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

Backers of the Kansas bill had noted that it included other provisions that could have boosted other elements of the state’s renewable industry. Builders of the project also included plans for a bioenergy center that would capture some of the carbon dioxide and used it to grow algae for fuel.

But in her public statement and veto message, Sebelius cited not only the threat of climate change to her agricultural state but also the potential for federal legislation, which she did not specifically name, that would “have the net impact of taxing carbon.” That description could apply to proposals such as the Lieberman-Warner bill that would establish a cap-and-trade program for greenhouse emissions. Sebelius said the new plants permitted under the Kansas bill would have produced 11 million new tons of carbon every year. Building new coal plants “is likely to create a significant economic liability for Kansas in the future.”

She also had this to say about wind generation:

“I am encouraged that the Legislature made a modest attempt to address some of our alternative energy assets, but this bill fails to promote our wind assets and sends the wrong signal to potential investors for transmission lines and additional wind power.

“The new feature of net-metering does not include wind power which could have served as a powerful incentive to individuals and communities to embrace our most abundant natural resource.”

Sebelius also signed an executive order (see text) creating a new advisory group to explore strategies for reducing greenhouse emissions and protecting the economy. She named Jack Pelton, president of Cessna Aircraft Company, to head the group.

In a statement, Earl Watkins, president of Sunflower Electric Power Corporation, one of the companies that had hoped to build the 1,400-megawatt project, said the veto would “unnecessarily raise electric rates” for the state’s residents (see project description).

“We are experiencing significant growth on the Sunflower system, and we must add new coal generation to support our existing natural gas and wind generation assets,” Watkins said.

The Utah conflagration brewed up over the EPA's issuance last August of a permit allowing Deseret Power Electric Cooperative to add a 110-megawatt unit to its existing Bonanza power plant. Such "prevention of significant deterioration" permits are issued for larged stationary facilities. The decision came just months after the U.S. Supreme Court weighed in on the issue of the EPA’s authority to regulate greenhouse emissions in its Massachusetts v. EPA decision. Although the court held that greenhouse gases could be regulated as air pollutants, the EPA has yet to decide what to do.

Citing that ruling, which came in the context of a dispute over automobile emissions, the environmentalists including the Sierra Club appealed the decision through the agency’s internal processes. Those groups claim the EPA must establish new controls on carbon dioxide emissions for the project. From the Sierra Club brief (see text here):

“On April 2, 2007, the Supreme Court held that carbon dioxide and other greenhouse gases are ‘pollutants’ under the Clean Air Act. Massachusetts v. EPA, 127 S.Ct. at 1460. Now having been definitively ruled a pollutant, [carbon dioxide] is accordingly a regulated pollutant under the act and EPA is required to impose [carbon dioxide best available control technology] emission limits in the Bonanza [prevention of significant deterioration] permit.”

The EPA, however, has maintained that carbon dioxide “is not currently a pollutant regulated" under the federal Clean Air Act. In its response to the appeal, the agency cited a 1993 memorandum in which its attorneys concluded carbon dioxide was not subject to the EPA’s regulatory authority.

Last week, a coalition of trade groups representing a cross-section of energy and manufacturing, weighed in against the environmentalists’ position. In a brief (see text here) to the EPA the groups argued that the Supreme Court decision addressed only the government’s authority to regulate emissions from new motor vehicles. A finding requiring them to be covered for facilities such as Utah’s, they argued, would cause “a huge expansion of the number of sources and activities” that would require permits, which officials would not have the resources to process.

Quentin Riegel, deputy general counsel for the National Association of Manufacturers, one of the groups filing the brief, in a statement predicted “an impassable regulatory gridlock” would develop if the Sierra Club won.

But the environmental groups also had powerful allies. In another brief, eight states, including California, New York and Massachusetts, backed the environmental groups. They argued that the Supreme Court ruling “conclusively” established the EPA’s authority to regulate greenhouse emissions for the project and that the 1993 interpretation “did not survive” the court ruling.

See the EPA’s docket, with links to all the filings in the matter, here.

(Official press photo: Gov. Kathleen Sebelius)

The first report, issued by the nonprofit Environmental Integrity Project, discovered in the EPA data a nearly 3 percent increase in carbon dioxide emissions. It said that was the biggest one-year increase in nearly a decade. It also found that California, often viewed as a leader in greenhouse emissions-cutting efforts, was one of the ten states with the largest increases between 2006 and 2007. The others were Texas, Georgia, Arizona, Pennsylvania, Michigan, Iowa, Illinois, Virginia and North Carolina. However, the report noted that California generates significantly less carbon dioxide per megawatt of electricity than the national average. The report largely was based on the EPA’s “Clean Air Markets” database and it also cited information from the energy department.

