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Environmental

House Bill Would Circumvent Federal Regulation of Coal Ash

by McDermott Will & Emery | Jul 30, 2013 | Environmental

On Thursday, the U.S. House of Representatives passed legislation that would significantly alter the U.S. Environmental Protection Agency’s (EPA) authority with respect to the regulation of coal combustion residuals (CCR) or coal ash under the Resource Conservation and Recovery Act (RCRA). If enacted, this legislation would allow states to develop, implement and administer permit programs for handling CCR. EPA would have permitting authority only in limited circumstances. Furthermore, the legislation provides that, except as provided in those subsections that authorize EPA to review state permit programs for consistency with the law and those providing for EPA implementation of the permit program, “[EPA] shall, with respect to the regulation of coal combustion residuals, defer to the States pursuant to this section.” (The bill’s further reference to RCRA § 6005 as an exception appears to be a mistake.)

Aside from creating an entirely new permitting regime for CCR, this legislation would add a new layer of uncertainty to the validity of EPA’s pending rulemaking on the regulation of CCR under RCRA. The effect on EPA’s proposed Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category (proposed June 7, 2013; comments due September 20) pursuant to the Clean Water Act, which would impose new requirements on wastewater associated with fly and bottom ash and also may address ash pond closure issues, is uncertain.

The House bill, entitled the Coal Residuals Reuse and Management Act of 2013, was passed by a 265-155 vote, including the support of 39 Democrats, and would be an amendment to the Solid Waste Disposal Act. The legislation authorizes states to create and manage permit programs for CCR. The proposed law would require states to notify the EPA Administrator within six months of the legislation’s enactment whether they plan to implement such a permit program. States that choose to create such a program would need to comply with certain federal standards and requirements, including those addressing design, groundwater monitoring and corrective action, closure and post-closure of landfills, surface impoundments or other land based units that receive CCR.

Although House Democrats have argued that the legislation does not provide for enough federal authority to regulate CCR, citing groundwater pollution as a primary concern, Republicans and industry groups have supported the bill as protecting the market for beneficial uses of CCR. (For example, the legislation would not affect utilization, placement and storage of CCR at surface mining and reclamation operations.) The Obama administration indicated in a statement earlier this week that it is interested in working with Congress to address the issues raised in the legislation to develop standards for the management of CCR and to encourage the beneficial uses of coal combustion byproducts, suggesting that a legislative compromise may be attainable.

The legislation, and its potential for enactment, further complicates the already uncertain status of federal regulation of CCR – specifically, EPA’s long-pending rulemaking concerning the handling of CCR under RCRA. In June 2010, EPA issued a proposed rule to [...]

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Illinois Set to Regulate Shale Oil and Gas

by McDermott Will & Emery | Jul 23, 2013 | Environmental, Hydraulic Fracturing

by Thomas Hefty

On June 17, 2013, Illinois P.A. 98-0022 (the Act), consisting of the Hydraulic Fracturing Regulatory Act (HFRA) and the Illinois Hydraulic Fracturing Tax Act (HF Tax Act), became law. The Act, which was the result of months of negotiations among industry and some environmental groups, had been stalled since March 2013 after a last-minute amendment added a licensing regime that would have favored water-well drilling contractors. That impasse was resolved when the objectionable well-licensing regime was replaced by a local workforce credit against HF Tax Act liability. The Act is a defeat for those environmental and community groups that favored a moratorium on horizontal hydraulic fracturing in Illinois until the U.S. Environmental Protection Agency completed its ongoing study of horizontal hydraulic fracturing’s potential to affect groundwater resources. HFRA’s supporters tout it as the United States’ most comprehensive and rigorous horizontal hydraulic fracturing regulation, and claim it sets the “best practices standard” for environmental, health and safety regulation.

To read the full article, click here.

Obama’s Climate Plan Provides Timeline to Reduce Carbon Emissions at New and Existing Power Plants

by McDermott Will & Emery | Jun 26, 2013 | Environmental

by Bethany K. Hatef

Following up on his Inaugural Address promise to prioritize climate change, President Obama unveiled yesterday a Climate Action Plan (Plan), which includes details about what steps the Administration will take to reduce carbon emissions from power plants.The White House also released a Presidential Memorandum that provides the U.S. Environmental Protection Agency (EPA) with specific deadlines for future rulemakings concerning new and existing power plants but few details on what the eventual requirements for existing facilities will look like.

