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Why 2030 is the New 2050 after the Leaders Climate Summit and What President Biden’s Accelerated Transition to a Sustainable Economy Means for Renewables Developers, Investors and Corporates

2030 is the new 2050 as US President Joe Biden has officially set a new goal for fighting climate change over the next decade in the United States. At the Leaders Climate Summit (the Summit) on Earth Day, he announced that America would aim to cut its greenhouse gas emissions at least 50% below its 2005 levels by 2030. If successful, this transition would lead to a very different America and would affect virtually every corner of the nation’s economy, including the way Americans get to work, the sources from which we heat and cool our homes, the manner in which we operate our factories, the business models driving our corporations and the economic factors driving our banking and investment industries. The effectiveness of this transition lies in the administration’s ability to pull on two historically powerful levers: Tax policy and infrastructure funding. However, tax policy will call upon multiple sublevers, such as increased tax rates, expanded tax credits, refundability, carbon capture, offshore wind, storage, transmission and infrastructure investment. All of this will be bolstered by the American corporate sector’s insatiable appetite for environmental, sustainability and governance (ESG) goal investment.

QUICK TAKEAWAYS

There were six key announcements at the Summit for renewables developers, investors and corporates to take note:

  1. The United States’ commitment to reduce its greenhouse gas emissions by 50% – 52% below its 2005 emissions levels by 2030
  2. The United States’ economy to reach net-zero emissions by no later than 2050
  3. The United States to double the annual climate-related financing it provides to developing countries by 2024
  4. The United States to spend $15 billion to install 500,000 electric vehicle charging stations along roads, parking lots and apartment buildings
  5. A national goal to cut the price of solar and battery cell prices in half
  6. A national goal to reduce the cost of hydrogen energy by 80%

President Biden’s goals are ambitious. It is clear from the history of renewable incentives in the United States as well as current developments that moving forward, the green agenda will predominately rely on two primary levers being pulled at the federal level: Tax policy and infrastructure funding. The federal tax levers mentioned above will not be pulled in a vacuum. Instead, they will be pulled in the midst of a tectonic shift among individual investors that now demand that institutional investors and corporations begin to create and meet ESG goals as individual customers are beginning to take a corporation’s climate goals and footprint into account when making purchasing decisions.

As a result, we discuss the following areas in greater detail below:

  1. Tax policy
    1. increased tax rates
    2. expanded tax credits
    3. refundability
    4. carbon capture
    5. offshore wind
    6. storage
    7. transmission
  2. Infrastructure bill
  3. ESG environment

DEEPER DIVE: BREAKING DOWN EACH LEVER AS WELL AS ITS OPPORTUNITIES AND CHALLENGES

  1. Tax Policy: The consistent message from the Biden Administration, at the Summit and elsewhere, makes clear that tax policy will likely play a significant role in the administration’s ambitious climate agenda. At [...]

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New Climate Change Guidance for NEPA Reviews

In the United States, federal agencies that license, permit or finance energy and infrastructure projects must, with some limited exceptions, analyze the environmental impacts of those projects before they approve them, pursuant to the National Environmental Policy Act of 1969 (NEPA).  But to what extent must those agencies consider climate change impacts as part of their NEPA reviews? The President’s Council on Environmental Quality (CEQ) has just issued a guidance document that addresses that question.

CEQ’s guidance document—an August 1 memorandum addressed to the heads of all federal departments and agencies—urges federal agencies to consider two climate change-related topics when conducting NEPA reviews.

The first topic is the impact of a proposed project on climate change, and the memorandum urges federal agencies to approach that topic by focusing on the project’s direct, and indirect, greenhouse gas (GHG) emissions. Agencies are encouraged to calculate a project’s anticipated emissions using existing government resources and calculators, and to draw upon existing government literature on the impacts of such emissions. The memorandum acknowledges that “the totality of climate change impacts is not attributable to any single action,” but concludes that climate-related impacts are exacerbated by some government actions and encourages agencies to compare the level of emissions expected from a proposed project to the level expected under alternative project scenarios. The memorandum provides scant details on how to calculate “indirect” GHG emissions but does suggest that for projects involving fossil fuel extraction, the indirect impacts turn, at least in part, on the anticipated ultimate use of the extracted fuel.

