Climate Law Update: Climate Change & Sustainable Energy News : Thelen Reid Law Firm : Renewable Energy, Construction, Project Finance Lawyers & Attorneys

Carbon capture and sequestration, as the process is known, involves injecting carbon dioxide, a chief greenhouse gas produced by burning fossil fuels, into underground formations to prevent it from reaching the atmosphere.

Promoted heavily in some quarters, the technology has become controversial with environmentalists, partly because of its association with coal. Just this week, the environmental group Greenpeace issued a scathing critique of the technology's use in conjunction with coal, concluding it won't be available in time to save the planet's climate and could consume up to a 40 percent share of a power plant's capacity (see press release here; access report here).

The California project will be located at a plant near Bakersfield operated by Clean Energy Systems. Late last year, the company described the operation as using either natural gas or synthetic gas derived from coal (see text of press release here). Carried out under the auspices of the West Coast Regional Carbon Sequestration Partnership, a public-private partnership partially funded by the energy department, about a million tons of compressed carbon dioxide is expected to be pumped into a geologic formation more than a mile underground.

Adam Gottlieb, a spokesman for the California Energy Commission, which manages the regional partnership,  said he did not believe the plant, expected to be in operation by mid-2010, would rely on coal as a fuel source. The commission's statement suggested that the technology could also be used by industries such as cement plants and refineries. 

"If we can have other industries embrace this technology, not only for economic reasons but for environmental reasons, it's a win-win all around," he told Climate Law Update. 

Keith Pronske, Clean Energy's chief executive officer, told Climate Law Update his plant, which relies on aerospace technology, would likely use natural gas but could rely on other fuels, including renewables.

"What we're focused on is the carbon capture part and it's to have clean energy with captured carbon dioxide from a multitude of fuels," Pronske said. He said carbon dioxide could also become a commercial commodity, sold to be injected under old oil fields as a way of increasing their productivity.     

In the other project, to be carried out by the Midwest Regional Carbon Sequestration Partnership, another million tons of the gas is expected to be injected into a sandstone formation in Ohio about 3,000 feet under an ethanol production facility. That project is slated to get about $61 million. Both projects also anticipate additional millions of dollars coming from industry. 

The projects are the fifth and sixth to be funded by the department in the current phase of its  carbon sequestration program involving the regional partnerships. In addition to promoting at clean coal, the department said the technology would help meet President Bush's recently stated goal of stopping the growth of greenhouse gas emissions by 2025 (see Climate Law Update story here). 

Regarding FutureGen, the energy department in January backed away from its original plan to spend upwards of $1 billion to build a virtually zero-emissions power plant, eventually slated for a site in Illinois (see press announcements here and here). Under the new program, the department outlined a plan to solicit proposals for multiple plants, toward which the government would supply between $100 million and $600 million per project. About $1.3 billion is anticipated to be available over the years, the department estimated.

One goal of the government's overall effort is to reduce the whopping $100- to $300-ton cost of the technology (see DOE background information here).

(Photo: Artist's conception of hypothetical FutureGen plant, Department of Energy) 

Although Brown, among other actions, has already sued and settled with one California county (see also press statement), and struck a separate legal deal with a major petroleum company (settlement and press release), he received a generally warm welcome from the officials. He even drew laughter when he told them his office would “help” them move forward by suing their city councils.

Brown advocated what he called “elegant density” in urban areas as a primary means of achieving lower emissions by reducing the time people spend commuting in their cars. According to California Energy Commission estimates, nearly 41 percent of the state’s greenhouse gas pollutants come from transportation.

“It’s up to you. You’re the custodians of land use and land use is connected to vehicle miles traveled,” Brown said in outlining his anti-sprawl agenda.

“The biggest thing of all is to shift the outward pressure and make it turn inward to a more elegant dense vibrant urban experience. That’s what local government has to do,” he said. “Now we have to get people from the suburbs to start coming back.”

Brown noted with some bemusement that when he was mayor of Oakland he advocated attracting 10,000 more residents into the central urban area but was met by opponents wielding CEQA challenges. He also noted that the slumping housing and construction market could actually give local officials some breathing room to “align land use with the need for a lower-carbon future.” Local officials, he said, need to include the new concepts in the design of general plans and city zoning, rather than waiting until they are presented with specific development projects.

Brown, a former California governor, noted he has long been talking about limits on growth and consumption, sometimes to little effect.

"Turns out that California never grew so fast as when I declared we were into an era of limits," he joked.

