-emitting facilities are already being challenged, and environmental groups and other plaintiffs are challenging the permits in court as not meeting CAA requirements to address all pollutants including greenhouse gases.  If EPA issues a final decision that greenhouse gases are an air pollutant, do these cases then have a much greater change of success?  Will EPA and the states be required to address greenhouse gas emissions in federal Title V permits?  These are the types of questions that will come to the fore relatively quickly.

What about cement kilns, lime plants, refineries, natural gas processing plants, manufacturing plants, will they be challenged as well?  Coal-fired power plants may not be the only plants whose permits are challenged.

One need not look beyond the administrative case of In re Deseret Power Cooperative.  This was a case in which the permit for a power plant in Utah that was challenged because the plant permit did not address CO2 emissions under the Prevention of Significant Deterioration program under the CAA. the challengers argued the plant should implement the Best Available Control Technology or "BACT" to achieve greenhouse gas, largely CO2 emissions. 

The EPA Appeals Board remanded the issue back to the EPA, then under the Bush Administration, not to require such technology or reductions as the Appeals Board concluded that the decision was not supported by the administrative record.  The Appeals Board called on EPA to address the issue of CO2 and other greenhouse gases being pollutants governed by the CAA.

Other cases have been brought against various sources and several petitions have been filed with the EPA to regulate mobile sources and stationary sources.

With the finding by EPA, all such permits, petitions, and proceedings could be affected.  Could this be a snowball effect with EPA and states finding themselves forced to regulate greenhouse gas emissions before Congress makes any final decisions whether to regulate greenhouse gas emissions?  The next year promises to be a challenging time for industry as they face a great deal of uncertainty as to how greenhouse gases will be regulated and how individual facilities and companies will be affected.  It appears more likely that some form of greenhouse gas regulation will be required.  For those companies that may be affected, it is time to develop a corporate strategy to address the risks and any opportunities that greenhouse gas regulation may bring.

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.

Xcel Energy Settlement with New York Attorney General Requires Greater Climate Risk Disclosure

Xcel Energy entered into a settlement with Andrew Cuomo, the Attorney General of New York, as a result of an investigation of several publicly traded utility companies that the Attorney General's office alleged failed to properly disclosure climate risk in the companies' public filings.  The other utility companies that are being investigated are AES Corporation, Dominion Resources, Dynegy, and Peabody Energy.  In the settlement, Xcel Energy agreed to a variety of additional disclosures relating to climate risk.

The agreement requires that Xcel provide detailed disclosure of climate change and associated risks in its “Form 10-K” filings, the annual report required under securities laws and regulations issued by the Securities and Exchange Commission (SEC) to provide financial performance information to investors. 

The climate risk disclosure agreed to by Xcel includes analysis of the impact of the following: 

the potential impact of present and probable future climate change regulation and legislation;

climate-change related litigation;

physical impacts of climate change;

current carbon (or greenhouse gas) emissions;

projected increases in carbon emissions from planned coal-fired power plants;

company strategies for reducing, offsetting, limiting, or otherwise managing its global warming pollution emissions and expected global warming emissions reductions from these actions; and

corporate governance actions related to climate change, including whether environmental  performance is incorporated into officer compensation.

“This landmark agreement sets a new industry-wide precedent that will force companies to disclose   the true financial risks that climate change poses to their investors,” said Attorney General Andrew Cuomo. “Coal-fired power plants can significantly contribute to global warming and investors have the right to know all the associated risks. I commend Xcel Energy for working with my office to establish a standard that will improve our environment and our marketplace over the long-term.” 

Ceres has been a proponent of increased climate risk disclosure.  Ceres is a nonprofit organization, supported by what it asserts is institutional investors with more than $6 trillion in capital, including the treasurers and  comptrollers of Newy York, California, Florida, Maryland, Rhode Island and five other states, and two of the country's largest pension funds--CalPERS and CalSSTRS. 

Ceres President Mindy S. Lubber said, “This groundbreaking settlement will send ripples far beyond Xcel Energy. It serves notice that all companies face financial exposure from climate change and will be expected to better inform investors of their strategies for dealing with it.”

The Director of the Natural Resources Defense Council's State Climate Change Program and the Deputy General Counsel of the Environmental Defense Fund, cheered the settlement.

Obviously, these statements reflect the views of parties that are promoting greater disclosure and hope they will be successful in forcing some form of change in the corporate emissions of greenhouse gases. Industry reaction has not been published as yet.  Many industries may find this development to raise additional questions as to disclosure obligations when it comes to the potential physical impact of climate change, the financial impact of current and future regulations, and future potential litigation.

