On Wednesday, Senators Barbara Boxer, D-CA, and John Kerry, D-MA, are expected to release climate legislation, derived from H.R.2454, which was passed by the House in June.  According to Senators Boxer and Kerry, the legislation will serve as a starting point for climate negotiations in the Senate.  Hearings on the new legislation are expected in coming weeks.  However, just today, a hearing on the climate change legislation, originally slated for this Thursday, Oct. 1 at 9:45 a.m. by the Senate Energy and Natural Resources Committee, has been postponed because of this week’s markup of healthcare legislation in the Senate Finance Committee–a sign that healthcare is still the main focal point on Capitol Hill.

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The Environmental Protection Agency (EPA) released today a final rule that will require greenhouse gases (GHG) to be monitored under a new reporting system beginning in 2010.  The rule, known as the Final Mandatory Reporting of Greenhouse Gas Rule, is in response to the FY 2008 Consolidated Appropriations Act, which allocated $3,5000,000 for activities related to finalizing the rule within 18 months.  According to EPA, the rule is intended to provide a better understanding of the sources of GHG emissions, so as to help EPA develop policies and programs to reduce emissions.  Businesses may also use the data to track their own emissions, compare them to similar facilities and identify mechanisms to reduce emissions.

EPA estimates that the reporting rule will capture the data of 85 percent of the nation’s emissions from approximately 10,000 facilities.  The 10,000 facilities include sites that emit 25,000 metric tons of more of CO₂ per year.  Under the new rule, EPA will review 2010 reports starting in 2011.  Thereafter, facilities must submit annual reports to EPA.

EPA’s promulgation of this rule is another indication that the agency will continue to implement that authority it believes is provided under the Clean Air Act, irrespective of congressional consideration of comprehensive climate legislation.  Also in line for promulgation is a final rule with respect to the endangerment finding proposed in April 2009 and a proposal to establish a “significance level” for CO₂ emissions from stationary sources.

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In a stunning decision, Judges McLaughlin and Hall of the U.S. Court of Appeals for the Second Circuit vacated and remanded the decision of the district court that had dismissed federal common law claims of nuisance filed against five electric utilities by a number of northeastern states and environmental interest organizations.  The district court had ruled that the issues raised in the complaints were non-justiciable political questions. The Second Circuit reversed across the board. The Court held that:

Until today, this case was most notable for two reasons - three years passed since the original argument in the Second Circuit and Justice Sotomayor served as chief judge of the panel in that court. 

The case now goes back to the district court for further proceedings.  As the Second Circuit rejected on several of the procedural defenses raised by the defendants but not ruled on by the district court, on first blush, it appears that the case is headed for discovery and a long, drawn-out battle. 

The opinion is 139 pages and, in the coming days, ClimateIntel will be publishing further analyses of the impacts of the case.

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While the action in the committees takes a back seat this week to the continuing drama around health care, the Senate will take up the annual EPA Appropriation bill. Senator Lisa Murkowski is expected to offer an amendment that would prohibit the EPA from creating greenhouse gas (GHG) regulations for stationary sources. The agency has sent to the Office of Management and Budget (OMB) a proposed rule to set a “significance level” for greenhouse gas emissions as a prelude to regulation of large stationary sources.

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In their article “The U.S.-China Clean Tech Opportunity,” co-authors Mario Mancuso and Asma Chandani of Akin Gump describe the opportunity for the United States and China to collaborate on clean energy technologies and assess some of the current challenges to a transparent and level-playing field in clean tech trade and investment between the two countries.  In particular, the authors examine the implications of (i) export controls, (ii) enforcement of intellectual property rights and (iii) regulatory barriers and protectionism.  The authors propose concrete steps that the United States and Chinese governments can take to create the framework and conditions for an open, functioning and competitive clean technology market.  Such an approach would lay the foundation for a clean tech future that the world wants and needs and introduce the next constructive chapter in one of the most important bilateral relationships in the world.