In the Plan, President Obama aims to reduce carbon emissions nationwide by encouraging the use and development of clean energy, bringing up-to-date the transportation sector, reducing energy waste and cutting emissions of other greenhouse gases, including hydrofluorocarbons. With regard to power plant emissions, the Plan notes that there are currently no federal standards in place to reduce carbon pollution from power plants. Although EPA issued proposed standards for new power plants over a year ago, it received more than two million comments and never issued a final rule. The Plan refers to a Presidential Memorandum (Memorandum), issued yesterday, that directs EPA to develop and finalize carbon emissions limits for both new and existing power plants.

Under the Memorandum’s timeline, a revised proposed rule for new facilities is due September 20, 2013, with a final rulemaking to follow “in a timely fashion.” With respect to existing power plants, the memorandum notably does not require EPA to issue a formal rulemaking setting standards for carbon emissions from such facilities. Instead, President Obama directs EPA to use its power under Sections 111(b) and 111(d) of the Clean Air Act to issue “standards, regulations, or guidelines, as appropriate” concerning carbon emissions from “modified, reconstructed, and existing power plants” (emphasis added). EPA must issue a proposal by June 1, 2014, and the final rule (or guidelines) must be promulgated by June 1, 2015. State implementation plans will be due to EPA by June 30, 2016. Regardless of the substance of the rules for new and existing power plants, the Memorandum’s timeline leaves little room for delay before the end of Obama’s Presidency.

Illinois to Act on Fracing – Or Not

by McDermott Will & Emery | Apr 18, 2013 | Environmental, Hydraulic Fracturing, Natural Gas

by Thomas L. Hefty

The Illinois General Assembly could be on the verge of enacting legislation, the Hydraulic Fracturing Regulatory Act (H.B 2615), that some environmental groups are touting as an environmental best practices for regulating the shale oil and gas recovery method known as horizontal hydraulic fracturing (fracing). H.B. 2615, the result of months of negotiations between environmental groups and the oil and gas exploration and production (E&P) industry, was set to be voted on in the Illinois General Assembly in late March, but a last second amendment (favoring in-state licensed drilling companies) has stalled the bill’s progress.

While HB 2615 is laudable for setting robust regulations on horizontal fracing operations, what should make it the betting favorite is that it is also a revenue bill – the second half of H.B. 2615 contains the Illinois Hydraulic Fracturing Tax Act. Under H.B. 2615, Illinois would finally join the majority of drilling states that tax severed oil and gas. Each Illinois well using horizontal hydraulic fracturing could produce several million dollars in severance taxes during the span of the well’s productive life.

Illinois is one of the few drilling states not to impose any severance or gross production taxes on its substantial oil and gas production. Illinois currently has about 32,000 wells producing between 10 and 11 million bbls of oil (15th nationally) and 2,120 million cubic feet of natural gas, ranking it 26th. That production would increase significantly if large-scale horizontal hydraulic fracturing were introduced in Illinois to the New Albany Shale formation. Technically recoverable shale gas in the New Albany Shale is estimated at up to 11 trillion cubic feet (for comparison, the Marcellus Shale in the East has 84 TCF). A majority of the drilling states, including Indiana and Kentucky, tax oil and gas production. Several others, most prominently Pennsylvania, are currently considering adopting oil and gas severance taxes.

Competing with H.B. 2615 are three other bills: two bills favored by those environmental groups not supporting H.B. 2615 that would put a two-year moratorium on any hydraulic fracturing and an E&P industry-sponsored bill that environmental and community groups strenuously oppose. One would think that with the support of the E&P industry and some environmental groups (including the Natural Resources Defense Council), plus the revenue enhancement features of the severance tax, H.B. 2615 should be a done deal. But given the current state of Illinois politics, taxes might not be the certainty that Ben Franklin once thought they were.

California Cap-and-Trade Program Marches Forward

by McDermott Will & Emery | Jan 10, 2013 | Environmental, Project Development and Finance

by Ari Peskoe

California’s cap-and-trade compliance obligations became binding on January 1, 2013, culminating six years of regulatory proceedings. Although the California Air Resources Board (CARB) deemed the first auction for emission allowances in November a success, revised statistics revealed that two-thirds of all bids submitted were disqualified. In other recent developments, the state’s Public Utility Commission (CPUC) announced how revenues from the auctions will be allocated, and CARB (the program administrator) set the stage for emissions-offset projects. The second allowance auction is scheduled for February 19.

