September 21, 2010 Climate Policy Update Presented to Nitric Acid Carbon Offsets Workshop Houston, TX Max Williamson 202.662.3026 maxwilliamson@andrewskurth.com 1
What is Climate Change? Climate Change Basics 2
Climate Change Basics Source: Pew Center for Global Climate Change 3
True Believers 4
Skeptics Remain 5
Key Drivers Big Picture Ø President Obama - Seize our destiny. 6/16/10 Oval Office Speech Ø Kyoto Protocol expires 2012. Ø Supreme Court: Massachusetts v. EPA, 549 U.S. 497 (April 2007) Carbon dioxide is a pollutant Ø USEPA Clean Air Act Rulemakings: ANPR Regulating Greenhouse Gas Emissions under the Clean Air Act. EPA Endangerment Finding EPA Tailoring Rule (25,000 tons per year) EPA Mandatory GHG Reporting Rule (started Jan. 1, 2010) Ø Litigation and Permit Challenges : Connecticut v. AEP, 582 F.3d 309 (2d Cir. 2009) ; Comer v. Murphy Oil, 585 F.3d 855 (5th Cir. 2009) (greenhouse gas emissions can be public nuisance) Permit challenges (coal plants, landfill NSPS, nitric acid NSPS, infrastructure projects) Ø Congress: Cap-and-trade bills (Waxman-Markey; Kerry-Lieberman). Ø States: Regional climate initiatives (RGGI, AB32, WCI, MGGRA). Ø Farm interests: competition with Brazil. 6
Climate Goals Ø Limit global warming to less than 2 C / 3.6 F UNEP study 6.6 C rise by end century even if all countries achieve stated goals Ø Stabilize atmospheric GHG concentrations at 450-550 ppm Ø Current levels ~ 386 ppm versus 280 ppm pre-industrial levels Source: Carbon Dioxide Information Analysis Center Ø Requires 25-40% emissions cut from 1990 levels to avoid the worst effects of climate change: heat waves, floods, droughts and rising sea levels. Source: Intergovernmental Panel on Climate Change Ø 2 C = 450 ppm = 50% global cuts by 2050 = 80% cuts from developed countries. Ø Modeling report shows cuts of global emissions of 48-72% needed between 2020 and 2050 will give Earth 50% chance of staying within the 2-degree limit. Source: United Nations Environment Program (Feb. 2009) 7
Key Impediments Ø Public Perception: Climate change is biggest hoax ever perpetrated on the American public Sen. James Inhofe (R-OK) Ø Out of Sight-Out of Mind Ø Inertia Ø Climate Benefits Ø Complicated Science Ø Congress sausage cooks slowly 8
Key Drivers Public Perception 9
What Sectors Are Affected? Fuels / gases (coal, oil, gas) Ø Coal-fired electric generation Ø Fuel importers/processors Ø GHG/industrial gas importers Heavy Industry (no size limit) Ø Ø Ø Ø Refineries Aluminum smelters Adipic/nitric/ammonia plants Cement/lime kilns Large Mfg (>25,000 tpy) Ø Ø Ø Ø Ø Ø Ø 10 Food Processing Ethanol processing Nonmetallic Mineral Pulp and Paper Glass Primary Metals Chemicals Industrial fuel combustion (>25,000 tpy) Transportation (thru vehicle standards, low-carbon fuels, VMT or land use) Commercial Ø Ø Ø Ø Wastewater treatment Buildings Institutional boilers Landfills Residential (probably too diverse to regulate) Agricultural (probably too diverse to regulate) Other sectors (as determined by agency) 10
U.S. State/Regional Climate Programs 11
U.S. State/Regional Climate Programs 12
State/Regional Climate Initiatives California A.B. 32 (Global Warming Solutions Act) Ø Mandatory 80% cuts; trading allowed but discretionary Ø CARB / Cal-EPA rulemaking ongoing Western Climate Initiative Ø 9 western states and provinces; starts 1/1/12 Ø Offset papers, but participation lacking Regional Greenhouse Gas Initiative (RGGI) Ø Electric utilities in 10 Northeast states (Maine to Maryland) Ø CO2 only; 233 power plants Midwestern Greenhouse Gas Reduction Accord Ø 6 states, 1 province Ø Little progress Linking thru North American Climate Initiative (NACI)? 13
