Guest article by Nicole Wobus, Summit Blue.

Oregon is one of seventeen states with greenhouse gas emissions targets. Late last month, Governor Ted Kulongoski moved the state’s climate change agenda forward when he appointed members to the Oregon Global Warming Commission, a 25-person policy advisory group. The Commission, established through the state’s climate change bill, HB 3543, is tasked with recommending a package of policy initiatives for the Governor to introduce during the 2009 legislative session. It will build on findings and recommendations put forth by Oregon’s Climate Change Integration Group. That group’s upcoming final report will highlight steps the state is taking to adapt to a changing climate and will recommend further actions.

The Governor intends to make growth in the state’s “green economy” a centerpiece in the policy package. In comments to the Commission on January 24 the Governor stated, “[d]ealing with global warming is not just a moral imperative, it’s an economic imperative” that will create a “business climate ideal for investment in renewable and clean energy technologies.”

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One of the main areas of contention between supporters of economy wide cap-and-trade legislation came into view this week with the release of the Energy and Commerce Committee’s new “White Paper.” On the last page of the House Committee on Energy and Commerce staff’s release, Chairman Dingell “made it very clear that he believes that motor vehicle greenhouse gas standards should be set by the Federal Government, not by State governments . . . .” The White Paper then notes that “[o]ther Committee Members” take the opposite position. The resolution of this issue in the Committee will have enormous significance for the progress of climate change legislation in the House and eventual agreement with the Senate.

The question of whether motor vehicle standards should be uniform national standards or subject to some degree of state control arose in the context of the Committee’s evaluation of the appropriate roles the various levels of government should play in a comprehensive system of greenhouse gas regulations. As the White Paper astutely indicates, this question is far more complex than the over-simplified characterization of whether State programs should be preempted.

The White Paper starts with certain premises:

(a) a national goal of reducing GHG emissions by 60% to 80% by 2050;
(b) the use of a national, economy wide cap-and-trade program as the cornerstone for achieving that goal;
(c) that climate change results from the global nature of GHG emissions; and
(d) more stringent State standards may shift the location of national emissions without providing incremental environmental or public health benefits.

The White Paper then considers a number of hypothetical scenarios in which lower levels of government play varying roles. From these premises, a unifying principle for allocating responsibilities among the levels of government emerges - States, Indian Tribes, and local government GHG programs should cover only those emissions sources “completely outside the [hard Federal] cap.” The White Paper suggests that State, Tribal, or local programs also would play significant roles with respect to inspection and monitoring, land use decisions, and as a “laboratory” for different approaches in areas that the federal program would not cover or would miss due to “market imperfections.”

Not to diminish the many valuable questions addressed in the White Paper, the most significant development remains the statement of Chairman Dingell’s position regarding California’s authority to establish more stringent standards on motor vehicles, as allowed under the Clean Air Act. The State of California zealously guards this authority; the motor vehicle industry chafes at California’s exercise of this authority. With Chairman Dingell squarely on one side of this issue, and Speaker Pelosi and Senator Boxer on the other, how this intra-party disagreement is settled will go a long way in determining national climate policy for years to come.

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At its public hearing on December 6, 2007, the California Air Resources Board (CARB) approved a regulation to reduce emissions from diesel auxiliary engines on ocean-going vessels while at berth. The regulation will require operators of vessels meeting specified criteria to turn off their auxiliary engines for most of their stay in port or, alternatively, to demonstrate specific fleet-wide emission reductions.

The approved regulation is subject to certain modifications that were suggested by staff at the Board hearing. On February 22, 2008, CARB met with the affected industry, the ports, and other interested stakeholders to discuss the modified regulation. Stakeholders will have 15 days to submit comments on the modified language.

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Tuesday, February 26

10:00 AM - Senate Energy and Natural Resources Committee Hearing on U.S. Oil Inventory Policies; Energy Committee Hearing Room - SD-366.
Witnesses include Ms. Kathy Fredriksen, Principal Deputy Assistant Secretary, Office of Policy and International Affairs, U.S. Department of Energy, and Dr. Frank Rusco, Acting Director, Natural Resources and Environment, Government Accountability Office.

