Many parties from the investment, legal, regulatory, industrial, insurance, accounting and environmental communities have been calling for a consistent, comprehensive approach to financial climate change disclosure.  Some argue that disclosures may be required now due to:

1. Current state and regional regulation, and the portent of federal regulation related to climatechange and greenhouse gas emissions;
2. Ongoing and likely climate change-related litigation;
3. The commitment of significant corporate capital and management attention to develop climate change-related strategies and responses; and
4. Increasing investor demand for climate change disclosures.

For the past year, ASTM International’s Climate Risk Management Group has been working on a draft voluntary standard for financial climate change disclosures.  The ASTM standard would not supersede existing SEC and FASB requirements, but rather provides additional guidance relevant to climate change disclosures.  Three principles of the draft standard are:

• The standard is designed to address uncertainties to the extent feasible, through
• recognizing reasonable scenarios and ranges.
• Subsequent disclosures or changes to prior disclosures should not be construed as determining that the prior disclosures were inappropriate.
• The cost of disclosures should be balanced against the usefulness of the information presented.

To see The Brattle Group’s recent newsletter summarizing the new draft standard, and to obtain information on how to submit comments on the draft, click here.

Comments on the draft standard are due by February 2, 2009.  All interested parties should take advantage of this opportunity to review and comment on this draft.

In addition, the draft standard will be discussed on December 4, 2008 (noon-1:30 EST), when the American Bar Association conducts a teleconference on the subject sponsored by the Section of Environment, Energy, and Resources’ Environmental Disclosure Committee.  To obtain more information on this teleconference and instructions on how to register, click here.

This is the third of a three-part series discussing select legal or policy aspects of EPA’s proposed rule for regulating commercial scale carbon and capture and sequestration (CCS) projects, now scheduled to close for public comment on December 24, 2008.  The first post analyzed the proposal’s treatment of financial assurance requirements for project owners and operators.  The second post analyzed the proposed standards for care and monitoring of a CCS injection site following closure of the facility.  This post analyzes the proposal’s treatment of long-term liability associated with CCS projects.

Example 3 - Long-Term Liability

EPA’s failure to resolve long-term liability issues at CCS facilities remains a significant weakness in the proposed framework.  While underground injection of carbon dioxide has been used for decades in oil and gas production, the science supporting long-term geologic sequestration of large quantities of carbon dioxide is still in the demonstration phase.  CCS projects face lingering uncertainties  associated with unintended release, migration or chemical reaction of substances injected into geologic formations.  Managing these risks facilitates commercialization of CCS. 

EPA appears to lack authority under the Safe Drinking Water Act (SDWA) to regulate long-term liability at CCS facilities.  The most prominent climate change bills of the last year, the Warner Lieberman Committee Bill (S-2191 IS), the subsequent Boxer Amendment (S-2191-RS), the Dingell-Boucher Discussion Draft and the Markey Bill (H.R. 6186), recognize the importance of the issue, but none provides the requisite authority to change the system.  Rather, the bills would establish advisory groups to provide future policy recommendations.  A task force is not necessary - the current liability framework inhibits the deployment of CCS technology. 

Unlimited Liability Will Discourage First Movers

CCS investors, owners and operators could face significant exposure for remediation costs and claims of damage to human health, property or the environment from CCS activities.  CCS sponsors could be exposed to liability under the Safe Drinking Water Act, the Comprehensive Emergency Response, Compensation and Liability Act, the Resource Conservation and Recovery Act and the Clean Air Act.  Project sponsors could also be exposed to state-specific causes of action, under both tort (e.g., claims of trespass, nuisance, negligence, and/or strict liability) and contractual theories.  The risk of legal liability can provide an important incentive for good project design, construction, operation and post-closure stewardship.  Uncertainty about the extent and scope of such liability, however, can create a strong disincentive to meaningful investment in CCS projects, especially during the early phases of CCS commercialization when the outcomes are most variable.  (more…)

