Recently in cap and trade Category

EPA Proposes Limits on Carbon Dioxide From Power Plants: What It Means for the Pacific Northwest

June 6, 2014

The U.S. Environmental Protection Agency this week issued is long-anticipated proposal to limit carbon dioxide from power plants, dubbed the "Clean Power Plan." Predictably, both industry groups and environmental interests attacked the plan, in some cases even before it was released. A careful review of the proposal suggests, however, that the impacts of the rule, if adopted, are likely to be relatively modest in the Pacific Northwest, chiefly by placing additional economic pressure on already beleaguered coal-fired plants in Montana and Wyoming, while adding the pressure of federal law to break the log-jam in Olympia regarding climate-related legislation. The flexibility provided to states to comply with carbon dioxide limitations also lays the groundwork for interstate cooperation to identify least-cost solutions and may create new and lucrative opportunities for companies involved in energy conservation, clean tech, renewable energy and a variety of other industries where carbon dioxide emissions might be reduced at relatively little cost.

The proposed rule has been summarized in greater detail elsewhere. In brief, the proposal at its core would require existing power plants to reduce carbon dioxide emissions by 30 percent over 2005 levels by 2030, with interim limits that would come into force in 2020. The proposal establishes state-specific goals for carbon dioxide emissions, but provides states considerable flexibility to meet these goals using four "building blocks" -- improving power plant heat rates, improving energy conservation, dispatching power from natural gas and other less carbon-intensive resources rather than from coal generation, and encouraging the construction and dispatch of renewable energy resources. The proposal also encourages interstate cooperation and allows for trading of carbon-reduction credits, as already occurs, for example, in the Northeast's RGGI program. The EPA's final rule is due by June 2015, with state implementation plans to be finalized by June 2016. Litigation over the rule is certain to occur, so it is unclear whether these deadlines will be met.

The choice of a 2005 baseline, rather than the 1990 baseline generally used in discussions of greenhouse gas reductions, is important because U.S. GHG emissions peaked in that year and have declined 9% overall since then, while power plant emissions have declined 16%, primarily because the "fracking" boom has created cheap natural gas, which has displaced significant amounts of coal used for electricity generation. Georgetown University's Climate Center has published a useful table, which provides an indication of reductions required from 2012 emissions levels rather than 2005 levels.

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Governor Inslee Issues Comprehensive Executive Order on Climate Change

April 29, 2014

Washington Governor Jay Inslee today issued an Executive Order that will address Washington's greenhouse gas ("GHG") emissions on many different fronts. Issued in apparent response to the legislative logjam that has developed around the Climate Legislative and Executive Workgroup, the Executive Order (No. 14-04), requires actions in the following areas:

Cap-and-Trade Legislation: The Executive Order creates a new Carbon Emissions Reduction Task Force to develop a legislative recommendation for a "cap and-market" mechanism, which would limit carbon emissions and establish an emissions allowance trading system designed to achieve GHG reductions in the most efficient manner. The Task Force, which includes 21 members from business, labor, health, and public interest organizations, meets for the first time today. It is instructed to provide recommended legislative by November 21, 2014.

Coal-Fired Electricity: The Executive Order directs the Governor's Legislative Affairs and Policy Office ("LAPO") to seek "negotiated agreements with key utilities and others" to reduce coal-fired electricity imported from outside the state and transition to cleaner sources. With the transition of Washington's only coal-fired plant at Centralia now well underway, Washington's remaining sources of coal-fired electricity will be generators located in states to the east, such as the Colstrip plant in Montana. Addressing the "coal-by-wires" issue is therefore the last remaining front for attacking significant GHG emissions in the electricity sector. The Executive Order requests help from the Washington Utilities and Transportation Commission ("UTC") and the Northwest Power and Conservation Council to "actively assist and support" the transition away from coal-fired electricity, although, as we've previously discussed, the UTC has already moved significantly in this direction.

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Getting a CLEW from the IPCC: Can IPCC's Policy Analysis Break the Olympia Logjam on Climate Policy?

April 25, 2014

The recently-released Fifth Assessment Report of the United Nations Intergovernmental Panel on Climate Change ("IPCC") has received widespread coverage for its conclusion, expressed with "high confidence," that global emissions of greenhouse gases ("GHG") are continuing to grow and that "without additional mitigation," will "result in global mean surface temperature increases in 2100 from 3.7 to 4.8°C compared to pre‐industrial levels." Similarly, the IPCC's conclusion that limiting GHG emissions will have relatively modest impacts on global economic growth, well below the costs of unmitigated climate change, has been widely reported.

The IPCC's conclusions regarding climate mitigation policy have, regrettably, received very little coverage in the popular press. This lack of attention is unfortunate because IPCC's report provides a detailed and well-documented discussion of many different climate change policies that have been tried around the world. Here in Washington State, the IPCC's report may offer a way forward for climate policy, which is currently bogged down in a partisan impasse reached by the Climate Executive Workgroup ("CLEW").