The Hon. Mario Mancuso is a partner at Akin Gump Strauss Hauer & Feld, LLP, an international law firm that opened its Beijing office in 2007.  He previously served as a senior U.S. Defense Department official (2005-07) and as U.S. Under Secretary of Commerce (Industry and Security), U.S. Chair of the U.S.-China High Technology and Strategic Trade Working Group, and member of the Committee on Foreign Investment in the United States (2007-09).

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Late last month, EPA released a Notice of Data Availability and Request for Comment related to its 2008 proposed regulatory framework for underground injection and storage of carbon dioxide.  The Notice discusses three DOE-sponsored Regional Carbon Sequestration Partnership projects, reviews the results of recent studies evaluating the potential impacts of geological storage to groundwater integrity and proposes a waiver process that would provide regulators with more flexibility in setting the minimum injection depth for carbon sequestration projects.  The 12-page notice is an important opportunity for stakeholders seeking to supplement the administrative record or position themselves for post-promulgation litigation.  Issues addressed in the Notice include:

• EPA May Widen the Scope of the Rule. The agency received comments regarding the need to consider environmental and regulatory issues outside the scope of the Safe Drinking Water Act (SDWA) and “is currently evaluating the need for a more comprehensive regulatory framework.” EPA has indicated that any effort to expand the rulemaking beyond its SDWA authority will involve an additional notice and comment opportunity, structured within the current regulatory development schedule.

• EPA Considers Granting Local Siting Authorities More Discretion.  EPA is proposing to modify the July 2008 proposed rule, which restricts Class VI Injection Wells (the new class for carbon sequestration projects) to below the lowermost geological formation containing an underground source of drinking water.  The proposed modification would allow project applicants to seek a waiver of the injection depth restriction by demonstrating that a shallower depth would not pose contamination risks.  The state regulatory officials with primary permitting responsibility would make the final waiver determination.

• Update from DOE’s National Energy Technology Laboratory (NETL).  NETL is developing or operating approximately 30 geological sequestration projects to develop working geological sequestration approaches and to identify “the most suitable technologies, regulations and infrastructure needs for carbon capture sequestration and storage.”  The Notice provides examples from several of these projects.

• Update from DOE’s Lawrence Berkeley National Laboratory (LBNL).  LBNL is studying the potential risk to underground drinking water sources from improperly-sited geological sequestration projects.  Areas of study include the potential for changes in ground water quality as a result of CO₂ leakage, the risk that CO₂ will mobilize trace elements and the potential basin-scale hydrological impacts that large-volume underground injection and resulting pressure changes may have on aquifers. 

• CO₂ Transport Modeling will play Critical Role.  EPA researchers see a need for improved CO₂ sequestration modeling tools that can characterize CO₂ transport properties across a large range of temperatures and pressures and couple multiphase flow, reactive transport and geomechanical processes. 

The notice offers several insights into EPA’s ongoing rulemaking process.  First, the likely driver for EPA’s decision to reopen the comment period in this proceeding was EPA’s decision to propose an injection-depth waiver mechanism.  Without the additional notice and comment, a final rule that included a waiver option would have been vulnerable on judicial review.  Second, EPA’s lengthy discussion of the waiver proposal, combined with the mixed results of its ongoing LBNL research into the impacts of carbon sequestration on drinking water quality and basin integrity, illustrates EPA’ difficult balancing act in developing uniform nationwide CCS standards.  While deeper CO₂ sequestration depths may offer greater protection to some local underground drinking water sources, establishing a rigid depth requirement could prevent the adoption of any carbon sequestration project in regions of the country that lack the requisite hydrogeological characteristics to meet the standard.  If CCS is going to be one of the pillars of EPA’s climate change mitigation strategy, EPA will need to find ways to balance the goals of climate policy, energy policy and water policy.  Third, EPA finally acknowledged that it may need to expand the legal basis of its carbon sequestration rulemaking program beyond the SWDA.  If EPA intends to propose any such expansion within the current rulemaking schedule, it must act quickly. 

EPA will hold a public hearing on the Notice of Data Availability on September 17, 2009 in Chicago, Illinois.  Written comments on the Notice are due to EPA by October 15, 2009.  For stakeholders with an interest in shaping federal policy on carbon capture and sequestration, this open comment period provides an important opportunity to supplement the record that EPA (and the courts) will rely upon in the future. 