The second topic is the impact of climate change on the project, and on the project’s impacts.Here, CEQ’s memorandum encourages federal agencies to consider a proposed project’s impacts not simply on environmental conditions as they currently exist but as they will exist in the future and reflecting any changes that are expected as a result of climate change. Thus, if a project will draw water from a river that is already being, or that will be, diminished because of changing snowfall or rainfall patterns, that is an impact that should be acknowledged. The memorandum also encourages agencies to incorporate climate change resiliency and adaptation planning into their NEPA reviews, especially when analyzing project alternatives and potential mitigation measures. The memorandum suggests, for example, that agencies consider whether a proposed project’s design makes it more vulnerable to changing climate conditions (such as, in some areas of the country, increased risk of wildfires) than alternative projects.

CEQ’s memorandum applies to all new NEPA reviews and states that agencies “should exercise judgment” when considering whether to apply the guidance to currently ongoing reviews. CEQ states in the memorandum that it “does not expect agencies to apply” the guidance to projects for which a final environmental impact statement or environmental assessment has already been issued.




Implications of the Clean Power Plan Stay

Late in the day on Tuesday, February 9, the U.S. Supreme Court stayed, for at least a year and possibly longer, the implementation of the Clean Power Plan (CPP), the US Environmental Protection Agency’s (EPA’s) widely-publicized regulations governing greenhouse gas emissions from existing coal-, oil- and gas-fired power plants.  The stay means that the CPP’s requirements and deadlines are on hold, at least until resolution of the pending legal challenges to the CPP.  But what are the broader implications of the Court’s decision?

First, the stay decision bodes poorly for the ultimate fate of the CPP, even though the Supreme Court did not opine as to the CPP’s legality.  The stay decision signals, at a minimum, that a majority of the Supreme Court is sympathetic to the challengers’ claims that the CPP is unlawful.  Indeed, it signals more than that—a distrust of EPA’s assertions about the minimal burdens imposed by the CPP.  That said, the CPP may yet survive judicial review and, even if it does not survive, EPA may be able to promulgate a replacement regulation that achieves similar results, although such a replacement would surely take several years to develop.

Second, environmentally, the stay is unlikely to have any immediate effect on emissions levels, primarily because the CPP itself does not require any immediate emissions reductions.  But that does not mean the stay has no environmental consequences.  The stay fosters uncertainty about the fate of the CPP, and one potential consequence of that uncertainty is that EPA will feel compelled to devote additional resources to reducing greenhouse gas emissions from other sources, especially the oil and gas sector.

The Obama administration has limited time to pursue such alternatives, but the next administration, if it shares President Obama’s commitment to addressing climate change, may focus much more intensively on addressing the carbon content of fuels, to make up for the delays and uncertainties created by the CPP stay decision.

The stay also raises questions about the fate of the recently secured Paris agreement, since some parties to that agreement may now be wondering whether the US is capable of meeting its commitment to reduce domestic greenhouse gas emissions 26 to 28 percent from 2005 levels by 2025.  If other countries doubt the reliability of the US commitment, they may be less bold about seeking emissions reductions themselves.  Indeed, it is precisely such doubts that may drive EPA to pursue more oil and gas regulations.

Finally, lurking in the Supreme Court’s action may be a deeper signal about the fate of the Chevron doctrine, a topic that should be of interest to all entities subject to regulation in the United States, not just to those subject to the Clean Air Act.  A recurring theme in the legal challenges to the CPP is that the CPP raises questions of such extreme economic and political significance that EPA is not entitled to deference as to how those questions should be resolved.  It is not clear what role that theme played in the Supreme Court’s [...]

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EPA Publishes its Proposed Regulations for Existing Power Plants – Starting the Public Comment Period

Today, the U.S. Environmental Protection Agency (EPA) published in the Federal Register its June 2, 2014, proposal to regulate greenhouse gas emissions from existing fossil fuel-fired power plants.  The act of publication triggers the start of the 120-day public comment period, meaning that interested parties must submit comments to the agency by no later than October 16, 2014.

On Thursday, June 26, McDermott will be hosting a complimentary webinar on critical issues to address during the comment period.  Click here to register.




EPA’s Proposed Power Plant Regulations – Simpler Than You Think

The U.S. Environmental Protection Agency (EPA) released its long-anticipated proposal for regulating greenhouse gas emissions from existing power plants on June 2, 2014, to much fanfare.  The proposal is simpler than it looks.  Here are the key points.