Authorized by the Global Warming Solutions Act of 2006, California’s cap-and-trade program aims to reduce the state’s greenhouse gas emissions to 1990 levels by 2020, a modest goal given the state’s numerous other initiatives aimed at reducing emissions. Approximately 75 participants, comprising utilities to large financial institutions, were authorized to bid in the first auction; all 23 million allowances offered for 2013 compliance were purchased.

CARB initially reported that 3.1 bids were submitted for each available allowance, but later issued a statement that just 1.06 “qualified bids” were submitted for each allowance. According to CARB, only qualified bids are used in the settlement process, and “a very small number of participants exceeded their purchase limit, holding limit, or bid guarantee.” Bloomberg News cleared up the ambiguity when it reported in December that one of the state’s investor-owned utilities (IOU) had erroneously submitted approximately 72 percent of all bids due to an apparent misunderstanding of the bid format. As a result, this IOU bought 40 percent more allowances than it needed, even though most of its bids were disqualified.

The state’s electric utilities, including municipal utilities, are allocated free allowances. However, the IOUs are required to consign all of their allowances to auction, with the proceeds remitted to ratepayers. For 2013, those revenues will be at least $650 million, and could total more than $22 billion by 2020. In late December, the CPUC announced that these revenues will be distributed to certain industrial users that emit less than 25 MTCO2e per year, small businesses (which are defined based on their electricity consumption), and residential customers. The CPUC also determined that it was not appropriate to use auction revenues for energy efficiency or clean energy programs at this time, but part of its reasoning was based on its own administrative processes. It encouraged parties to propose increased funding for efficiency and clean energy in other “appropriate proceedings.”

Also in December, CARB approved two organizations to review carbon-offset projects and issue offset credits. These organizations will use CARB-approved methods of accounting to determine emissions reductions for four types of projects: forestry, urban forestry, dairy manure digesters, and destruction of ozone-depleting substances. A covered entity can use offsets to comply with up to eight percent of its obligation.

Finally, the second auction for 2013 allowances is scheduled for February 19 and has a January 22 application deadline. The reserve price is $10.71, which is slightly higher than the first auction based on a predetermined formula. More than twice as many 2013 allowances will be up for auction as [...]

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LEED v4 Nearing Completion

by McDermott Will & Emery | Dec 20, 2012 | Environmental

by Thomas L. Hefty

The fifth and final public comment session for the new Leadership in Energy and Environmental Design (LEED) standard that will replace the current LEED 2009 (aka LEED v3) standard ended earlier this month. LEED v4 is intended to address one of the major criticisms of LEED v3, which is that it is a design tool that lacks technical rigor to serve as a performance measurement tool. LEED v4 responds to this criticism with credit categories focusing on integrated design and life cycle analysis of materials and an increased emphasis on measurement and performance, including enhanced building commissioning.

LEED is a leading standard for certifying “green” (sustainable) built environments (from home to single buildings to neighborhoods) and is developed and promoted by the U.S. Green Building Council (USGCB). LEED is a credit or point based rating system that gives building owners and operators the tools to assess green building design, construction, operations and maintenance. LEED certified buildings are designed to lower operating costs and increase asset value, reduce waste sent to landfills, conserve energy and water, improve indoor environmental quality, reduce greenhouse gas emissions, and qualify for tax rebates, zoning allowances and other incentives.

In addition to new credit categories that focus on integrated design and life cycle analysis, LEED v4 also recognizes demand-response and will offer a credit that rewards projects for participating in demand response programs. LEED v4 also increases the emphasis on energy and its associated impacts by allocating 20 percent of all points to building energy efficiency.

With over 21,500 public comments received in the first four public comment sessions, USGBC pushed back the release date of LEED v4 to 2013. LEED v4 has been undergoing beta testing since November 2012, but formal adoption of LEED v4 is by consensus of its members. USGBC member balloting is scheduled to begin June 1, 2013. Although LEED v3 will remain open for registration until June 1, 2015, USGBC intends to gradually ramp up incentives for users to migrate to LEED v4 once it is formally adopted. If a project is submitted under LEED v3 prior to that sunset date, project owners will have up to one additional year from the date of the design submission to submit for construction review.

New Research Finds Shale Natural Gas Production Emits Less Fugitive Methane that Previously Reported

by McDermott Will & Emery | Dec 4, 2012 | Environmental, Hydraulic Fracturing, Natural Gas

by James A. Pardo and Brandon H. Barnes

Shale natural gas production emits significantly less fugitive methane than previously thought, concluded researchers at the Massachusetts Institute of Technology (MIT) in a November 26, 2012, study published in Environmental Research Letters. According to the researchers, "it is incorrect to suggest that shale gas-related hydraulic fracturing has substantially altered the overall [greenhouse gas] intensity of natural gas production."