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Algae-based biofuels have been receiving increasing attention from researchers, investors and Congress.  Not previously thought of as a major player within the biofuel community, support from Congress coupled with strong private investment could make algae a very competitive biofuel feedstock.

The renewable fuel mandate established in 2007 requires that twenty-one of the thirty-six billion gallons of annual (BGY) ethanol production by 2022 come from advanced biofuels. Seventeen of the twenty-one BGY must come from cellulosic biofuels or biodiesel.  The legislation, however, contains no specific provision for algae.  A bill recently introduced in the House (H.R. 3640) would change the state of play, adding a specific provision for algae and, perhaps more importantly, extending to algae-based biofuel producers the tax credit given to cellulosic biofuel producers.  Those within the industry hope that this type of congressional support will create parity between the algae-based biofuel industry and others within the Renewable Fuel Standard.

Presaging the increased congressional attention, the algae-based biofuel industry has recently seen some major investments in research.  Some of the more widely publicized investments include:

• ExxonMobil announced plans to invest at least $600 million in a joint venture with Synthetic Genomics, Inc. (SGI). If all goes well, ExxonMobil’s investment could increase into the billions.
• Dow Chemical Co. announced plans to build a $50 million pilot plant in Freeport, Texas, as part of a joint venture that will test the technology developed by Algenol Biofuels. The technology grows algae in plastic tubes containing saltwater, which are then filled with CO₂. The project envisions hundreds of acres of algae farms containing these tubes, using CO₂ that comes from nearby oil refineries and chemical plants to produce ethanol.
• The Woods Hole Oceanographic Institution, the Massachusetts National Guard and Plankton Power are teaming up with the eventual goal to produce five percent of Massachusetts’s diesel and home heating oil, which would require producing 100 million gallons of biodiesel per year. In the meantime, the group plans to build a $20M pilot plant, $16M of which is from DOE funding, which would lead to 1 million gallons of biodiesel per year.

There are many promising aspects of algae-based biofuels that may explain why the industry is gaining so much traction.  The fact that algae can be grown on non-arable land, requiring only sunlight, water and carbon dioxide to grow and produce oil means that its production does not interfere with food supply.  Also, the fuel produced from algae can be chemically identical to that made by petroleum, which would enable a seamless integration into commercial use.  Some advocates also tout algae’s carbon capturing ability, though others doubt its ability to handle large amounts of emissions from neighboring refineries and power plants.

Despite the recent attention and investment algae has been receiving as of late, many question whether the commitment behind developing this technology.  The concern within the industry is that the commitments are for research only and that the investments may not continue after the results come out.  These skeptics cite to BP’s recent abandonment of its joint venture with UK-based D1 Oils to develop jatropha as a biofuel feedstock as an example. 

Though algae-based biofuels are still at least a couple years from being commercially competitive with crude oil at $60 to $80 a barrel, the intrigue in their potential appear legitimate.  If the industry is successful in obtaining more government support, private investment will likely follow.

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With so much attention being focused on health care, the media and even most members of Congress have largely ignored progress on President Obama’s other signature issue-climate change.  With the Copenhagen Summit fast approaching, the work on producing a climate change bill is being done in the committees.  This week, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman is holding two hearings on the costs and economic benefits of a cap-and-trade system.  The Energy Committee will play a larger role on producing a climate bill this year than last when a bill from the Senate Environment and Public Works Committee bill made its way to the floor.

Tuesday, September 15

The Senate Energy and Natural Resources Committee will hold a 2:30 p.m. hearing in Room 366 of the Dirksen Senate Office Building to “explore potential costs and price volatility in the energy sector as a result of a greenhouse gas trading program.”

Thursday, September 17

The Senate Energy and Natural Resources Committee will “receive testimony on energy and related economic effects of global climate change legislation” at 2:15 p.m. in Room 366 of the Dirksen Senate Office Building.