1.  The Proposed Rule is Only 38 Pages Long.  It’s the “Justification” That Takes up Space.  Many observers have been overwhelmed by the sheer volume of material associated with the EPA’s proposal – a 607-page preamble, a “legal memorandum” defending the proposal, a “regulatory impact analysis” discussing the proposal’s impacts and several “technical support documents.”  All of that material is important, but if you want to understand the heart of what EPA is proposing, focus on the draft regulatory text – the actual proposed rule.  Read the other material if you want to understand EPA’s justification for the rule.

2.  The Gist of the Proposed Rule: Target Rates and State Compliance Plans.  The rule applies to state governments, not to power plant owners and operators.  The rule requires each state to submit a plan to EPA showing how that state will reach a target CO2 emission rate for its existing power plants (coal, oil and gas) by 2030, as well as how the state will reach an interim target rate for the years between 2020 and 2029.   Thus, the rule has two parts: the “target rate,” and the requirement that each state submit a plan for reaching the target rate.  The target rate is going to be the most controversial aspect of the rule.  EPA set a different target rate for each state, and the manner in which it did so is what the fight is going to be about.  As for how to achieve the target rate, that is a bit less controversial because EPA has given the states a lot of flexibility.  In essence, the states can get to their targets however they want – by mandating heat rate improvements, by implementing a cap-and-trade system, by reducing demand for electricity – as long as they demonstrate that their plan will in fact get them there.

3.  The Easiest Way to Comply:  Follow RGGI.  The easiest way for states to comply with this proposed rule is to develop and participate in a program like the Regional Greenhouse Gas Initiative (RGGI).  Participating in a RGGI-type cap-and-trade program may not get every state all the way to its target rate, but it will help many states get a long way toward that goal.  Equally important, RGGI is a relatively simple cap-and-trade system.  That means that implementing a RGGI-like program faces fewer bureaucratic and legal obstacles than some of the other compliance mechanisms available to the states.

4.  The Proposal Raises at Least Three Overarching Legal Questions. 

First, does EPA have authority to issue the rule in the first place?  This question turns on the language of Clean Air Act (CAA) Section 111(d).  Some lawyers contend that rather than authorizing EPA to regulate power plant greenhouse gas emissions, Section 111(d) actually prohibits such [...]

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Massachusetts Permit for New Natural Gas Plant Incorporates Global Climate Conditions Including Sunset Date

The Massachusetts Energy Facilities Siting Board (Siting Board) approved a certificate for a 630-megawatt natural gas-fired power plant in Salem last month.  The certificate is unique in that it incorporates the terms of a settlement agreement that imposes greenhouse gas emissions caps and requires the plant to sunset operations no later than 2050.

The facility is scheduled to begin operations in 2016 and will replace a 63-year-old oil- and coal-fired plant.  The emissions caps, which would gradually decrease beginning in 2026, could be satisfied by emissions reductions from reduced operations or carbon-capture systems; credits or allowances from the Regional Greenhouse Gas Initiative (RGGI); Renewable Energy Certificates; or investment in Massachusetts Renewable Portfolio Standard-eligible local renewable generation, energy efficiency or demand-response measures.

The certificate is the result of a settlement reached between the developer and an environmental organization.  The project is the first request to construct a generating facility since the state’s enactment of the Global Warming Solutions Act in 2008 (GWSA).  The GWSA requires greenhouse gas emissions reductions from all sectors of the economy to reach a target of a 25 percent reduction from 1990 levels by 2025 and an 80 percent reduction by 2050.  However, there are currently no regulations implementing the act with respect to Siting Board decisions.  The Massachusetts Executive Office of Energy and Environmental Affairs produced a Climate Plan that indicates at least some natural gas-fueled electric generation could comport with the GWSA targets.

The Siting Board initially approved the construction of the project and determined that it complied with the GWSA without the conditions of the settlement agreement, indicating that decreasing emissions caps or an expiration date may not be necessary for Siting Board approval of other projects.  However, after that decision was appealed by the environmental organization, the developer acceded to the environmental conditions in the hopes that they will demonstrate that the fossil fuel-fired plant can meet the requirements of the GWSA.  The settlement agreement was incorporated as a condition of the final certificate issued by the Siting Board.