It contrasted with the earlier government report, which included figures up to the year 2006. That report, which considered emissions from a wide variety of human sources, showed an overall reduction of about 1.5 percent in greenhouse gas emissions between 2005 and 2006. Among other information, it showed about a 2 percent drop in carbon dioxide emissions from fossil fuel combustion to generate electricity, and a slightly lower reduction from such emissions from all fossil fuel burning. The report attributed the figures, which came against a history of generally rising emissions since 1990, to a variety of reasons related to the weather, the economy and increased uses of natural gas and renewable sources for power generation. It was not immediately known whether the two reports’ estimates of power plant emissions were directly comparable.

Eric Schaeffer, the founder and director of the Environmental Integrity Project, in the organization’s statement announcing its report described its findings in cautionary terms:

“The current debate over global warming policy tends to focus on long-term goals, like how to reduce greenhouse gas emissions by 80 percent over the next 50 years. But while we debate, carbon dioxide emissions from power plants keep rising, making an already dire situation worse. Because carbon dioxide has an atmospheric lifetime of between 50 and 200 years, today’s emissions could cause global warming for up to two centuries to come.”

The report said the data "make clear why national environmental groups have expended so much effort trying to stop the construction of a new batch of conventional coal-firec power plants, which would make a bad situation worse."

Until 2002, Schaeffer directed the EPA’s office of regulatory enforcement. He left the agency in a dispute over what he considered the Bush administration’s laxity in enforcing air pollution laws.

The energy department report, originating from the Lawrence Berkeley National Laboratory, examined the plans made by 15 private and public utilities in the West for how they might deal with a new era of carbon regulations and costs. It discovered wide variances in their assessments but it concluded that they might have too rosy a picture of carbon prices under such mechanisms as a cap-and-trade system. Such programs are widely believed to be on their way as individual states go forward with greenhouse gas reduction plans and regional entities, such as the Western Climate Initiative develop their own strategies, including a market. Congress is also exploring legislation to establish a national market.

“Most utilities’ base-case carbon price assumptions are near the low end of the spectrum” compared to those developed by the energy department’s Energy Information Administration, the report said. It said most of the utilities analyzed their prospective portfolios’ costs in light of future carbon regulations. But it seemed to warn that they might be taking too narrow a view, and it also explicitly noted that planners were often ignoring indirect impacts that could flow from carbon regulations such as changes in wholesale electricity market prices, coal plant retirements and capital costs of generation. The report recommended that utilities take a close look at what the future might hold:

“Given the potentially far-reaching financial consequences, utilities shold consider the potential cost sof future carbon regulations – and the uncertainty of that cost – when developing their long-term resources strategies. The starting point in this process is to develop specific assumptions about the nature and timing of future carbon regulations that might realistically be implemented, at either the state or federal level, over the lifetime of the investments considered in the plan.”

It recommended that utilities evaluate their portfolios “across a broad range of carbon emission price projections” and that they consider evaluating “a diverse set of low-carbon” resources and look at portfolios “that include the maximum achievable energy efficiency potential.” In fact, the report discovered that utilities may already be moving in that direction, reporting:

“Energy efficiency and renewable generation are the dominant low-carbon resources being pursued by utilities in the West. All utilities selected preferred portfolios that include an expansion to utility-funded energy efficiency programs and new renewables, and half of the utilities selected portfolios in which energy efficiency and renewables together provide 50 percent or more of all incremental resource needs.”

The report also found only limited interest in nuclear power and carbon sequestration. But it found that most had included natural gas.

(Wikipedia photo: Castle Gate Power Plant, Utah)

According to the two earlier lawsuits, the designation of the Southwest corridor affects an area of 70,000 square miles in California and Arizona, while the Mid-Atlantic region covered by the department’s action includes “broad areas” of eight states and the District of Columbia.

The new move to the 9^th Circuit came after federal officials argued in the Pennsylvania case that such challenges could only be brought in the appeal courts. Although the initial filing in the appeals court did not include details of the plaintiffs’ allegations, a public statement from the organizations involved in the case outlined a number of objections, including the department’s alleged failure to fully consider public comments and alternatives.   