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A key political compromise addressing the concerns of farm-state Democrats facilitated passage in the House of Representative passage of the American Clean Energy and Security Act, H.R. 2454 (ACES).  The so-called Peterson Amendment would make substantial revisions impacting the Environmental Protection Agency’s (EPA’s) Renewable Fuels Standard (RFS) program. The Energy Policy Act of 2005 established the RFS and the Energy Independence and Security Act of 2007 (EISA) expanded the program.  EISA established new renewable fuel categories and eligibility requirements, including mandatory greenhouse gas reduction thresholds for the various categories of renewable fuels.  EPA issued a notice of proposed rulemaking in May 2009 to implement the legislative changes required by EISA (RFS-2), and is currently soliciting comments on such issues as specifying the volumes of cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel that must be used in transportation fuel each year.

If enacted into law, ACES would impact the RFS-2 proceeding in two major ways, (1) delaying and potentially eliminating the calculation of emissions related to indirect land use changes resulting from renewable fuels and occurring outside the feedstock’s country of origin (generally, these emissions are considered indirect international land use changes); and (2) exempting certain biomass-based biodiesel plants from compliance with the RFS-2 lifecycle greenhouse gas (GHG) requirement. 

EISA directed the EPA to calculate, for renewable fuel pathway, GHG emissions over the full lifecycle of the renewable fuel, including indirect international land use changes.  Examples of these lifecycle emissions include, for example, the clearing of international forest land to grow crops for food to compensate for the conversion of US-acreage toward the production of renewable fuels.  EPA would then compare the renewable fuel GHG emissions to the lifecycle emissions of 2005 petroleum baseline fuels displaced by the renewable fuel, such as gasoline or diesel. The lifecycle GHG emissions performance reduction thresholds established by EISA range from 20 to 60 percent reduction, compared to the baseline fuel, which varies upon the renewable fuel category.  GHG emissions from international indirect land use changes is a hotly contested issue between the renewable fuels industry and environmentalists and, as even EPA notes in its Notice of Proposed Rulemaking, there is considerable uncertainty in the estimation of emissions resulting from land use changes.

ACES would temporarily prohibit consideration of indirect international land use emissions, defined as land use changes outside of the feedstock’s country of origin. The legislation would establish a period of up to six years to study whether there are valid economic and environmental models to calculate indirect land use changes that are related to production outside of the country of origin in which feedstocks are grown.   The provision directs National Academies of Science to review and report on the issue within three years of enactment.  Based on this report, EPA and USDA would have a three-year period to promulgate a final determination of how to calculate indirect land use changes attributable to the production of renewable fuels.  If EPA and USDA were to conclude that indirect land use changes should not be considered, they would be required to include a statement of the basis for that determination.

EISA exempted a category of “renewable fuels,” largely defined as corn ethanol, from lifecycle GHG emission performance standards if facilities manufacturing the fuel commenced construction before December 17, 2007, the date of EISA’s enactment.  The length and scope of the exemption is among various issues under examination by EPA in the proposed RFS-2 rulemaking. ACES would provide a further exemption from the lifecycle GHG emission performance standards of up to 1 billion gallons of renewable fuel from biomass-based diesel plants that commenced construction before the date of enactment of EISA from the lifecycle greenhouse gas performance standards at issue in RFS-2.

The Senate Energy Bill, S. 1462, the American Clean Energy Leadership Act of 2009, reported to the floor by the Committee on Energy and Natural Resources did not include similar revisions to the RFS.  It appears likely, however, that revisions to the RFS will be a part of comprehensive energy and climate legislation.  In a recent op-ed, Senator Bingaman addressed support for revision of the RFS, as the Senate refines its energy bill, highlighting the definition of renewable biomass, the study of international land use change and the re-evaluation of technology- and feedstock-specific mandates within the program as areas for improvement.  A separate House Proposal, HR 3460, would expand the RFS to specifically include algae-based biofuels.  The Committee on Environment and Public Works Chair, Senator Boxer, has not indicated support of ACES’ revisions to the program, but recently noted that all options are on the table with respect to RFS revisions as her Committee takes up climate legislation.

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