Under Article 4.1(a) of the 1992 U.N. Framework Convention on Climate Change (UNFCCC), all member states are obligated to report, on a periodic basis, GHG emissions from anthropogenic sources and the removal of GHG sinks (such as through changes in land use or forest cover).  Pursuant to a series of decisions of the Conference of the Parties to the UNFCCC, the 41 industrialized countries identified in Annex I to the Kyoto Protocol must provide more detailed emissions data on an annual basis.  Non-Annex I countries, which include China, India, and other large industrializing countries, are not subject to these more rigorous emissions reporting obligations.

The report, which covers the period 1990 through 2006, confirms that the United States, the EC and Russia remain the largest three Annex I emitters.  The report also shows for each of these jurisdictions that, while 2006 emissions represented a slight drop from 2005 levels, those same emissions were somewhat higher than 2000 emissions.  The United States remained by far the largest Annex I emitter, at just over 7 billion tons in 2006 (according to some sources, China has now eclipsed the United States as the world’s largest GHG emitter).  Total EC emissions were just over 4.1 billion tons, while Russian emissions were 2.2 billion tons.  This represented a drop from those countries’ 1990 emissions of 2.2% and 34%, respectively.  In contrast, U.S. emissions grew 14.4% over the same period.

(more…)

While Obama’s pledge did not break new ground, the message energized attendees by sending a clear signal that the U.S. will join the international community in making a real commitment to reduce greenhouse gas emissions.  Many believe Obama’s commitment sets a new tone for talks at the Poznan conference, where leaders hope to advance the negotiations over a successor to the Kyoto Protocol.  While the President-elect has made it clear that he will not appear in Poznan, he declared that after he takes office, “you can be sure that the United States will once again engage vigorously in these negotiations.”

(more…)

In October 2008, Prime Minister Vladimir  Putin supported a proposal  made by  the state corporation Rosatom to invest in polysillicon production  and  to construct  a solar equipment plant in Krasnoyarsk Region to produce solar modules.   This project would involve Rosatom’s Zheleznogorsk polysilicon plant, the state-owned Krasnoyarsk Machine-Building Plant (Krasmash), and OJSC Krasnoyarsk Non-Ferrous Metals Plant (KrasTsvetMet).   Other state corporations, Rosnanotekh and Vheshekonombank, might participate in co-financing the project, whose goal is to create a vertically integrated manufacturing value chain  from the supply of  raw materials  to the assembly of solar modules.

In September 2008, Rosnanotekh signed a strategic cooperation agreement with Oerlikon, a Swiss industrial technology corporation partly   owned by  the  Renova Group of Companies,  a  leading asset management company  in Russia. In May 2008, Renova Industries Ltd increased its stake in Oerlikon to 39.1 percent.  Oerlikon’s subsidiary, Oerlikon Solar, is a  major producer of equipment for manufacturing solar cells.

Private initiatives  [noted in a previous posting “Russian officials approach renewables cautiously” dated September 9, 2008] include Nitol Solar’s new construction project in Irkutsk Oblast, with its projected annual polysilicon capacity of 3,700 tons in 2009.  Nitol produced its first industrial batch of polysilicon in early 2008.  Krasnodar-based producers Solar Wind Ltd and Kvark Ltd  are also interested in the creation of a manufacturing value chain in Krasnodar Region.  The required investment for this project was estimated in 2007 at about 260 million euros ($372 million).  Kvark has  already produced and installed solar-powered light posts in the southern city of Krasnodar.  Solar Energy LLC, a Russian subsidiary of Industrial Investors Group, has a project for a 1200 MT polysilicon production facility near the city of Lipetsk.  Production is expected to start in 2009, with some output exported and some used for domestic production of solar cells in the city of Ryazan. 

The  present financial crisis  will most likely produce delays in some of these projects.  However, state-controlled companies  will probably find it easier to raise the significant amounts needed to launch large-scale solar projects than will private companies.