These questions are particularly important for utilities that operate coal-fired power plants.  The degree to which other publicly traded companies feel compelled to consider similar disclosure will be something that will unfold over the next year or so.    At present, there is perhaps considerable uncertainty as to what is legally required.  In 2009, we may see developments that help reduce the uncertainty as to what degree of climate disclosure is necessary as new federal greenhouse gas reporting requirements will be issued and climate change legislation may be passed.  Many proposed bills offered in Congress require that the SEC create guidance and then regulations governing climate risk disclosure.

Andrew Cuomo’s investigation of the financial disclosure of Xcel and the other utilities is only one part of a larger attack by environmental groups, certain state governments, and public pension and other public funds on coal-fired power plants and the companies that owne and operate them.  As Congress and the Whitehouse had been an impossible place to achieve any climate change legislation, the environmental groups moved to the state legislatures, have filed lawsuits to try to force action under federal and state statutes, and have brought public nuisance suits.  Finally, they have tried to force action through shareholder initiatives and petitions and through an attempt to pressure public companies, especially those that operate coal-fired power plants to disclose what the environmental groups believe to be significant financial risk from operating plants that emit significant greenhouse gases.

If these actions are successful, the use of coal may be curtailed or the operators of coal-fired plants may begin to install a means of capturing the carbon dioxide emissions from the plants and injecting it underground.  If either occurs, alternative forms of producing electricity or capturing and “sequestering” carbon dioxide may lead to higher electricity prices.  Any federal legislation that places controls on carbon dioxide emissions from coal-fired power plant will likely increase power prices as well.

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. 

Georgia State Court Rejects Air Permit for Coal-Fired Power Plant for Lack of Regulation of Carbon Dioxide

On June 30, 2008,  the Fulton County Superior Court in Georgia revoked a permit for construction of a proposed 1200-megawatt coal-fired power plant in the state.  The court truled that the permit issued to Longleaf Energy by the Georgia Environmental Protection Division failed to consider the best available pollution control technology (BACT) for reducing the proposed plant’s estimated annual emissions of 8-9 million tons of carbon dioxide (CO2).  The defense had argued that a BACT analysis was not required because CO2 is not a pollutant subject to regulation under the federal Clean Air Act. The court found that the U.S. Supreme Court’s decision in Massachusetts v. EPA, in which the Court found that CO2 met the definition of pollutant under the Act.  The ruling by the Georgia court appears to be the first time a court has rejected an air emissions permit as a result of the environmental agency to regulate CO2 emissions.

The defendants reportedly will appeal the court’s decision.

New Federal Greenhouse Gas Reporting Regulations

EPA is set to propose new federal greenhouse gas reporting rules in September.  Under a provision inserted into the Omnibus Spending Bill in late 2007, the EPA must propose rules by September of this year and issue final rules by June 2009.  I have been keeping in touch with my contacts at EPA and the draft rule will be issued in little over a month..

EPA will be proposing several approaches to measuring and reporting greenhouse gas emissions, and then will recommend an approach.  The Agency then will be looking for comments from the public and industry on the approach they will ultimately take in the final rules that will be issued next year.

According to my contacts at EPA, several issues will arise:

• Threshold of emissions that will have to be reported--EPA is looking at 1,000, 10,000, or 100,000 tons per year as a cutoff, below which no reporting would be necessary.  Since proposed legislation in Congress would regulate sources at or above 10,000 tons per year, this may be the likely threshold that EPA will adopt.
• Who reports, the individual facility or the company?--This an issue EPA will address in the proposed rule.
• Data flow--this is a question of to whom will the information be submitted, whether to EPA or to states.
• Methodology for estimating emissions--EPA is planning on using established methodologies as much as possible, whether from the API, the Climate Registry, or those adopted by California.
• Reporting frequency--the agency is evaluating whether reports will be submitted annually or more frequently.
• Which gases must be measured and reported?--EPA appears to be leaning toward regulating all six greenhouse gases, including CO2, methane, and nitrous oxides.
• Verification--the agency is debating whether a third party must verify the emissions estimates.  As EPA is anticipating climate change legislation and carbon credit trading, EPA may require third-party verification in preparation for award of carbon allowances and a carbon credit trading market.

Thes rules will potentially impact a significant portion of industry and business and the US economy.  Numerous comments on the proposed rules are expected.  The final outcome will not be known until June of next year.  It is also possible that a new presidential administration will alter the approach proposed by the Bush Administration. 

In any event, these rules once proposed will have a significant effect on many businesses.  Companies with significant emissions may want to begin the process of identifying sources of greenhouse gas emissions and estimating those emissions in preparation of future reporting obligations, particulalry those with numerouls sources at numerous facilities.