The cases stem from the department’s decision last October to designate the two corridors. The latest lawsuit came shortly after the department earlier this month denied requests to reconsider the order (see DOE press statement here).

Areas within the corridors could be subject to jurisdiction by the Federal Energy Regulatory Commission under the energy policy law, according to energy department documents.

“In practice, this will mean that if an applicant does not receive approval from a state to site a proposed new transmission facility within a national corridor, the applicant may then apply to FERC for a permit and authorization to construct the facility,” the energy department said in an information packet distributed at the time of the October decision. Once granted a permit, a builder could also use the power of eminent domain to acquire property rights for the lines, except if the land is owned by the state or federal governments, the department said.

Opponents of the department’s move saw numerous problems with it. The Pennsylvania lawsuit, charged, for instance:

“As a result of the Order, proposed utility and transmission line projects
within the Corridor will be subject to “fast-track” federal approval, bypassing
state-level processes for locating transmission infrastructure, overriding federal
environmental laws, and enabling federal condemnation of private land and
diversion of public land for new high voltage transmission lines.

By facilitating utility right-of-way creation and transmission line construction without a detailed analysis of the associated environmental impacts and without full consultation with the appropriate resource and land management agencies, DOE’s proposed corridor designation will have avoidable impacts on ecosystems, wildlife habitats and populations, historic resources and water quality.”

Anjali Jaiswal, an attorney for the Natural Resources Defense Council, one of the groups bringing the 9^th Circuit lawsuit, said the case was not about stopping transmission projects:

“We recognize the need for increased investment in transmission solutions across the country. But we need to ensure that these transmission corridor designations take place in compliance with federal environmental law.”

The lead plaintiff in the case was the Wildnerness Society. The California Wilderness Coalition also joined the litigation. 

In its public statement released at the time of the rehearing denial, the energy department said it had “dismissed without merit” challenges raised by those seeking a new look at the decision. It also asserted that a number of federal statutes, including those cited in the lawsuits, were “not applicable” to the decision to designate the corridors. Rather, reviews under those laws would be conducted by FERC before issuing any construction permit.

Julie Ruggiero, a spokeswoman for the energy department, said Wednesday that the designation of the corridors "in and of itself has no environmental impact and instead shines a spotlight on areas of the country that are experiencing congestion and constraint." She said the department had also provided "all interested parties with fair and ample opportunities" to give their views.

Last month, the federal attorneys representing the energy department moved to dismiss the Pennsylvania case, arguing such challenges could only be heard in the court of appeals.

(Photograph of transmission lines in Oregon courtesy Department of Energy)

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)

The panel, which adopted its final report February 11, clearly foresees that virtually no individual nor business will avoid the impact of meeting the anticipated reductions:

   Policies implemented under AB 32 and the Governor’s Executive Order for 2050 must address all sectors of California’s economy so that all significant sources of GHG emissions participate in both the challenges and opportunities afforded by this critical piece of state legislation. This broad-scaled approach is the most likely to create a level playing field, and address new alternative energy sources and fuels that could be used in multiple sectors. For example, policies need to recognize that electricity and biofuels will likely compete with more traditional transportation fuels in the future; therefore, policies that address only the electric sector or only the petroleum refining sector are unlikely to achieve the goals of AB 32.

The report outlines 55 recommendations for meeting the challenges posed by the state's political leaders covering virtually all sectors of the economy, including financial institutions; transportation; energy use by industry, commerce and residents; electricity and natural gas; agriculture; forestry and water. Among the eye-catching projections in the report: California's future sources of electricity and transportation and heating fuels will have to be virtually carbon-free by 2050. Renewable energy technologies, including wind and solar, the report said, offer the "technical potential" to generate all of the state's electricity, despite a number of technical and implementation obstacles that will need to be overcome.

Among the report's recommendations is the establishment of a "California Carbon Trust" that could use money, likely coming from an auction of emission allowances, to encourage reductions in carbon beyond whatever cap is established and to further other goals, such as funding research and development projects. It also includes recommendations for residential planning efforts to encourage "transit villages," new forms of automobile insurance designed to give drivers financial incentives to spend less time behind the wheel, and taking steps to encourage the development of renewable energy so that one-third of the state's power can be generated by such means.

The full air board, which is the lead agency implementing California's greenhouse gas-fighting efforts, was scheduled to get its first formal look at the report on February 28. The board is chaired by Mary Nichols, a Schwarzenegger appointee.

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.