Nichols, who in the past has criticized Brown’s legal tactics in his push to force consideration of global warming in long term development, transportation and industrial plans, nevertheless echoed much of his theme in her remarks. She said that unlike previous attempts to control other forms of air pollution, “we can’t get there from here with technology alone.” Part of the reason for that, she said, is the length of time it takes to replace the existing fleet of vehicles on the road.

“For the first time under AB 32 we are going to have to take action that limits the growth and amount of use of [vehicle miles traveled],” Nichols said. “That’s the little hidden fact that’s not being talked about as much when people talk about the global warming problem.”

She noted that the state has in the past not had a lot of success in promoting so-called smart growth, and she recalled that some “brute force” attempts to limit vehicles, such as through fees and bans on parking, have been rejected “pretty roundly.” But she suggested much of that might have to change.

“We’re going to have to find some ways to create new incentives as well as, I think, potentially new directions that we’re going to be developing in this area,” she said.

Local government representatives in the coming weeks and months will be getting a big dose of global warming. On Friday, they were invited to attend another meeting in Oakland with officials putting together the air board’s AB 32 blueprint, or “scoping plan.” In addition, four more workshops in the series kicked off Thursday were scheduled for April 3 in Sacramento, April 24 in Visalia, May 15 in Los Angeles and May 23 in Monterey. More information is available from the Local Government Commission.

(Photo of Jerry Brown via Wikipedia)

The report noted that meeting California’s ambitious goals for renewable power “will require a substantial amount of new transmission development, as most large-scale renewable resources are located in remote areas rather than near the state’s major load centers.” State law, although it has some flexibility, requires that 20 percent of electric energy come from renewable resources by 2010 and a 2005 executive order signed by Gov. Arnold Schwarzenegger anticipates that figure should hit 33 percent by 2020 as part of the state’s strategy for meeting the requirements of the greenhouse gas reduction law, AB 32.

The report incorporated a variety of assumptions, including renewable demand, and information about current generation and the transmission system. It also looked at resource operating and cost assumptions, as well as economic assumptions. A key criteria was the development of the “base case,” or group of resources the RETI process included as the starting point. For power generation, that incorporated renewable projects that are operating or currently under construction, or those that are in advanced planning stages with contracts and permits in place.

Whether or not to include a technology in the next phase, known as Phase 1B, of study depended on a number of factors, according to the report, including the likelihood the resource had enough potential to contribute to the state’s renewable portfolio standards, the ability to deliver power cost-effectively to the grid and the maturity of the technology. According to the report: 

“Based on these assessments, resources with limited potential to provide energy to California are eliminated from further review in Phase 1B. While there may be discrete resources in these regions that might provide energy to California, there are not sufficient resources in these areas to merit exploring potential new transmission to access these resources.”  

The report concluded that anaerobic digestion -- which generates power from such sources as municipal sewage treatment plants and livestock operations -- and landfill gas were, among other things, too small to include in the next phase. On the other hand, it concluded the potential for solar voltaic was "virtually unlimited" and that for biomass was “substantial.”

Interested parties can participate in a Webcast scheduled for March 26 and can submit comments until March 28. Overseeing the RETI project are the California Public Utilities Commission, the California Energy Commission and the California Independent System Operator, as well as several publicly owned utilities.

An recently prepared by Peter V. Allen and Paul C. Lacourciere of Thelen Reid Brown Raysman & Steiner contains further details and background about the RETI process. It is available here. 

(Wikipedia photograph of electrical transmission lines in Sweden)

Although some groups, including those concerned about pollutants affecting poor and minority populations, have opposed cap and trade markets, the idea has gained support among other environmentalists and business groups. Peevey strongly backed the approach in remarks before the commission voted Thursday:

“A cap and trade program is likely to produce additional emissions reductions beyond the mandatory programs, it can tackle a wider variety of sources, potentially at a lower cost. It also encourages investment in innovative technologies that lower greenhouse gas emissions.”

But Peevey acknowledged that officials have only just begun to take on what he called the “thorny issue of allocation,” referring to the critical question of how emissions credits or “allowances” will be distributed among those producing greenhouse gases. Under a cap and trade system, credits represent the right to emit a certain amount of greenhouse gases. The document approved by the two commissions recommends that some credits be auctioned, suggesting that the money be used to benefit ratepayers or support energy efficiency and renewable energy investments. But it does not resolve important questions such as what proportion of the credits should be auctioned and how many sold or given away for free:

"Based on the current record, we are not able to determine the proper
relative roles of auctions and administrative allocation of allowances in a
deliverer-based system. Several parties recommend that there be a gradual
transition over several years from relatively more administrative allocations
initially to relatively greater reliance on allowance distribution via auctions.
Distributing some amount of allocations administratively in the early years of
the program could reduce the immediate impact on entities that would bear the
costs of obtaining allowances, and would give them more time to develop
emission reduction strategies. Based on the current record, it may be reasonable
to provide a transition from small amounts of auctioning in the early years to
greater amounts in later years. However, we require more analysis before
making a determination on this issue."

