A new Democratic comprehensive energy package being introduced this week may include significant research and development incentives for carbon capture and sequestration (CCS) technology.  On Wednesday, House Speaker Nancy Pelosi told reporters that the energy bill would incorporate a CCS funding provision.  That provision, introduced earlier this year as HR 6258, would allocate $1 billion a year to CCS development over the next 10 years, financed through a per-kilowatt-hour fee passed through to consumers.

The Pelosi bill includes provisions for offshore drilling as well as incentives for renewable energy resources and coal.  Meanwhile, in the Senate, a small but growing bipartisan group of lawmakers, now calling themselves “the gang of 20,” is working to develop a filibuster proof majority for a Senate Bill.  Given the budget and time constraints lawmakers face in passing and reconciling energy legislation by the end of the year, it is questionable whether a $10 billion CCS provision would be able to survive the conference process.  If it does, however, the CCS funding could provide a significant shot in the arm to the clean coal industry.

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After a little more than a month away, Congress returns this week to begin a three week sprint to adjournment.  Before the Congress can adjourn for the election season there is a lot of work left to be accomplished.  First, in some form or another, the Congress has to fund the continued operations of the Federal government beyond the end of September.  With no appropriations bill as yet signed into law, expect the Congress to achieve this goal by passing a “continuing resolution” which will keep the spending parameters established for FY08 for the remainder of the calendar year.

It is expected that the House of Representatives will take up an energy bill later this week.  Included within that bill will be the Democrats’ answer to the “Drill Baby, Drill” chants of last week’s Republican Convention.  It is expected that the bill will contain a limited opening of off shore exploration in the eastern Gulf of Mexico and off the coasts of Georgia, the Carolinas and Virginia provided the states “opt in” to the exploration.  It will also contain a renewable portfolio standard for utilities, a move likely to be opposed by Southeastern members of Congress.  Word is that the bill might also contain rescissions of favorable tax treatment of oil companies, loan guarantees to struggling auto makers, and incentives for renewables and natural gas vehicles.

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Earlier this year, a federal court of appeals struck down the Clean Air Interstate Rule (CAIR).  EPA designed CAIR to reduce or eliminate the impact of upwind sources on downwind nonattainment of NAAQS (ambient air quality standards) for fine particulate matter and smog.  EPA categorizes sources at the state level and, in CAIR, determined that 28 states and DC (the “upwind states”) contributed significantly to downwind nonattainment of one or both NAAQS.

One part of CAIR modified the Clean Air Act’s (CAA) cap-and-trade program for sulfur emissions by reducing the number of available allowances required for compliance and by designing a surrender mechanism to offset the drop in demand.  The intended result was to decrease emissions from electrical generating facilities in upwind states without completely unraveling the SOx markets.  The court, however, found that in enacting CAIR, the EPA exceeded its authority under the CAA and remanded the case to the agency to “redo its analysis from the ground up.”

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Note:  This is the first in a series of articles by ClimateIntel looking into legal, policy, and investment drivers that may influence the long-term viability of “clean-coal” technologies as tools for combating climate change. 

As Swedish Company Vattenfall prepares to commence operation of its new pilot clean-coal plant in Schwarze Pumpe, Germany, clean-coal advocates and policymakers should take notice and cheer.  Then, however, they should step back and reflect on the considerable technical, legal, and policy work left to be done if the “clean-coal” energy industry is to play its part in balancing global energy consumption with carbon emissions.

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As the Department of Transportation (DOT) prepares to finalize new fuel economy standards for passenger cars and light trucks, the Environmental Protection Agency (EPA), along with some members of Congress and other commenters, are questioning the cost-benefit methodology used in developing the target standard for 2015. 

DOT has proposed raising the corporate average fuel economy (CAFE) standards for cars from 27.5 miles per gallon (mpg) in 2010 to 35.7 mpg in 2015, and the standard for light trucks from 23.5 mpg in 2010 to 28.6 mpg in 2015.  According to the Associated Press, EPA has raised concerns regarding the factual assumptions DOT in developing these standards.  For example, DOT’s proposed fuel economy standard rulemaking assumes that in 2015, gasoline will cost between $2.24 and $2.56 per gallon - a range well below current gas prices and also on the optimistic side compared to the Energy Information Agency’s (EIA) estimates that the 2016 price per gallon could range from $2.04 and $3.37.  EPA has also raised concerns that DOT’s analysis of costs and benefits undervalues the benefits of reduced greenhouse gas emissions, an ironic claim given EPA’s recent decision to avoid regulating greenhouse gases under the Clean Air Act. 

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The California Assembly recently withdrew a bill that would have regulated the state’s voluntary carbon offset markets.  AB 1851 called for civil penalties for advertising offset credits that had not been certified according to standards recognized by the California Air Resources Board (CARB) or the California Climate Action Registry (CCAR), or otherwise met specific integrity criteria.  CARB is the state’s air pollution regulator and CCAR is a nonprofit organization that maintains a voluntary carbon registry for California entities that want to track and reduce their greenhouse gas (GHG) emissions.

AB 1851 defines an offset as “a voluntary reduction in the emissions of greenhouse gases into the atmosphere undertaken for the purposes of selling, trading, or otherwise providing the credit or emission reduction to another party.”  The voluntary markets have come under scrutiny over the last year, as a result of significant questions about the environmental integrity of many offset projects.  The Federal Trade Commission, for example, is currently studying whether to regulate advertising related to carbon offset credits; recognizing the possibility of federal regulations in this area, AB 1851 would have become inoperative if the FTC “adopts binding and enforceable trade rules or regulations for claims or representations for greenhouse gas emission reduction credits or reductions to protect consumers.”

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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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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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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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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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