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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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United Kingdom Government Confirms Change to Sustainability Criteria for Biomass

by Caroline Lindsey

The Department of Energy and Climate Change (DECC) in the United Kingdom published its response to its “Consultation on proposals to enhance the sustainability criteria for the use of biomass feedstocks under the Renewables Obligation (RO)” on 22 August 2013 (the Response). The original consultation was published on 7 September 2012.

In the Response, the UK Government confirms that it will proceed with its proposals to revise the content and significance of the sustainability criteria applicable to the use of solid biomass and biogas feedstocks for electricity generation under the Renewables Obligation (RO). The RO is currently the principal regime for incentivising the development of large-scale renewable electricity generation in the United Kingdom. Eligible electricity generators receive renewables obligation certificates (ROCs) for each megawatt hour (MWh) of renewable source electricity that they generate. Biomass qualifies as renewable source electricity, subject to some conditions.

Changes to the criteria

The sustainability criteria associated with the RO is broadly divided into greenhouse gas (GHG) lifecycle criteria, land use criteria and profiling criteria. There will be changes to all of the criteria, but the significant changes relate to the first two criteria, and will take effect from 1 April 2014.

In general terms, the GHG lifecycle criteria are designed to ensure that each delivery of biomass results in a minimum GHG emissions saving, when compared to the use of fossil fuel. The savings are measured in kilograms (kg) of carbon dioxide equivalent (CO2eq) per MWh over the lifecycle of the consignment (sometimes referred to as “field or forest to flame”). The UK Government has confirmed that all generating plants using solid biomass and / or biogas (including dedicated, co-firing or converted plants and new and existing plants) will be on the same GHG emissions trajectory from 1 April 2020 (200 kg CO2eq per MWh). In the meantime, new dedicated biomass power will be placed on an accelerated GHG emissions trajectory (240kg CO2eq per MWh). All other biomass power will remain on the standard GHG emissions trajectory (285kg CO2eq per MWh) until 1 April 2020.

Changes to the land use criteria will also be introduced. In particular, generating plants using feedstocks which are virgin wood or made from virgin wood will need to meet new sustainable forest management criteria based on the UK Government’s timber procurement policy principles.

The land use criteria set out in the European Union (EU) Renewable Energy Directive 2009 (RED) will continue to apply to the use of all other solid biomass and biogas, with some specific variations for energy crops. As is the current position, the land use criteria will not apply to the use of biomass waste or feedstocks wholly derived from waste, animal manure or slurry.

The new sustainability criteria will be fixed until 1 April 2027, except if the EU mandates or recommends specific changes to the sustainability criteria for solid biomass, biogas or bioliquids, or if changes are otherwise required by EU or international regulation.

Making compliance mandatory

Currently, whilst generators using [...]

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Possible UK Power Shortages Raise Concerns

by Thomas Morgan and David McDonnell 

A warning from the UK’s energy regulator, Ofgem, on 27 June 2013, that the ‘buffer’ capacity of spare electricity on the UK’s national power grid could drop to as little as 2% of national supplies by 2015, has raised concerns in relation to the possibility of widespread disruptions in service. This spare capacity currently stands at about 4%.

The warning was linked to an extensive Electricity Capacity Assessment Report, also published by Ofgem that same day. Revised studies have indicated that power supplies will shrink considerably by 2015, as electricity demand in the United Kingdom is not decreasing in the manner previously foreseen by successive governments. This is due to a variety of factors, among them, the low uptake by residential households of environmentally friendly incentives and energy-efficient practices.

Ofgem recommends the implementation of far-reaching market changes proposed by the Department of Energy and Climate Change (DECC). Among other things, DECC stated in a report, also published on 27 June 2013, that the UK electricity sector will require approximately £110 billion of capital investment in the next decade to modernise its infrastructure. This would create opportunities for investment which a range of market players are likely to monitor with interest.

DECC has also emphasised the need for a ‘Capacity Market’ – essentially an insurance policy against the possibility of future blackouts – which would work by providing financial incentives to generators to keep a certain percentage of energy capacity in reserve to cope with spikes in demand.

The British government has been quick to retort to concerns of service disruption, downplaying the risk of blackouts to domestic consumers and, while it is unlikely that blackouts reminiscent of those experienced in the United Kingdom in the 1970s will be relived, the very publication of a formal warning from Ofgem highlights the potential significance of the concern.