Peevey, during his presentation, said it would not be the commissions’ intention to punish utilities based on their past investments or decisions made prior to the passage of AB 32. However, he cautioned that the state’s retail electricity providers “are starting off in very different positions” with respect to their emissions. He noted, for instance, that some large public utilities spew twice as much carbon dioxide per unit of energy produced than do the state’s private utilities and some other public entities.

The allocation recommendation is expected to be addressed in a subsequent document to be ready in August.

Although other commission members lauded the recommendation, Commissioner Timothy Alan Simon expressed some concerns about the potential impact on municipally owned utilities. He said he would “closely monitor” the next phase to make sure that those utilities, over which the commission has no regulatory authority, are “treated fairly.”

The document is in the form of a proposed decision to be presented for consideration by the full five-member CPUC. If adopted by the panel, the paper would  then constitute a recommendation to the California Air Resources Board, which is the key body in charge of implementing AB 32,  the law that mandates big reductions in California climate-change emissions by 2020 and which officials hope to have up and running by 2012.

Peevey wrote:

We favor inclusion of the electricity sector in a cap-and-trade program for
a number of policy reasons. While we fundamentally favor a certain minimum
level of mandatory reductions from existing programs as described above, a
cap-and-trade system in combination with these mandatory reductions should
be able to produce the GHG emissions reductions required by AB 32 at a lower
cost than reliance on additional mandatory reductions. This is because emissions
trading maximizes flexibility in achieving emissions targets by allowing
obligated entities to rely on the least-cost options across the entire economy.

Significantly, Peevey wrote that any cap-and-trade program must include a component to include electricity imported from other states. While California gets about 20 percent of its juice from neighboring states, those imports represent more than half of the greenhouse gas emissions from the sector, he noted.

It was partly along those lines that he recommended that electricity deliverers to the grid bear the burden of complying with AB 32. Other options would have placed the responsibility on retail providers; in-state generators, with no inclusion of imports in the cap-and-trade system; and in-state generators, with retail providers as the point of regulation for imports. All the choices were evaluated against a set of criteria including "environmental integrity," accuracy and ease of reporting, compatibility with ongoing reforms in energy markets and legal issues.

The so-called deliverer option worked best, Peevey wrote:

After evaluating the point of regulation options against these key criteria,
we find that the deliverer option best meets the criteria. Each of the other
options has serious shortcomings regarding one or more of our priorities. The
deliverer system provides for the environmental integrity of the system by
covering imported power as well as in-state generation. It also shares a number
of common characteristics with a pure generation-based point of regulation
making it likely to be compatible with the eventual design of a cap-and-trade
system that is broader in geographic scope (regional and/or national). The
deliverer point of regulation also improves the ability to report and track
emissions in the sector and minimizes the impact of AB 32 GHG regulations on
California’s wholesale electricity markets. Finally, the deliverer method can be supported on legal grounds.

Despite advocating the inclusion of a market-based approach in efforts to control climate-changing emissions from the electricity sector, Peevey shied away from backing an immediate move along those lines for natural gas. He cited "key differences between the electricity and natural gas sectors" for his recommendation to leave gas out of the equation for now. Those included, he wrote, "significantly fewer options" for reducing greenhouse emissions in the natural gas sector and the "very limited availability of low-carbon alternatives" to gas. However, he added that as California gains experience with a cap-and-trade system and other developments occur, "it may become appropriate" to add the natural gas sector to such a system.

Peevey cited support for a cap-and-trade approach from a wide range of interests, not all of whom usually see eye-to-eye, including environmental groups, utilities, power suppliers and others.

There isn't unanimity among all of the parties, however, as reflected in written comments filed with the CPUC.  Environmentalists, including The Natural Resources Defense Council, filed comments urging officials to "move forward in designing a [greenhouse gas] cap and trade program for electricity. Those same organizations also advocated that California go ahead with "a cap and trade system that includes natural gas, even if regional and federal programs have not yet emerged." Meanwhile, El Paso Corporation, a large natural gas supplier, submitted arguments urging a wait-and-see approach to imposing a gas cap and trade system. The Utility Reform Network, a vocal California ratepayer group, asked that any cap and trade system adopted for 2012 exclude electrical generation, arguing that the state would be better off "promoting existing policies that result in real GHG reductions" and taking other steps, such as developing a regional tracking system for the emissions.