Methane has been singled out as one of the most powerful greenhouse gases (GHG) because of its "global warming potential" – or the relative heat trapped in the atmosphere by a gas – which is 20 times greater than that of carbon dioxide. Fugitive methane emissions are losses of methane gas that may occur during flowback (the return of fluids), during drill-out following fracturing, and during well-venting to alleviate well-head pressure. Fugitive emissions can also occur as a result of equipment leaks, transportation or storage losses, and processing losses, but in much smaller quantities.

An earlier study by Cornell University professor Robert Howarth, which garnered much media attention, reported that shale gas production had a lifetime carbon footprint greater than coal production, mainly as a result of fugitive methane emissions that Howarth had estimated to be as great as 4,638 Mg per well. In contrast, the MIT study determined that actual fugitive methane emissions average approximately 50 Mg per well after taking into account flaring and green completions technology, both of which are widely used by industry and required under most state regulatory regimes (as well as under new Environmental Protection Agency rules). The MIT researchers evaluated actual production data from approximately 4,000 horizontal shale natural gas wells, and found a potential for about 228 Mg of fugitive methane emissions per well. The researchers cautioned that estimates about fugitive methane emissions had been "inappropriately used in analyses of the GHG impact of shale gas" insofar as actual emissions are reduced — by an average of 178 Mg per well — by flaring and green completion technology.

Hydraulic fracturing stakeholders need to understand the body of publicly available science, as a growing body of research will inform how EPA and other state and federal regulatory agencies will regulate the industry.

CPUC Orders On-Bill Repayment For Energy Efficiency and Other Demand-Side Projects

by McDermott Will & Emery | Nov 27, 2012 | Environmental, Project Development and Finance

by Thomas L. Hefty

The California Public Utilities Commission (CPUC) recently ordered California investor-owned utilities (IOU) to implement on-bill repayment (OBR) programs by the end of the first quarter of 2013 to support “all types of demand-side investments.” OBR enables building owners or occupants to repay eligible project obligations through their monthly utility bills.

Unlike on-bill financing (OBF) loans, which are made by the IOUs under pilot program tariffs, OBR programs can be underwritten and funded by far wider array of third-party capital sources, including commercial lenders, investor funds and vendors. Because default rates on utility bills tend to be low, OBR lenders/investors should be able to offer low finance rates, longer maturities and better terms as compared to conventional energy efficiency loans. Repayment will be made through the IOUs’ billing and collections, meaning that the original owner/tenant will not be responsible for making payments after a sale of the property or after moving.

OBR programs are expected to be made available across a wide array of property types – governmental, institutional, commercial, non-for-profit and residential. Program participation could come from a variety of funding vehicles including loans, energy service agreements and power purchase agreements. Customers will pay a single monthly bill for both energy and OBR program payments that should be lower than their previous bills. This “pay as you save” feature should enable greater market penetration across more property market segments. In addition to IOU “back-office” support (billings and collections), OBR is linked to project performance measurement and verification by the IOU.

The Environmental Defense Fund estimated that an OBR program in California could generate $2.7 billion of third-party investment per year, create 20,000 jobs and reduce annual CO2 emissions by seven million tons after five years.

Coming Soon: California’s First Cap-and-Trade Auction

by McDermott Will & Emery | Sep 25, 2012 | Environmental, Project Development and Finance

by Ari Peskoe

On November 14, California’s Air Resources Board (CARB) will conduct the first greenhouse gas (GHG) allowance auction as part of the state’s cap-and-trade program. Earlier this month, CARB issued two notices, one identifying the deadlines between now and November 14 and the other explaining financial requirements for participation. Compliance obligations for the electricity industry and some industrial facilities start in 2013, and CARB estimates that sources responsible for 85 percent of the state’s current emissions will ultimately be covered by the program. Although this new market is the first of its kind in the United States, given the declining GHG emissions in California over the past few years, the program’s goals are relatively unambitious.

Authorized by the Global Warming Solutions Act of 2006, California’s cap-and-trade program is intended to reduce the state’s GHG emissions in 2020 to 1990 levels. Its first phase covers facilities generating electricity, importers of electricity, and large industrial sources, such as facilities used for fossil fuel extraction or refining, mining and manufacturing. Initially, only sources that emit more than 25,000 tons of CO2 equivalents per year are required to participate. In 2013, approximately 90 percent of allowances will be distributed for free to electric generators and operators of industrial facilities based on their most recent emissions. In 2015, distributors of petroleum, natural gas and other fuels will also be required to hold GHG allowances, as will many stationary sources that emit less than 25,000 tons of CO2 per year. In addition to covered entities, financial institutions and other intermediaries are allowed to participate in auctions and trading.