Present producers of solar cells and/or solar modules in Russia include the following companies:

1. Solar Wind Ltd (city of Krasnodar, Krasnodar Krai)
2. OJSC Krasnoe Znamya (city of Ryazan, Ryazan Oblast)
3. Kvark Ltd (city of Krasnodar,  Krasnodar Krai)
4. CJSC Telecom STV (city of Moscow)
5. OJSC Ryazan Metal Ceramics Instrumentation Plant (RMCIP) (Ryazan Oblast)
6. JSC Bogoroditsk Plant of Techno-Chemical Products (BTCP) (city of Bogoroditsk, Tula Oblast)

Present producers of polysilicon for solar applications include the following companies:

1. Nitol Solar (city of Usolye-Sibirskoye, Irkutsk Oblast)
2. Zheleznogorsk Polysilicon Plant of the Krasnoyarsk Mining & Chemical Complex (city of Zheleznogorsk, Krasnoyar s k Krai)

Present producers of monocrystalline silicon for solar applications include the following companies:

1. OJSC Podolsk Chemical Metallurgic Plant (city of Podolsk, Moscow Oblast)
2. OJSC Krasnoyarsk Non-Ferrous Metals Plant (city of Krasnoyarsk, Krasnoyarsk Krai)

As the CCS provisions constitute an amendment to Australia’s key oil and gas legislation, the Offshore Petroleum Act 2006, there are three key features of that regime which must be understood.  Firstly, the Crown (i.e. the Federal Government) owns virtually all land containing minerals and petroleum and grants rights to miners to explore for and produce the resource (this contrasts with the ownership regime in the US, where most mineral land is privately held).  Secondly, the oil and gas regulation reflects Australia’s federal system.  The Offshore Petroleum Act at the Commonwealth level applies beyond State coastal waters (which are nominally within 3 nautical miles of the coast).  Although this is Commonwealth legislation, it is administered by joint authority of the Commonwealth and State.  Mirror legislation in each State applies to State coastal waters, with the aim that the same rules apply, regardless of jurisdiction.  Separate State petroleum legislation applies in each state to the onshore area and islands.  Finally, it is worth mentioning that health, safety and environmental issues relating to the oil and gas industry are dealt with under regulations made under the Act, and therefore CCS operators will also inherit that existing system.

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As previously raised by ClimateIntel, current inefficiencies and red tape in the permitting process have been holding up progress towards meeting California’s existing 20% by 2010 RPS goal.  Thus, the effectiveness of the RPS procurement process has been tempered by the slow pace of actual renewable development coming online.  The Governor’s EO S-14-08 directly addresses this problem through the following:

• Streamlining the application process for renewable energy development by creating a “one-stop” process for concurrent review of permit applications by the California Energy Commission (CEC) and the Department of Fish and Game (DFG).  On November 17, the CEC and DFG signed a Memorandum of Understanding (MOU) to create a joint Renewable Energy Action Team (REAT) that will concurrently review permit applications filed at the state level.  This streamlined process is expected to halve the application time for specific projects.  Beyond this, the CEC and DFG entered into a further MOU with the U.S. Fish and Wildlife Service and the U.S. Bureau of Land Management to include the federal partner agencies in the expedited permitting process for projects on federally-owned California land. 
• Initiating the Desert Renewable Energy Conservation Plan in the priority Mojave and Colorado Desert Regions.  Under this Plan, the REAT will, among other things, collaborate with federal partners and stakeholder groups to identify and map pre-approved areas for streamlined RPS project permitting and environmental review.  The REAT will also develop a Best Management Practices manual to assist applicants in designing projects to emphasize siting considerations and minimize environmental impacts.  The Plan is expected to reduce both the time and uncertainty normally associated with renewable project development.  
• Further accelerating and raising California’s RPS Goal from 20% by 2010 to 33% by 2020.  The Governor will be unveiling proposed companion legislation to codify this higher RPS standard and require all utilities, public and private, to meet the 33% target.  The legislation will also reform the renewable energy market structure to spur new development while providing consumer safeguards.

