On January 26, President Barack Obama outlined the first steps his administration will take to change American energy and transportation policy. Along with other initiatives, the President directed the Department of Transportation to establish rules and regulations which will raise the automotive fuel efficiency standard to an average of 35 miles per gallon by 2020.  The increased fuel efficiency is expected to be accomplished in part by continued development of electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs).  Many major automakers have announced a roll-out of EVs or PHEVs within the next few years, including GM, Toyota, Honda, Volkswagen, BMW, and others.

Auto manufacturers have expressed concerns about the increased costs associated with higher fuel efficiency standards for some time.  One such cost increase may result from an escalating global demand for rechargeable lithium-ion batteries. These batteries have already been tested and adopted by a number of auto manufacturers for their electric fleets, and increasing demand for the batteries will put increasing strain on international lithium markets.

Lithium-ion batteries currently charge (and re-charge) various electronic consumer products, such as cellular phones and laptop computers.  In 2007, batteries became the leading end-use product for lithium, comprising 20% of the global lithium market, and the world market for lithium batteries grew to $5.2 billion. Because EVs and PHEVs will likely play a crucial role in allowing auto manufacturers to achieve elevated fuel efficiency standards, the demand for the batteries that power those vehicles should increase. This will lead to a substantial increase in the size of the lithium market.

According to the U.S. Geological Survey, the U.S. already consumes more lithium than any other country, despite possessing less than five percent of the world’s estimated supply of lithium resources. Because of the disparity between domestic supply and demand, the U.S. imports effectively all of its lithium from South America, specifically Chile—the world’s leading lithium producer—and Argentina. Some auto companies have already become concerned about a global shortage of lithium, which could constitute a potential roadblock to the success of lithium-ion batteries, and which some are projecting could happen as early as 2015.

Another problem affecting the global lithium market is the infrastructure issues of countries with large reserves of the mineral. For example, while the salt flats of southwestern Bolivia are estimated to possess more than half of the world’s total lithium deposits, Bolivia does not have the necessary infrastructure to extract lithium in amounts sufficient to affect the market.

These types of supply and demand issues are not uncommon in the energy industry.  In 2004, the solar industry began to feel the effect of a supply crunch for high-quality silicon, which is used to manufacture solar panels as well as computer chips.  This silicon shortage contributed to increased emphasis by the solar industry on thin-film solar cell technology, which uses a smaller amount of material than traditional photovoltaic solar technology.

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On Wednesday, January 28, the US House of Representatives passed the American Recovery and Reinvestment Act (H.R. 1), a high-profile economic stimulus package that has dominated the Presidential and Congressional agenda since the beginning of the year.  The House bill appropriates $2.4 billion for research, development, and demonstration projects addressing: 1) Fundamental science and engineering research related to carbon capture and storage (CCS); 2) Field validation testing activities (in a variety of candidate geologic settings, including operating and depleted oil and gas fields); and 3) Large-scale carbon dioxide sequestration testing. In addition, the House bill establishes an enhanced tax credit for research expenses related to carbon capture and sequestration.

With the House Bill approved, attention now shifts to the Senate where, on Tuesday, the Appropriations Committee reported out the funding portion of the Senate stimulus package, including $2 billion for one or more near-zero emissions fossil-fuel powerplants, $1 billion for the Department of Energy’s Clean Coal Power Initiative, and $1.6 billion for projects that demonstrate carbon capture from industrial sources.  The $2 billion for near-zero emissions fossil-fuel power plants is likely a nod to FutureGen, which has been a priority project for Illinois Senator and Appropriations Committee member  Dick Durbin.  That same day, the Senate Finance Committee reported out tax provisions for the Senate stimulus bill that included an “Enhanced Research Tax Credit” similar to that passed in the House and an additional “Advanced Energy Investment Credit,” establishing a new 30 percent investment tax credit for facilities engaged in the manufacture of CCS equipment and a number of other advanced energy technologies.

The dueling stimulus packages have a ways to go before CCS advocates can start counting on the new funding, but based on what we have seen from the House and Senate so far, 2009 could be a very productive year for CCS infrastructure development in the US.