In 2007, CARB set the 1990 baseline (and 2020 goal) at 427 million metric tons (MMT) per year and estimated that the 2020 business-as-usual forecast would be approximately 600 MMT. With that estimate, the 2020 goal represented a decline of about 30 percent. While GHG emissions increased slightly from 2000 to 2007, they dropped sharply in 2009, roughly at the same rate as national GHG emissions fell in the wake of the recession. As a result, in 2010, CARB reduced its 2020 business-as-usual scenario from 600 to 508 MMT. With the new estimate, the 2020 goal represented a decline of 15 percent compared to the business-as-usual scenario. This updated estimate, however, did not account for California’s increase in its renewable portfolio standard target from 20 percent by 2010 to 33 percent by 2020, or for new state and national vehicle efficiency standards. CARB estimates that these measure alone would more than account for the difference between today’s actual emissions and the 2020 goal.

California has long been a pioneer in energy regulation. In 1996, for example, the state legislature restructured its electricity industry, becoming the first in the country to rely on market-bidding to procure power and services for its electric grid. Two years after the markets opened, prices soared, FERC declared the market structure to be seriously flawed, and California scrapped the original market design and tried again. Today, it is considered a model market for policy makers.

California may see this initial cap and trade program [...]

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Divided Appeals Court Vacates Air Transport Rule Targeted at Coal-Fired Power Plants

by McDermott Will & Emery | Aug 30, 2012 | Environmental

by Jeffrey D. Watkiss

In EME Homer City Generation, L.P. v. EPA, two judges of a divided three-judge panel of the United States Court of Appeals for the D.C. Circuit vacated the Environmental Protection Agency’s (EPA) 2011 Cross-State Air Pollution Rule (Transport Rule), which implemented the so-called "good-neighbor" provision of § 110 of the four-decade-old Clean Air Act (CAA). Recognizing that upwind emissions pollute downwind regions, the good-neighbor provision requires CAA implementation plans (federal or state) to prohibit upwind sources of air emissions from contributing significantly to a downwind state’s inability to attain or maintain compliance with national ambient air quality standards (NAAQS). Had it not been stayed and later vacated, the Transport Rule would have put 28 upwind states on emission "budgets" for sulfur dioxides (SO2) and nitrogen oxide (NOx) — both NAAQS criteria pollutants — requiring emission reductions primarily from upwind coal-fired electric generating stations.

Coal-burning power companies, coal companies, labor unions, associated trade associations, states and local governments petitioned for review of EPA’s Transport Rule. On December 30, 2011, the court stayed the Transport Rule and instructed EPA, pending a decision on the merits, to continue administering the agency’s predecessor Clean Air Interstate Rule (CAIR). The Transport Rule was EPA’s attempt to develop a rule that cured problems with CAIR, which a different panel of the D.C. Circuit in 2008 found to violate the CAA in North Carolina v. EPA.

The majority’s August 21, 2012 opinion ruled in favor of the petitioners and vacated EPA’s Transport Rule on the ground that the EPA exceeded its CAA authority in two respects. First, the majority held that, under the Transport Rule, upwind states may be required, in violation of the CAA good-neighbor requirement, to reduce emissions by more than their proportional share of significant upwind contributions to a downwind state’s inability to attain or maintain NAAQS compliance. Second, EPA simultaneously set a Federal Implementation Plan (FIP), according to the majority, that ran afoul of the federalism embedded in the CAA, which requires that states be given the first opportunity to devise a compliance strategy in the form of a State Implementation Plan (SIP).

The dissent opinion is excoriating. It accuses the majority of creating and deciding straw-man issues that the majority wanted to decide, but which were not raised before the agency and were therefore not properly before the court. With respect to EPA’s calculation of the emissions reductions that the Transport Rule would impose on upwind states, the dissent accuses the majority of intentionally misreading North Carolina as requiring the agency to use the same metrics to determine which upwind sources are subject to good-neighbor emissions reductions, on the one hand, and the emissions reductions budget for each such state, on the other hand. According to the dissent, North Carolina ruled to the contrary that EPA’s measure of a state’s “significant contribution” to downstream non-attainment or non-maintenance of NAAQS did not have to correlate directly with the state’s air [...]

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