On Wednesday, August 27, the State of New York announced it had settled a dispute with Xcel Energy regarding the company’s alleged failure to make adequate climate-change-related risk disclosures in its 2006 10-K filings to the Securities and Exchange Commission (SEC).  Described by State officials as the “First-Ever Binding and Enforceable Agreement Requiring a Company to Detail Financial Liabilities Related to Climate Change,” the Agreement requires Xcel Energy to disclose, as part of its annual Form 10-K SEC filings, the following information:

• Present and probable future climate change regulation and legislation;
• Climate-change related litigation;
• Physical impacts of climate change.
• Current carbon 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.

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On August 21, 2008, Boston City Mayor Thomas M. Menino announced a new Green Affordable Housing Program, designed to develop affordable housing that, through the use of green technologies and materials:  (1) results in low maintenance and energy costs for renters and homeowners, (2) promotes the health and well-being of residents, and (3) minimizes the environmental impacts of development by conserving water, energy, and other resources, and reduces greenhouse gas emissions.  The City Department of Neighborhood Development’s Design Guidelines now include green and energy efficiency standards that require development projects to be LEED Silver certifiable as well as meet ENERGY STAR standards.  In January 2007, Boston stepped up to the forefront of the green building movement when it became the first major U.S. City to adopt a green building article in its zoning code, requiring all private development to meet LEED Certified standards.Green building is key to combating climate change.  As recently studied, buildings in the U.S. account for:

• 40 percent of total energy use,
• 12 percent of the total water consumption,
• 68 percent of total electricity consumption,
• 38 percent of total carbon dioxide emissions, and
• 60 percent of total non-industrial waste generation.

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In an election year when candidates from both major political parties are touting their respective energy policies, Americans would do well to look to one of our allies in the Middle East. Earlier this year, the Israeli government announced major tax rewards for purchasers of electric cars. This action is part of a larger government policy to promote an electric car initiative known as Better Place. The history of Better Place shows how governments and private industry can cooperate to produce an energy strategy that is both environmental and profitable.

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Led by New York, a group of twelve states and two cities filed suit yesterday against the EPA in the federal Circuit Court in Washington, DC.

The suit revolves around the New Source Performance Standards (NSPS), a set of federal regulations that create technology-based emissions limits for a variety of large industries.  EPA issued an updated NSPS for petroleum refineries in June 2008, but the rules do not require refineries to install equipment aimed at reducing greenhouse gas (GHG) emissions.  Instead, the new NSPS focuses on “traditional” air pollutants:  nitrogen oxides, sulfur dioxide, and particulate matter.  The suit argues that omitting GHG emissions from the NSPS violated the Clean Air Act.

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This is the second in a series of articles discussing significant issues arising under emission reduction purchase agreements (ERPAs). For background information, please see the previous article in this series.

One of the critical issues in drafting an ERPA is defining the concept of delivery of the emission reduction unit. The delivery terms will vary based on the type of credit being traded. For Certified Emission Reduction (CER) credits sold within a compliance regime, the program regulations will generally dictate how to effect delivery. However, for Voluntary Emission Reductions (VERs), which are contractually created as part of a voluntary scheme, the parties will need to negotiate the mechanism by which the credits will be transferred from seller to buyer, bearing in mind the risks associated with transfer of title and any shortfall or delivery failure.

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The Georgia Court of Appeals will hear an appeal of a lower court’s decision revoking an air quality permit for construction of a coal-fired power plant on grounds the state permit failed to control CO2 emissions.  The Court granted review on August 20 based on a request made by the State and supporters of the Longleaf Energy Station in Early County, Georgia.

Superior Court Judge Thelma Wyatt Cummings Moore revoked Longleaf Energy Station’s state air quality permit just last month on grounds the permit must “identify, evaluate, or apply available technologies that would control CO2 emissions” at the plant.  Citing the 2007 Supreme Court decision in Massachusetts v. EPA, Judge Moore wrote that “there is no question that CO2 is ‘subject to regulation under the [Clean Air] Act’” (CAA).

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This is the last in a series of three posts outlining some of the major issues relevant to the negotiation of wind project leases or easements and providing general recommendations for developers.