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On December 17, 2008, the European Parliament approved a comprehensive climate and energy package for the EU, hailed by the European Commission’s President, José Manual Barroso, as a green “new deal” for Europe.  A core component of the package is a Directive on the Promotion of the Use of Energy from Renewable Sources, which mandates the increased use of biofuels in the EU in order to achieve, by 2020, at least a 20% share for renewable energy and at least a 10% share for biofuels in road transport.  While some EU Member States already produce significant quantities of biofuels, the Directive is expected to increase imports of biofuels and biofuel feed stocks into the EU, as well as spur substantial new investment in biofuel production capacity.  For now, however, the Directive and a series of EU and Member State measures are generating uncertainty in European biofuel markets—particularly in the case of biodiesel.

One source of market uncertainty is the Directive’s provisions specifying “sustainability criteria” that biofuels must meet in order to count towards the renewable fuel targets specified in the Directive.  Chief among these is the requirement that any biofuel production pathway represent at least a 35% greenhouse gas (GHG) savings over the relevant fossil fuel comparator.  For many existing biofuel production pathways, an annex to the Directive specifies a deemed level of GHG savings.  For example, rape seed biodiesel (one of the principal production pathways in Europe) is deemed to represent a 38% level of GHG savings, while soybean diesel (one of the principal production pathways in the U.S.) is deemed to represent a 31% GHG savings level.  The Directive’s 35% GHG savings threshold is likely to impact the relative market values of biofuels falling on either side of this threshold, and therefore affect trade and investment flows.

Other sustainability criteria in the Directive will also likely affect trends in biofuel markets.  For example, to count towards the Directive’s renewable fuel targets, a biofuel must not have been produced from feedstock obtained from land with a high biodiversity value or land with high carbon stocks.  Similarly, it must not have been produced from feedstock obtained from peatland.  The Directive sets forth detailed guidelines for the application of these sustainability criteria.  It also provides mechanisms for review of the effectiveness of these criteria, as well as enforcement provisions to ensure compliance by individual economic operators.  Further, reflecting the 2008 global spike in food inflation and the controversy surrounding the impact of biofuel production on food prices, the Directive calls for occasional review of the Directive’s “social sustainability,” particularly as to its impact on developing countries, and possible future revision of the Directive if warranted.

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While President Obama has pushed forward with a number of climate-related initiatives—including instructing the Environmental Protection Agency to review California’s request to implement its own vehicle emission standards—other executive agencies have begun to form their own environmental teams. Yesterday, Secretary of State Hillary Clinton named Todd Stern her chief climate envoy. Stern, a former assistant to President Bill Clinton and fellow at the Center for American Progress (CAP), brings considerable expertise and a number of proposals for addressing climate change on an international stage.

During his time in the Clinton White House, Stern played a key role in international climate negotiations—leading the U.S. negotiation team in hammering out the Kyoto Protocol. While no one knows whether the appointment of Stern—who will head the US delegation in the international climate change negotiations targeted to culminate in Copenhagen this December—signals the return of America’s leadership in crafting commitments to targets and timetables for emission reduction commitments, his writings outlining his approach to international climate solutions may shed insight.

Last year in his capacity at CAP, Stern authored a white paper entitled “Creating the E-8.” In it, he expresses frustration with the process by which the United Nations reaches environmental agreements. The potentially huge number of parties, lack of high-level involvement from heads of state, and large and growing international bureaucracies often foil real progress, he contends. Instead of continuing with a similar negotiation path, he urges the creation of an E-8, which would mirror the G-8—a small group of developed and developing nations “devoting their full attention once a year to global ecological and resource challenges.”

Secretary Clinton indicated that Stern’s appointment would signal a return of U.S. leadership in international climate negotiations, “With the appointment today of a special envoy, we are sending an unequivocal message that the United States will be energetic, focused, strategic and serious about addressing global climate change and the corollary issue of clean energy.”