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Pacific Coast Action Plan Sets Framework for Regional Climate and Energy Action

November 7, 2013

Last week, the governors of the three West Coast states and the Premier of British Columbia signed the Pacific Coast Action Plan on Climate and Energy. While not legally binding, the Action Plan is important because it lays out a regional framework on climate and energy policy that is likely to be reflected in specific legislation and other measures adopted in each of the four jurisdictions, as well as in coordinated actions among the jurisdictions. Notably, the Pacific Coast regional economy produces a combined U.S.$2.8 trillion in GDP, making it the world's fifth largest economy when considered as a unit. Because the Action Plan charts a course for the future of this huge economy, the Plan is worthy of careful attention.

Issued under the auspices of the Pacific Coast Collaborative, the Action Plan lays out a series of policy goals in three areas, including climate policy, clean transportation, and clean energy infrastructure. Among these policy goals, several are particularly noteworthy:

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Getting a CLEW About Climate Legislation: Report to Governor's Climate Workgroup Suggests Future Course of Greenhouse Gas Regulation in Washington

October 18, 2013

Earlier this week, Leidos (formerly SAIC International) delivered its final report evaluating greenhouse gas ("GHG") reduction policies from other jurisdictions to the Climate Legislative and Executive Workgroup ("CLEW"). The CLEW was created by ESSB 5802, the first piece of legislation sponsored by Gov. Jay Inslee, which is intended to establish the future legislative agenda for climate issues in our state. Leidos was retained as the CLEW's technical consultant. This week's Leidos report aims to help the CLEW quantify both the need for new climate legislation and the effectiveness of several approaches taken in other jurisdictions. The CLEW is scheduled to release its final report and recommendations at the end of 2013.

The Leidos report incorporates the GHG emissions reduction targets adopted by the legislature in 2008. Those targets are: (a) to reduce Washington's GHG emissions to 1990 levels by 2020; (b) to reduce GHG emissions to 25% below 1990 levels by 2035; and, (c) to reduce overall emissions to 50% below 1990 levels by 2050, or 70% below the state's expected emissions in that year. Evaluating current policies at both the state and federal level, the report concludes that existing policies (for example, Initiative 937 and policies encouraging energy efficiency) will achieve substantial reductions in Washington's GHG emissions, but will fall well short of the 2008 targets.

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Ninth Circuit Upholds California's Low Carbon Fuel Standard, Finding No Discrimination Against Out-of-State Fuel Producers

September 18, 2013

The U.S. Court of Appeals for the Ninth Circuit today issued what may prove to be a landmark decision concerning California's efforts to regulate emissions of greenhouse gases ("GHG"). The Appeals Court concludes that California's Low-Carbon Fuel Standard ("LCFS") does not violate the Commerce Clause even though California uses a life-cycle analysis of carbon intensity that penalizes, for example, ethanol from the Midwest produced using coal-fired electricity, and favors ethanol using less carbon-intensive methods of production. Concluding that California's ambitious efforts to address GHG emissions should not be limited by "archaic formalism," the opinion allows states considerable room to experiment with new approaches to GHG regulation. That being said, the opinion also makes clear that environmental protection cannot be used as an excuse to arbitrarily burden interstate energy transactions. Rocky Mountain Farmers Union et al. v. Corey et al., No. 12-15131 (issued Sept. 18, 2013).

The LCFS, adopted as part of the Global Warming Solutions Act of 2006 (commonly referred to as "AB 32"), is aimed at reducing GHG emissions from California's transportation sector, which account for about 40% of the state's total GHG emissions. Using 2010 carbon intensity as a baseline, the LCFS requires fuel producers and blenders to meet specific carbon intensity limits, which decline annually from the 2010 baseline through 2020. Producers that exceed the limits are awarded credits that can be sold to producers that fail to meet the limits. For gasoline producers, blending gasoline with ethanol is the only practicable way to meet the LCFS.

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Gov. Inslee's Climate Change Study Bill Is The First Energy Legislation to Clear the Washington Legislature

March 26, 2013

On Monday, the Washington House of Representatives passed ESSB 5802, which creates a "Climate Legislative and Executive Work Group" to study the state's options for achieving significant reductions in greenhouse gases. The bill, which is the first of Gov. Inslee's legislative requests to pass both houses of the legislature, will set the stage for more substantive legislative action on climate change in next year's legislative session.