Is There Bipartisan Support for an Energy Security Trust?

by William Friedman

President Obama proposed in his State of the Union creating an Energy Security Trust to invest in research and technology that will “shift our cars and trucks off oil for good.”  Oil and gas lease revenues, estimated at $150 billion over the next decade, would fund the Trust.  The idea of the Trust is more than 30 years old and was recently endorsed by the ranking Republican on the Senate Energy and Natural Resources Committee.  While predicting what Congress will do is a fool’s errand, there is some reason to think that an Energy Security Trust could become a reality.

President Carter in 1979 asked Congress to pass a windfall profits tax on oil company revenues in order to establish a trust that would be used to “protect low income families from energy price increases, to build a more efficient mass transportation system, and to put American genius to work solving our long-range energy problems.” More recently, Energy Security Trust Fund bills were proposed in 2007 and 2009.  The 2009 bill, entitled “America’s Energy Security Trust Fund Act of 2009,” proposed an excise tax on “carbon substances” including coal, petroleum products and natural gas.  The tax would have collected $15 per ton of carbon dioxide content in taxable substances sold by manufacturers, producers or importers and would have escalated at a base rate of $10 each year.  The proposed trust fund would have been used to finance research in clean energy technology, assist industries negatively affected by the bill, and provide payroll tax relief to individual taxpayers.  Neither the 2007 bill nor the 2009 bill, (both proposed by Rep. John Larson (D-CT.)) passed in Congress.

Unlike these previous proposals, President Obama’s proposal does not rely on tax revenues and instead resembles a recent energy policy blueprint put forward by Sen. Lisa Murkowski (R-AK), the ranking Republican on the Energy and Natural Resources Committee.  Senator Murkowski’s plan, “Energy 20/20: A Vision for America’s Energy Future,” calls for an Advanced Energy Trust Fund that would be funded by rents, royalties, bonus bids and corporate income taxes.  Murkowski also advocates opening up federal lands like Arctic National Wildlife Refuge (ANWR) and other offshore resources and using those revenues to fund a trust.  The Advanced Energy Trust Fund would be administered by the Department of Energy and used to pay for advances in renewable energy, energy efficiency, alternative fuels and advanced vehicles.

The White House has not released details yet on how the proposed Trust would be funded or administered. Unlike Senator Murkowski, the President is unlikely to support opening ANWR for drilling, which environmental groups have long opposed.  Yet, some version of an Energy Trust has support on both sides of the aisle.




New York Governor Floats Idea to Ban Hydraulic Fracturing in Majority of New York Counties

by James A. Pardo and Brandon H. Barnes

New York Governor Andrew Cuomo is reportedly considering a plan that would ban hydraulic fracturing  (fracing) in all of New York with the exception of five counties along the Pennsylvania border:  Broome, Chemung, Chenango, Steuben and Tioga.  Even within those five counties, however, fracing would be strictly limited under the Governor’s scheme.  Specifically, fracing permits would only be issued for wells located in communities that had not acted locally to prohibit the process – in other words, towns within the five counties still could exercise "home rule" to ban fracing by zoning amendment, or otherwise.  Cuomo also would ban fracing in Catskill Park, near any drinking water aquifer, in any nationally-designated historic districts and initially would limit it to the “deepest” areas of the Marcellus Shale.

Governor Cuomo has been under intense pressure from both sides in the fracing debate, and his idea – which an anonymous New York State Department of Environmental Conservation (NYSDEC) official deliberately leaked to the New York Times – was an attempt to take the temperature of both sides to a possible compromise.  It appears that Cuomo’s team sought to please environmentalists by banning fracing in most of the Empire State; assuage industry stakeholders by permitting fracing in certain counties with significant Marcellus plays and where public opinion appears to be leaning in favor of natural gas development; and build support with local officials from around the state by implicitly reaffirming "home rule" rights to ban fracing.  Initial reaction to this "trial balloon" idea was largely negative from the anti- fracing side – which has been trying to build momentum for a full statewide ban – but recently has drifted towards tepid support as fracing foes may see it as their best chance to stop fracing in most of New York.  Stakeholder response has been fairly neutral, with some companies expressing optimism because the plan allows fracing at all – an indicator of just how tight the debate has become in New York right now. 