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This past weekend, the White House announced that President Obama will instruct new EPA Administrator Jackson to vigorously review the request by the State of California to enforce more stringent greenhouse gas emissions standards on automobile manufacturers.  While much of the attention is focused on what impact this ruling may have on the struggling domestic automobile industry, the ruling could also lead to considerably more widespread  regulatory impact.  Indeed, one such impact could be to require EPA and their state counterparts to consider whether new and modified stationary sources must install Best Available Control Technology (”BACT”) for carbon dioxide.

Since December 2005, California has sought EPA’s permission to enforce a state law that would require automakers to reduce carbon dioxide emissions from new vehicles by 30 percent by 2016.  Under the Clean Air Act, EPA may not approve such a “waiver” request if it finds that the proposed state standards are not needed “to meet compelling and extraordinary conditions.” 42 U.S.C. § 7543(b)(1)(B).  Former EPA Administrator Johnson ruled last year that California did not make the required showing.  73 Fed. Reg. 12156 (March 6, 2008).  Last week, Mary Nichols, Chairman of the California Air Resource Board (”CARB”) petitioned EPA to reconsider that decision.

Then late last year, former Administrator Johnson issued another controversial decision—an interpretive rule—concluding that a “regulated NSR pollutant,” as used in 40 C.F.R.§ 52,21(b)(50), excluded pollutants for which EPA regulations required only monitoring or reporting, but not actual control of emissions.  As a result, according the Johnson memorandum, EPA Regions did not have to consider whether a new or modified stationary source had to install BACT for CO₂.

A ruling by EPA Administrator Jackson allowing California and other states to impose GHG emissions standards on automobiles could be considered “actual control of emissions” under the Clean Air Act.  If so, environmental groups and others seeking to require coal-fired power plants (and other stationary sources) to install BACT would have a new weapon in that effort.  Many questions remain unanswered and will likely continue to be unanswered until, at least, EPA rules on the CARB petition.  But, today’s memorandum from the President seems to represent an important step toward requiring BACT for CO₂.

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Thomson Reuters Carbon Market Community featured Akin Gump’s Ken Markowitz and Jessica Davies article “Property Rights Conveyed by Emission Allowances: An Analysis” this week.  The article is available on Thomson Reuters website and requires free registration.

This analysis explores the legal nature of the rights that attach to emissions allowances and considers whether those rights are more appropriately classified as private or public. Uncertainty has arisen over this issue because legislators seem to have either largely failed or avoided to define explicitly the inherent property rights that attach to allowances when drafting laws governing the major emissions markets operating today, particularly in the EU ETS.

An understanding of the nature of these rights is critical to enable accurate valuation and to foster stable linkages among the global carbon markets. By examining the emissions allowances in the key carbon schemes against rights that are generally understood to attach to property, the authors conclude that emissions allowances confer what can be more accurately described as a “regulatory right.” This “regulatory right” exhibits aspects of both public and private property law, but more importantly must be placed in the context of the underlying national laws. Finally, the authors conclude that identifying the package of rights, rather than relying on semantics, is what is important to encourage this certainty.

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On January 15, 2009, Chairman Bart Gordon (D-TN) and other members of the House Science and Technology Committee introduced H.R. 554, the National Nanotechnology Initiative Amendments Act of 2009.  The 2009 bill is identical to the NNI reauthorization bill that passed the House in June 2008 but languished in the Senate after the Committee’s ranking republican, Senator Ted Stevens, resigned from the Committee shortly before the scheduled markup.  The Committee’s timely reintroduction of the NNI reauthorization bill should be an encouraging sign for cleantech advocates that see nanotechnologies as critical to narrowing the cost and efficiency gaps between green and fossil fuels.