New Legislation Would Vacate Proposed Carbon Pollution Standard for New Power Plants

by Bethany K. Hatef

Congressman Ed Whitfield (R-KY.), the chairman of the House Energy and Commerce Committee’s Energy and Power Subcommittee, introduced a bill on October 28, 2013 that would void the U.S. Environmental Protection Agency’s (EPA) pending proposed rulemaking, regulating emissions of carbon dioxide from new coal-fired and natural gas-fired power plants.  Representative Whitfield worked closely with Senator Joe Manchin (D-WV), who will introduce the same bill in the Senate.  The legislation, if enacted, would impose restrictions on EPA’s issuance of any new proposal to regulate greenhouse gas (GHG) emissions from new and existing power plants, and could hinder EPA’s ability to comply with President Obama’s directive to regulate carbon emissions from existing power plants by June 1, 2015.  In connection with the legislation, coal miners and coal companies rallied on Capitol Hill in protest of EPA’s current proposed regulation limiting carbon emissions at new power plants, and the House Energy and Commerce Committee oversight panel held a hearing, entitled “EPA’s Regulatory Threat to Affordable, Reliable Energy: The Perspective of Coal Communities.”

The bill states that EPA may not issue, implement or enforce any proposed or final rule pursuant to Section 111 of the Clean Air Act that establishes a standard of performance for GHG (defined as carbon dioxide, methane, nitrous oxide, sulfur hexafluoride, hydrofluorocarbons and perfluorocarbons) emissions from a new source that is a fossil fuel-fired electric utility generating unit (EGU) unless EPA:  (1) establishes separate standards for coal and natural gas EGUs; (2) for the coal category, sets a standard that has been achieved for at least one continuous 12-month period by at least six EGUs at different plants in the U.S.; and (3) establishes a separate subcategory for new EGUs that use coal with an average heat content of 8300 or less British Thermal Units per pound (i.e., lignite coal) and sets a standard for such EGUs that has been achieved for at least one continuous 12-month period by at least three EGUs at different plants in the U.S.

The bill specifies that the EGUs used as the basis for the coal and lignite coal categories must collectively represent the operating characteristics of electric generation at different U.S. locations and EPA may not use results obtained from “a project to test or demonstrate the feasibility of carbon capture and storage technologies that has received government funding or financial assistance”).

The legislation states that any rule or guidelines addressing GHG emissions from existing, modified or reconstructed fossil fuel-fired EGUs will not be effective unless a federal law is first enacted specifying the effective date, and EPA has submitted a report to Congress containing the text of the rule, a description of its economic impacts, and the rule’s projected effects on global GHG emissions.  Finally, the legislation expressly repeals EPA’s prior proposed rulemakings establishing carbon dioxide limits for new EGUs.




Power Plant Cases in the Supreme Court

by Jacob Hollinger

The Supreme Court’s 2013 term just began but it is already shaping up to be an important one for power plant owners and operators.  Three points stand out: First, on October 7, the Court denied cert. in Luminant Generation Co. LLC v. EPA, a case in which several power companies were challenging the Environmental Protection Agency’s (EPA) current approach to regulating air emissions during startup, shutdown and malfunction (SSM) events.  The Court’s action leaves in place a Fifth Circuit decision which upheld EPA’s approach, at least as applied to the Clean Air Act state implementation plan (SIP) for the State of Texas.  More importantly, the Court’s action is likely to bolster EPA’s confidence as it pursues its ongoing rulemaking concerning the SSM provisions in 39 other SIPs, a rulemaking in which EPA has proposed eliminating affirmative defenses for excess emissions that occur during “planned” SSM events.  More information about EPA’s ongoing SSM rulemaking can be found here:  http://www.epa.gov/airquality/urbanair/sipstatus/emissions.html.