Cuomo’s plan would give everything to nobody, and something to everybody – providing considerable political cover to both the Governor and NYSDEC.  For this reason alone, it is a plan that may have the best chance of passing through the regulatory, legislative, legal and public opinion gauntlet that currently exists for fracing in New York.




Renewable Energy Certificates: New Trading Platform

by Rashpaul Bahia

On May 8, 2012, STX Services B.V. (STX), launched an electronic trading platform for the sale and purchase of renewable energy certificates relating to power consumption within the European Union. 

The new platform will allow for the trading of Guarantee of Origin (GoO) certificates which provide proof to the final customer that the energy produced was from renewable sources.  GoO certificates were introduced by the 2009 EU Renewable Energy Directive. One GoO certificate represents the generation of one megawatt hour of electricity.

STX, an Amsterdam-based brokerage firm dealing in environmental based commodities, held its first auction on May 8, 2012 and is likely to hold another one towards the end of May 2012.  STX has stated that it hopes to eventually run daily auctions, and expand to include other renewable energy certificates.

STX feels that the advantages of the new trading platform are that:

  • buyers and sellers of GoO certificates can participate concurrently;
  • buyers and sellers can login to the platform from wherever they are located;
  • the supply and demand dynamic of the online auction will result in the realization of a true and fair market price; and
  • it provides greater liquidity in an otherwise fragmented international market.

More than 25 percent of the most active market participants attended the first auction, during which 100,000 GoOs were bought and sold at a clearing price of €0.37.  Participants in this first auction pointed to, amongst other things, the transparency and efficiency engendered by the new platform.

The launch of this new trading platform comes at a time when the European Commission is actively looking at ways to regulate and increase the transparency of commodity markets.  Proposals include establishing transparent trading venues. STX has designed its new platform with this in mind, and hopes that it will enable all participants to buy and sell renewable energy certificates on a level playing field.

In addition, the new platform represents a further development and expansion in the trading of green power. 




Italian Senate Approves Draft Revision of Restrictions to PV Plants on Agricultural Ground

by Carsten Steinhauer

On March 1, 2012, the Italian Senate approved the draft text which will transpose into law Decree no. 1/2012, the Liberalisation Decree.  The draft text still needs to be approved by the Italian Chamber of Deputies. The approval must be granted by March 24, 2012 at the latest. Once the text is approved, it will then be published in the Official Gazette before entering into force. If not approved by March 24, 2012, the Liberalisation Decree will lose its efficacy as of the date of its publication (January 24, 2012).

The draft text provides a number of modifications to the original version of Article 65 of the Liberalisation Decree, which initially introduced the ending of the feed-in tariff (FIT) for newly-installed ground-mounted photovoltaic (PV) plants on agricultural land.

Although the ending of the FIT for ground-mounted PV plants on agricultural land has been confirmed, two categories of PV plants will continue to be able to avail of the FIT:

  • PV plants located in areas owned or leased by the Italian military; and
  • PV plants that were authorized previously, and will commence operations within 180 days of the entry into force of the amended Decree being transposed into law.

However, these two categories of plants remain subject to the restrictions that were introduced by the Renewables Decree, dated March 28, 2011, namely that PV plants located on agricultural land must not exceed 1 megawatt (MW), nor cover more than 10 percent of the available land, and must be at least 2 kilometers (km) from PV plants located on land belonging to the same owner.  It is not entirely clear if the restrictions will apply to both types of PV plants benefitting from the exemption: if interpreting the provision literally, the restrictions should apply in both cases. However, it would appear that the legislatures’ intention was different. In both circumstances, the restrictions do not apply if the land has been abandoned for at least five years.  

As expected, the retrospective cut of the FIT for previously-authorized PV plants benefiting from a safe harbor provision under the Renewables Decree has been abolished.  Instead, the safe harbor has been extended by a further 60 days to compensate for the uncertainty during the period between the enactment of the Liberalisation Decree and the amended text coming into force. However, the revised text also abolishes the increase of the FIT for PV plants located on greenhouses, as introduced by the Liberalisation Decree.

In summary, by applying Article 65 of the Liberalisation Decree, as amended, ground-mounted PV plants located on agricultural land will be entitled to the FIT as outlined below.

Entitlement to FIT for Ground-Mounted PV Plants on Agricultural Land

Agricultural land belonging to the Italian military

Any other agricultural land

Irrespective of date of authorization or grid connection

Authorization before the entry into force of [...]

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