The NNI reauthorization bill is not in itself a funding mechanism - indeed, most NNI-participating Agencies would still receive most of their nanotech funding through Agency-specific appropriations.  The NNI-reauthorization bill complements the funding decisions Congress will make, however, by improving the federal approach to nanotechnology research, coordination, and oversight.  Key provisions would:

• Update the centralized coordination and oversight framework for the President’s National Science and Technology Council, the National Nanotechnology Coordination Office (NNCO), the federal agencies that comprise the Nanoscale Science, Engineering and Technology (NSET) Subcommittee, and other government and third party organizations tasked with directing and assessing the performance of federal nanotechnology efforts.
• Use the NNI’s strategic planning processes to target federal research priorities including health and safety research as well as “areas of national importance” starting with energy efficiency, nano-electronics, health care, and water remediation as “areas of national importance;”
• Increase the transparency of federal nanotechnology efforts by establishing publicly accessible databases of federal projects and supporting nanotechnology education and outreach; and
• Expedite commercialization of promising nanotechnologies by coordinating with industry and states on the results of core data sets and by sharing access to federal laboratory resources and infrastructure.

By reintroducing a well-vetted bill only 9 days into the new Congress, Chairman Gordon may be laying the groundwork for bundling the NNI reauthorization bill with whatever green stimulus package emerges from the House. This strategy would marry an injection of funds to the cleantech industry with improvements to the federal program promoting the use of nanotechnology in such cleantech applications.  At a time when Americans are paying particularly close scrutiny to the way federal funds are allocated and administered, this appears to be a sensible approach.

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As car manufacturers showcase the newest developments in fuel-efficient and electric cars at the North American Automobile Show in Detroit, top executives are considering the negative effects of low petroleum prices on the “green” car industry.

This week, General Motors showcased its Chevrolet Volt plug-in hybrid.  With over $1 billion invested in the project, GM has described the Volt as the most important car in development and the Volt is viewed by many as a potential competitor to Toyota’s Prius.  GM also unveiled the Cadillac Converj Concept, a high-end coupe with GM’s Voltec plug-in hybrid technology and Mercedes, Honda and Fisker all introduced cars using electric, hybrid or fuel cell technology which are set for production in 2009-2010.

The Prius remains the U.S.’s top selling hybrid car, even though sales dropped 45% in December 2008 compared to the same month last year, while overall car sales in the U.S. declined 37% over the same period.

Despite declining sales, Toyota introduced the all-new third-generation Prius promising improved fuel economy, performance and comfort at the motor show.  Last weekend they went even further by unveiling the Lexus HS 250h, the first step towards a dedicated hybrid for the Lexus division.  Toyota stated that it plans to launch at least ten hybrid model cars over the next decade.

Despite the motor show’s enthusiasm for green technology, concerns were expressed that investment in fuel-efficient vehicles could be jeopardized by low fuel prices, leading to calls for a less volatile fuel price through increased gasoline taxes in the U.S.  Substantially higher taxes would cause price fluctuations to be less significant to consumers, providing more certainty to manufacturers and investors in green technology.  While high fuel taxes are commonplace in Europe, such policies would ignite significant controversy in the U.S.  Bob Lutz, GM’s vice chairman for product development, continues to suggest that raising the federal gas tax is a more effective way of reducing gas consumption than such methods as the Corporate Average Fuel Economy (CAFE) standards currently in use to curb emissions.

President-elect Barack Obama and his advisors have recently stated that an energy policy focused on clean technologies can address environmental problems while stimulating the economy, including calling for incentives for energy efficiency. The $825 billion stimulus package, released today, includes significant incentives for the auto industry, including grants and loans to electric vehicle battery makers and significant money to allow the federal and state governments to replace their auto fleets with hybrids and green vehicles.

Carmakers will receive additional short-term assistance as well; the second half of the original $700 billion bailout was also approved for release by the Senate today. Some portion of the money in the $17 billion automaker bailout created by the Bush Administration was contingent on the release of the second half of the funds.  The longer-term challenges will fall to the incoming president. President-Elect Obama’s options include requesting further concessions from GM and Chrysler in the form of increased energy-efficiency research and development; requiring tougher CAFE standards; or taking the more radical step of responding to calls for increased taxation in his pursuit of a sustainable automotive industry.

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Update: The New York Times reports on Salazar’s confirmation hearing here; watch a webcast of the hearing here.