Second, the Court is actively considering whether to hear an industry challenge to EPA’s regulation of greenhouse gases under the Clean Air Act’s (CAA) prevention of significant deterioration (PSD) program.  The Court currently has before it eight cert. petitions seeking review of the D.C. Circuit’s August 2012 decision in Coalition for Responsible Regulation v. EPA, 684 F.3d  102 (D.C. Cir. 2012).  That decision rejected industry challenges to EPA’s four “core” greenhouse gas (GHG) regulations – the Endangerment Finding, in which EPA concluded that carbon dioxide emissions from motor vehicles contribute to air pollution reasonably anticipated to endanger public health and welfare; the Tailpipe Rule, in which EPA set motor vehicle GHG emission limits; the Timing Rule, in which EPA announced that GHGs are “subject to regulation” under the CAA as of January 2, 2011; and the Tailoring Rule, in which EPA announced that with respect to GHG emissions it was raising the statutory threshold for PSD applicability.  A central point of dispute in the Coalition matter is whether EPA’s conclusion that it is required to regulate motor vehicle GHG emissions means that EPA must also regulate stationary source GHG emissions.  We should know shortly whether the Supreme Court will address that dispute.

Finally, the Court is scheduled to hear oral argument on December 8 concerning EPA’s Cross State Air Pollution Rule, a rule which the D.C. Circuit invalidated last summer.  The Supreme Court’s eventual decision in that case, EPA v. EME Homer City Generation, L.P., No. 12-1182, is likely to be extremely significant for power plant owners regardless of which side prevails.  A ruling in EPA’s favor will reinstate stringent emission limits on upwind power plants, but a ruling against EPA may simply lead to more stringent emission limits being imposed in downwind states.  In all events, the case concerns a complex and difficult problem – interstate air pollution – and the Supreme Court’s decision is likely to clarify EPA’s authority to address that problem.




EPA Proposes CO2 Emission Limits for New Power Plants and on Track to Regulate CO2 Emissions from Existing Plants by 2015

by Jacob Hollinger and Bethany Hatef

The U.S. Environmental Protection Agency (EPA) has issued a proposed rule concerning carbon dioxide (CO2) emissions from new coal-fired and natural gas-fired power plants. The September 20 proposal meets a deadline set by President Obama in a June 25 Presidential Memorandum and keeps EPA on track to meet the President’s June 2015 deadline for regulating emissions from existing power plants. Once the September 20 proposed rule is published in the Federal Register, interested parties will have 60 days to comment on it. 

Under EPA’s September 20 proposal, which replaces an earlier, April 2012 proposal, new coal plants would be limited to 1,100 pounds of CO2 emissions per megawatt-hour (lbs/MWh) of electricity produced, with compliance measured on a 12-operating month rolling average basis.  The proposed rule would also require new small natural gas plants to meet a 1,100 lbs/MWh emission limit, while requiring larger, more efficient natural gas units to meet a limit of 1,000 lbs/MWh. 

EPA is required to set emission limits for new plants at a level that reflects use of the “best system of emission reduction” (BSER) that it determines has been “adequately demonstrated.”  For coal, EPA has determined that the BSER is installation of carbon capture and sequestration (CCS) technology that captures some of the CO2 released by burning coal.  In essence, EPA is saying partial CCS is the BSER for new coal plants. But for gas, EPA is saying that the BSER is a modern, efficient, combined cycle plant.  Thus, CCS is not required for new gas plants.

An important feature of the proposed rule is the definition of a “new” plant. Under the pertinent section of the Clean Air Act (CAA), a “new” plant is one for which construction commences after publication of a proposed rule. EPA’s regulations, in turn, define “construction” as the “fabrication, erection, or installation of an affected facility,” and define “commenced” as undertaking “a continuous program of construction” or entering “into a contractual obligation to undertake and complete, within a reasonable time, a continuous program of construction.” 

EPA has concluded that its new proposal will have “negligible” benefits and costs – it won’t reduce CO2 emissions and it won’t raise the cost of electricity. This is based on EPA’s conclusion that even in the absence of the new proposed rule, all foreseeable new fossil fuel plants will be either modern, efficient combined cycle natural gas plants or coal plants that have CCS. In essence, EPA is proposing emission limits that it thinks would be met even in the absence of new regulations.

But if the rule won’t reduce CO2 emissions, why issue it?  First, EPA is of the view that it is required by the CAA to issue the rule; having already determined that CO2 emissions are endangering public health and welfare, EPA is required by § 111(b) of the CAA to publish regulations to address those emissions.  Second, EPA thinks the rule will provide regulatory certainty about what is expected of new plants.  Third, and perhaps most importantly, the rule [...]

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

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.




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