Wednesday, February 27

2:00 PM - House Foreign Affairs Committee Hearing on Climate Change and Vulnerable Societies: A Post-Bali Overview; location TBD.
Briefers include representatives from the Federated States of Micronesia, the Republic of the Fiji Islands, the Republic of the Marshall Islands, the Republic of Nauru, the Kingdom of Tonga, and the Republic of Palau.

Thursday, February 28

1:00 PM - House Energy and Commerce Committee Hearing on Climate Change: Competitiveness Concerns and Prospects for Engaging Developing Countries; 2322 Rayburn House Office Building. (Simultaneous webcast). — RESCHEDULED for Wednesday, March 5 at 10:30 AM.
See, “Dingell/Boucher White Paper on Competitiveness Concerns and Engaging Developing Countries.”

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Last month, the European Union announced its proposal for Phase 3 of the European Union Emissions Trading System (ETS), an expanded emissions cap and trade program that will add chemical manufacturers to its list of regulated industries by 2013. EU officials have declined to estimate the likely cost to newly-captured chemical manufacturers, but considering the government’s estimate that the larger proposal may cost €60 billion ($88 billion US) by 2020, chemical executives and investors have a strong incentive to monitor the progress of this proposal closely to ensure that any final decision is workable for an industry already struggling with record-high hydrocarbon feedstock and energy prices.

Perhaps more importantly, the Proposal gives no attention to the fact that under the current ETS implementation schedule, many chemical manufacturers will face ETS requirements for the first time, while simultaneously struggling to comply with yet another multi-billion dollar regulatory program known as “REACH” (Registration, Evaluation, Authorization and Restriction of Chemicals).

Individually, these programs may make policy sense. In combination, however, these two new programs, if not implemented carefully, may damage one of the EU’s most important industries. In today’s global economy, that would be bad news for the EU and for its trading partners.

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In our previous coverage of Center for Biological Diversity v. National Highway Traffic Safety Administration, Perry Rosen noted that one likely course of action was for NHTSA to petition for a rehearing en banc - before the full Ninth Circuit, rather than just the typical panel of three judges. NHTSA recently filed just such a petition before the Ninth Circuit.

In the original ruling, the judges found that the new CAFE (fuel economy) standards were arbitrary and capricious. In addition, the court held that the Environmental Assessment (EA) was inadequate, and ordered NHTSA to produce a full Environmental Impact Statement (EIS) that accounts for the effect of emissions on climate change. An EIS is required when an agency find that its proposed action will have a significant impact on the environment.

NHTSA’s petition focuses on the second aspect of the decision, and argues that the 9th Circuit does not have the authority to order a full EIS. Instead, NHTSA argues that it should be allowed, on remand, to address any deficiencies in the EA and potentially avoid the preparation of a full EIS.

NHTSA argues that administrative law “only allows a reviewing court to ‘hold unlawful and set aside’ agency action that if finds arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” Citing a long string of Supreme Court cases, the agency writes that “when a reviewing court finds that an administrative agency has erred, the appropriate remedy is to remand the matter back to the agency for ‘further consideration.’” The court does not substitute its own judgment for that of the agency, but merely reviews the agency’s determinations.

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Tenaska, Inc., one of the largest independent power producers in the United States, announced its intention to build a conventional coal-fueled electric generating facility located just east of Sweetwater, Texas, about 150 west of Dallas/Fort Worth. The Tenaska plant is noteworthy for two reasons.

• First, it is designed to capture 85% to 90% of the CO2 it produces and to use it for enhanced oil recovery efforts.
• Second, it does not propose to use integrated gasification combined cycle (IGCC) technology to recover carbon.

Tenaska hopes to begin construction in 2009 and commence commercial operation in 2014.