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This week marked the beginning of the confirmation process for four potential Obama environmental advisers. Three of those advisers, Steven Chu, the potential head of the Department of Energy, Lisa Jackson, the head of the Environmental Protection Agency and Nancy Sutley, the Chairwoman of the Council on Environmental Quality, have already had their confirmation hearings. Today, Senator Ken Salazar, nominee for Secretary of the Interior, goes before the Senate Energy and Natural Resources Committee.

All four nominees, including Sen. Salazar, are expected to be confirmed. Some reports even have placed those confirmation votes before the full Senate as early as January 20^th—Inauguration Day.

While the other three nominees have largely created discussion around their aggressive stances on climate and other environmental regulation, Senator Salazar, a fifth-generation Coloradan and former rancher, will likely bring a more moderate approach to his Department.

One area where Sen. Salazar has taken considerable interest is in the development of shale oil deposits—many of which are under Federal lands in the west that are controlled by the DOI. In a July editorial, he opposed the Bush administration’s “fire sale of commercial oil shale leases,” while also praising new technologies developed to extract the oil.

In traditional oil and gas exploration, it appears that the Senator has recently modified his position over development of a specific Colorado landmark—the Roan Plateau. Sen. Salazar had previously sought moratoriums on drilling in the area; last week, the Rocky Mountain News reported that Salazar had proposed a compromise plan, which would allow phased development—for natural gas only—of the Plateau, while also significantly increasing acreage designated as “environmentally critical.”

Even after confirmation, questions remain for these officials, including how they will all interact. The four positions up for confirmation: the Secretaries of Energy and the Interior, the Head Administrator of the EPA and the Charwoman of the CEQ, all will have to work with Carol Browner, who was appointed by President-elect Obama as his “energy czar.” Browner, who does not need Senate confirmation, ran the EPA during the Clinton administration.

“One of the unknowns for the EPA, and for that matter, the Department of Energy, is what the role of the new energy czar within the White House is going to be and how that whole effort is going to be coordinated within the agencies,” observers acknowledged.

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With the economic stimulus package, climate change policy, and renewable energy incentives at the top of President Obama’s agenda, a much less-well known statute should be added: reauthorization of the National Nanotechnology Initiative (NNI).  Applied nanotechnology has the potential to revolutionize the way that humans generate, store, transmit, use, and conserve energy, creating opportunities to maintain or increase productivity while reducing our carbon footprint.  Nanotechnology may also create new economic opportunities for the US economy, and bring jobs to hard-hit manufacturing sectors.  To do so, however, both public and private researchers must resolve lingering questions regarding how nanomaterials function in the environment and how we can commercialize these technologies without posing unreasonable risks to human health and the environment.   The NNI is an important tool for addressing these questions.

Nanotechnology involves the creation of useful chemicals, materials, devices, and systems using matter measuring between one and 100 nanometers in scale (by illustration, a carbon nanotube is 100,000 times thinner than a human hair).  Because of their small size, surface area, and structures, nanoscale substances and materials can possess novel physical, chemical, and electrical properties that make them very useful in a wide variety of applications.  Some of the application that show promise as tools in combating climate change include:

• Fuel additives: Nanomaterials can increase the fuel efficiency of diesel engines used in trucks and turbine engines used in airplanes;
• Insulation: Nanoscale aerogels and other nanomaterials offer promise as high-efficiency building insulations, reducing the energy demands (and carbon footprint) associated with heating and cooling in buildings;
• Photovoltaics: Nanomaterials can increase the efficiency of the systems used to convert solar energy into electricity, making solar electricity generation facilities more practical and economical;
• Batteries and electricity storage:   Nanomaterials can increase the storage capacity and efficiency of batteries and capacitors, which in turn would increase the performance and reliability of hybrid and electric cars, and improve electricity storage options for intermittent renewable generation facilities like wind and solar;
• Hydrogen fuel cells:  Nanomaterials can increase the efficiency of hydrogen-powered fuel cells, making low-emission hydrogen-fueled cars and trucks more viable as alternatives to traditional vehicles; and
• Electric transmission:  Bundled nanowires may provide opportunities to increase the efficiency, conductivity, and durability of the electricity grid, reducing congestion concerns and making a multifaceted transmission and distribution system, including renewable generation sources, more practical.

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