About half of the states in the U.S. have renewable energy mandates, but California’s 33% by 2020 will be the most aggressive.  With California again pushing the envelope, hopefully, the Obama Administration will be next to push for a strong federal renewable portfolio standard.

These issues can influence investment in, and public support for, CCS as a climate change mitigation strategy. As such, EPA’s framework must establish the necessary human health and environmental safeguards, without posing unnecessary barriers or costs to deployment of CCS.  In critical respects, EPA’s proposal provide insufficient for stakeholders to evaluate the validity of proposed requirements.

Example 2:  Post-closure monitoring requirements at CCS facilities

With the designed storage life for CCS facilities reaching from hundreds to thousands of years, the time period during which active monitoring and management of CCS sites must continue after sequestration activities cease and closure activities are completed is critical in assessing the practical and economic viability of a specific CCS project. 

(more…)

On Wednesday, the Big Three and the UAW go before Chairman Frank’s committee to make their case.  Chairman Frank, and the Democratic leadership, have been generally supportive of the autos’ request.  Opposition is coming from Senate Republicans such as Sen. Richard Shelby, ranking member of the Senate Banking Committee, and it is unlikely that the bill could survive a Republican filibuster.  President-elect Obama has offered his qualified support for the emergency loans and if they fail this week, it is likely that they could be enacted (possibly by executive order) when the new Administration takes office.  These loans will by no means be unconditional.  They will likely ask the auto companies for increased government scrutiny of their operations, including demonstrating that the companies have a plan to transform themselves into profitable and technologically innovative companies.  That means greater government support for fuel efficiency and weaning away from the fleet mixes that have proven unpopular in an age of higher gas prices.

(more…)

Example #1:  Financial Assurance Requirements for CCS Projects

EPA proposes to impose a “general duty” on owners or operators of CCS projects to “demonstrate and maintain financial responsibility and resources” sufficient to cover costs associated with closure and post-closure activities.  73 Fed. Reg. 43537 (proposed as 40 C.F.R. § 146.84(a)).  The costs of financial assurance will depend both on the size and scope of the proposed project and on which financial assurance instruments and options are available to owners or operators under the regulation.  The proposal states only that the Agency “will provide guidance to be developed at a later date that describes the recommended types of financial mechanisms that owners or operators can use to meet this amendment.”  Id. at 43520.

EPA’s failure to clarify its financial assurance policy is notable for two reasons.  First, although EPA already administers financial assurance regulatory requirements governing closure and post-closure of underground injection wells for hazardous waste, hazardous waste treatment, storage, and disposal facilities, and underground storage tanks, EPA’s CCS proposal eschews such precedents, stating:

The [EPA’s Office of the Inspector General]  and [U.S. Government Accountability Office] suggest that EPA may need to update or provide additional guidance in the following areas: Cost estimation methodology; pay-in period for trust funds; the type of insurance provider that may be used; requirements for acceptable surety bonds and/or their providers; and the way by which corporations demonstrate financial strength/credit worthiness…  EPA is considering updating mechanisms for demonstrating financial responsibility for GS projects.

The financial assurance regime established for the CCS facilities is likely to be markedly different from that which investors and industry apply under current business models.

The proposal compounds this uncertainty by suggesting EPA will issue CCS-specific financial assurance standards using mere guidance.  Of even greater concern may be the risk that poorly vetted guidance could hobble US efforts to commercialize CCS when aggressive action is needed to meet US commitments.

To submit comments on EPA’s CCS framework, follow directions provided in the proposed rule.

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Click here to read the next blog post in the three-part series on the proposed rule’s treatment of post-closure monitoring requirements at CCS facilities.