ESSB 5802 is intended to jump-start the debate on greenhouse gas reduction in the 2014 legislative session by delivering a set of recommended policies to the legislature by the end of 2013. The first step in this process calls for the Climate Legislative and Executive Work Group to retain a politically neutral consultant to carry out a comprehensive study of the policy options for reducing Washington's greenhouse gas emissions, including a baseline assessment of current GHG emissions by sector, a review of programs adopted by the federal government and by other states and neighboring provinces of Canada, and an analysis of the costs and benefits of the various policy options. The study must also examine a range of specifically-designated policies, including, for example, a Renewable Fuels Standard, emissions performance standards, and policies to encourage greater energy efficiency. This initial evaluation will be delivered to Gov. Inslee by October 15, 2013.

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California, Climate Change, and the Commerce Clause: Ninth Circuit Expresses Skepticism in Argument Involving Low-Carbon Fuel Standard

October 25, 2012

The U.S. Court of Appeals for the Ninth Circuit last week heard oral argument in a challenge brought by a number of out-of-state biofuel producers who assert that California's Low-Carbon Fuel Standard ("LCFS") violates the Commerce Clause of the U.S. Constitution because it discriminates against out-of-state producers and artificially favors in-state producers. The three-judge panel appeared, at times, perplexed, and at other times, to be highly skeptical of the LCFS.

For example, Senior Judge Dorothy Nelson, citing comments from California officials stating the LCFS will increase employment and tax revenue in California, asked, "Isn't this unambiguous evidence that the board was motivated by protectionism?" Similarly, observing that electricity is a major factor in the carbon intensity calculations used by California and that biofuels producers have no control over how the electricity they use is produced, "isn't this the equivalent of discriminating against producers with the 'dirtiest' electricity," who are generally located in the Midwest. Similarly, Judge Mary Murguia, seemed particularly troubled with LCFS regulations that, on their face, apply a higher carbon intensity score to Midwestern biofuels producers than to California producers. The third judge, Senior Judge Betty Fletcher, did not participate heavily in the argument, but observed that she followed the argument closely and, found some of the answers provided by the attorneys "very satisfactory, others not so much." An audio tape of the argument is available here.

(Sadly, Judge Fletcher passed away just five days after the argument. A native of Tacoma, Judge Fletcher had a highly successful legal career here in Seattle, where, among other achievements, she became the first female partner at a major Pacific Northwest law firm. She was appointed to the Ninth Circuit by President Carter in 1979. She will be missed.)

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Spinning Carbon Into Gold: SMUD Issues Request for Carbon Offsets

August 6, 2012

Demonstrating the potentially huge opportunity California's carbon offset market may present for Pacific Northwest industries, the Sacramento Municipal Utility District ("SMUD") recently issued a Request for Offers seeking carbon offsets. Responses are due August 23.

As explained in more detail in our August 3 post, carbon offsets are one mechanism California entities can use to meet their obligations to reduce carbon emissions under AB 32, California's Global Warming Solutions Act. SMUD, along with a host of other California industries, will be subject to greehouse gas ("GHG") reduction targets starting in 2013 and ratcheting up in ensuing years in order to meet AB 32's aggressive GHG reduction goals.

Consistent with the rules governing the carbon offset market, SMUD is seeking offers for carbon offset credits from dairy farms, from destruction of certain ozone-depleting substances, from urban forestry projects, and from projects on U.S. forest lands. Industries able to meet the requirements for creating carbon credits by, for example, destroying dairy-produced methane in a biogas generator, could add a potentially significant revenue stream to their operation.

If you have any questions about the California cap-and-trade program or carbon offsets, please contact a member of GTH's Renewable Energy and Sustainable Technology practice group. We have years of experience in the energy industry, electricity and carbon trading, and related fields.

Carbon Trading Comes to California: New Opportunities for Northwest Dairies, Foresters, Municipalities, and Other Industries

August 3, 2012

After several fits and starts, California's Carbon Offset Market is ready to open for business. Because out-of-state entities willing to take steps to reduce or capture greenhouse gases ("GHGs") are eligible to participate in the Carbon Offset Market, the market represents a potentially significant opportunity for Pacific Northwest businesses. In particular, the Carbon Offset Market may create a significant new source of revenue for Pacific Northwest foresters and dairy farmers, and for businesses that handle foam insulation or refrigerants (utilities, builders, and recyclers are a few examples).

The Carbon Offset Market is part of the cap-and-trade program mandated by California's Global Warming Solutions Act (AB 32), which sets goals of cutting California GHG emissions to 1990 levels by 2020, and to 80% below 1990 levels by 2050. To meet these ambitious targets, AB 32 establishes, among other measures, a cap-and-trade program that requires major GHG-emitting facilities in California to meet increasingly-stringent limits on GHG emissions over the next three decades. Industries subject to the cap-and-trade program may use carbon offsets to meet up to eight percent of their AB 32 GHG reduction requirements. Initially, the offset program is available only for reductions of methane emissions at livestock operations, for forestry programs that capture and store carbon in living forests, and for programs to destroy ozone-depleting chemicals (which are also strong GHGs).

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