The new plant will be a conventional pulverized coal-fueled unit utilizing supercritical steam generating technology to burn low-sulfur, sub-bituminous Powder River Basin coal. Tenaska has not yet determined the precise carbon capture technology it will employ, but intends to capture and process CO2 and deliver it by pipeline to Permian Basin oil fields. There, it will inject the CO2 into underground formations to enhance oil recovery efforts, which will result long term CO2 storage deep below the surface.

Tenaska contends that this conventional pulverized coal plant is a technology superior to IGCC for reasons related to the type of coal burned, geographic conditions at the proposed site, and diversity of the technology employed at its plant. Tenaska indicates that IGCC works best with low moisture, high BTU, bituminous eastern coal, while the higher moisture, lower BTU Powder River Basin coal is better suited for pulverized coal technology. Tenaska also contends that IGCC technology works best at elevations closer to sea level; the proposed site for its new plant is at a higher elevation.

A potential side benefit of this project is that, if additional transmission infrastructure is needed for this project, the transmissions upgrades could provide necessary infrastructure for local wind power producers as well.

A final noteworthy aspect is that Tenaska is expecting this plant to qualify as an Advanced Clean Energy Project. This Texas program provides significant financial incentives to projects that include CO2 capture and meet emissions standards for mercury, nitrogen oxides and sulfur dioxide. Federal clean coal incentives would also be important to the economics of the project.

Hat tip: Colin Campbell, RTP Environmental Associates

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On February 14, 2008, the California Air Resources Board’s Economic and Technology Advancement Advisory Committee (ETAAC) released its final recommendations regarding proposed technologies and policies for reducing greenhouse gas emissions in California. Pursuant to the California Global Warming Solutions Act of 2006 (AB 32), ETAAC is required to advise CARB regarding “activities that will facilitate investment in and implementation of technological research and development opportunities.” The recommendations were developed through a year-long public participation process and input from California’s technology community. ETAAC approved the final report on February 11, 2008.

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With its Emissions Trading System (ETS) covering more than 12,000 installations, the European Union (EU) has been a global leader in establishing mechanisms that compel industries to pay for the right to pollute. But the EU has struggled with whether and how to bring Europe’s civil aviation sector into this system. According to the U.N. Intergovernmental Panel on Climate Change (IPCC), civil aviation accounts for at least two percent of all CO₂ emissions, and represents at least three percent of the total anthropogenic impact on climate change.

Over the past three months, the EU has proposed two major Directives which seek to incorporate aviation emissions into the ETS. The first, released in December 2007, would pull air transportation emissions into the ETS as early as 2011, beginning with all domestic and international flights between EU airports, then extending in 2012 to all international flights arriving at or departing from EU airports. The Directive would apply to both EU-based and foreign carriers. During the ETS “Phase II” (through 2012) period, the majority of emissions allowances to aviation would be issued for free on the basis of each operator’s historical share of traffic.

The second proposed Directive, released in late January, addresses the structure of “Phase III” (post-2012) of the ETS and proposes to further decrease the permissible emissions from civil aviation. Under this proposed Directive, civil aviation would, as of 2013, be subjected to declining annual emissions caps. Like many other industries covered by the proposed Directive, civil aviation would receive 80% of its emissions allowances for free in 2013, and would have to purchase the balance at auction or on the market. The free allocation would decrease annually by equal amounts until 2020, when free allowances would no longer be provided.

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Climate change legislation may be stalled for the moment on the domestic front, but some leading U.S. banks are not waiting for Congress to act to begin factoring carbon risks into future utility sector investments. This week, Ken Lewis, Chairman and CEO of Bank of America Corp. announced that the bank will factor the cost of carbon into its risk and underwriting processes when evaluating the business models of utility sector companies. In the absence of federal legislation, Bank of America will assume carbon emission costs will fall between $20-$40 per ton of carbon dioxide.

Bank of America’s announcement is the latest signal that US banks, like many foreign institutions, factor climate change issues into their strategic decision making. In early February, three major banking entities - Citi, JPMorgan Chase, and Morgan Stanley - released climate change risk management guidelines intended to assist utility advisors and lenders in managing risks associated with utility projects.

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