The first two posts can be found here and here.

Lenders’ Rights

Wind projects are typically financed with the help of third-party lenders. To facilitate such financing, the developer should be able to mortgage its interest in the easement and the project facilities to its lenders without the landowner’s consent. The developer should also ensure that the lenders’ rights are adequately protected under the easement. For example, the easement should provide for a lender’s right to take possession of and operate the project facilities, to perform the developer’s obligations under the easement, and to foreclose on the easement and the project facilities or assign its security interest therein. The lender should also have the right to receive notice from the landowner of any developer default under the easement and to cure such default within a specified period. If no developer default occurs, the landowner is typically required to provide periodic certificates to that effect (known as “estoppel certificates”) to the lender for the duration of the easement. The easement should also provide for the lender’s right to consent to any amendment thereof.

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The failure of the recent WTO Doha Round ministerial in Geneva seems to have doomed the chances that a comprehensive multilateral trade agreement can be reached during the remainder of the Bush Administration. However, as trade ministers consider whether and how to resume negotiations under the Doha Round, initiated in 2001, momentum is building among key WTO Members to carve out specific trade sectors where prospects for agreement seem to be within reach. One such prospect is an Environmental Goods and Services Agreement (”EGSA”), which would liberalize trade in certain deemed “environmental” goods and services. The fundamental goal of EGSA is to harness trade liberalization to encourage the global dissemination and deployment of environmentally friendly technologies that, among other things, help mitigate climate change.

The Bush Administration has strongly supported EGSA over the last year, promoting it both as an important component of the Doha Round negotiations towards a comprehensive trade deal as well as a complement to ongoing efforts to negotiate an international greenhouse-gas emissions reductions pact to replace the Kyoto Protocol commitments, which expire in 2012. Since the failure of the WTO ministerial in Geneva, U.S. Trade Representative Susan Schwab and her General Counsel, Warren Maruyama, have both spoken publicly of possible U.S. interest in pursuing EGSA on its own track. Also, the National Association of Manufacturers (”NAM”) recently announced the formation of an international coalition of companies and industry associations to press for EGSA.

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The EPA’s most recent permit approval for construction of a coal-fired power plant is being challenged on climate change grounds. In the third challenge of its kind, opponents of a proposed 1,500-megawatt power plant on Navajo land in northwest New Mexico appealed the EPA’s decision to the Environmental Appeals Board (“EAB”) on grounds the permit violates Clean Air Act (”CAA”) standards for a number of pollutants, including CO2. The EAB heard oral arguments in two similar challenges and a decision in the precedent-setting In re Deseret Power case is expected from the EAB any day.

The CAA Prevention of Significant Deterioration (“PSD”) permit for the plant was issued after supporters of the facility filed suit arguing that EPA failed to act within the statutory 12-month window. The $3 billion project, which is financed by Sithe Global Power subsidiary Desert Rock Energy Company and the Navajo-owned Diné Power authority, has been held up since 2003. The proposal is opposed by environmental groups and New Mexico Governor Bill Richardson, who indicated that the state will join in the EAB appeal.

The appeal alleges that the EPA failed to analyze the impact of the plant on greenhouse gases or to require appropriate pollution control technologies. The EPA has consistently argued that CO2 is not subject to permitting restrictions until the agency makes an endangerment finding, which the agency is now considering as part of an Advanced Notice of Proposed Rulemaking. The EAB will rule on the legality of EPA’s argument in the In re Deseret Power decision, which is expected to have a widespread effect on pending challenges to coal-fired power plants.

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Akin Gump Senior International Advisor Toby Gati recently authored an important article discussing the future of Russia’s renewable energy industries.

Russia, currently the world’s number one gas producer and number two oil producer, also has the potential to be a giant in the area of renewable energy. The Russian government has recently signaled support for the introduction of technologies to improve energy efficiency, reduce the adverse impact on the environment, and produce electricity and fuel from renewable sources. The articulation of concrete national goals for the development of renewable energy and the creation of a more solid legal framework, including financial incentives and subsidies, can over time make both domestic and foreign investment in this area more attractive.

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