California s AB 32 Ø Phased approach GHG reduction to 1990 levels by 2020 80% below 1990 by 2050 Ø Allows, but does not mandate, capand-trade market Ø Requires early action Ø CARB decides which sectors regulated Ø Scoping Plan adopted Dec. 2008 Ø Preliminary Draft Rules (PDR) issued Nov. 24, 2009. Ø Final rules by Dec. 2010. Ø Initial auctions Fall 2011 Ø Starts Jan. 1, 2012 14
AB 32 Timeline Source: CARB Proposed Early Actions Report, 4/20/07 15
U.S. Federal Climate Regulation 16
A Long Way from November 2008 17
Federal Cap-and-Trade Bills (leading) (111th Congress) Ø Kerry-Lieberman American Power Act (discussion draft May 12, 2010) Ø S.3464 Lugar-Graham-Murkowski Practical Energy and Climate Plan Act ( diverse energy standard ) (introduced June 9, 2010) Ø S. 2877 Cantwell-Collins Carbon Limits and Energy for America s Renewal ( cap and dividend ) (introduced Dec. 11, 2009) Ø S. 2729 Stabenow Clean Energy Partnerships Act (offsets title and carbon conservation program) (introduced Nov. 4, 2009) Ø S. 1733 Kerry-Boxer Clean Energy Jobs and American Power Act (RES and cap-and-trade) (reported EPW Nov. 5, 2009) Ø S. 1462 Bingaman American Clean Energy Leadership Act (reported ENR July 16, 2009) (RES and energy) Ø H.R. 2454 Waxman-Markey American Clean Energy and Security Act (RES and cap-and-trade) (passed by House June 26, 2009) 18
U.S. Reductions w/o International Source: Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2005 (EPA, 2005) 19
Climate Legislative Outlook for 2010-2011 Ø Fall Work Period small business bill, maybe tax extenders, but election paralysis dominates until Nov. 2 Ø Lame Duck Session greater upheaval opens the door to legacy vote on energy bill, perhaps with small carbon component Ø 112th Congress depends on balance of power 20
Greenhouse Gas Reductions Plan B?? Ø Tie GHG reductions to RES, RFS/RINs, energy programs, tax incentives? Ø Resurgence of state/regional programs? Ø Clean Air Act regulation? Ø Transportation authorization (GREEN-TEA)? 21
Looming EPA Regulation 22
EPA Carbon Reporting Rule Ø Mandatory carbon footprint reporting draft rule issued December 2007 Appropriations Bill (H.R. 2764) Final Rule 74 Fed. Reg. 56260 (Oct. 30, 2009) Codified at 40 C.F.R. Part 98. Reporting effective Jan. 1, 2010. Ø Other reporting standards California Climate Action Registry The Climate Registry (39 states) Carbon Disclosure Project Global Reporting Initiative 23
EPA Greenhouse Gas Rulemakings Ø ANPR Regulating Greenhouse Gas Emissions under the Clean Air Act. 73 Fed. Reg. 44,354 (July 30, 2008) (overview of GHG regulatory options) Ø EPA Endangerment Finding, 74 Fed. Reg. 66496 Dec. 15, 2009) (ghg endangers public welfare) Ø EPA Mandatory GHG Reporting Rule, 74 Fed. Reg. 56260 (Oct. 30, 2009) Ø Vehicle Tailpipe Standards, 75 Fed. Reg. 25324 (May 7, 2010; signed Apr. 1, 2010) (light-duty auto fuel efficiency and greenhouse gas emissions) Ø EPA Tailoring Rule, 75 Fed. Reg. 31514 (June 3, 2010) (100,000 tpy threshold for PSD) Ø Johnson-Jackson Interpretive Rule (Mar. 29, 2010) (pollutant subject to regulation when controlled) 24
EPA Regulation Congressional Blocking Ø Murkowski Resolution narrowly defeated Ø Appropriations Rider Senate Interior/EPA pulled Ø Rockefeller 2-year delay vote promised before November Ø Casey-Carper proposal codify EPA Tailoring Rule Ø 13 states will miss Jan. 2, 2011, deadline for SIP revisions; Texas flatly refuses 25
EPA Regulation Endangerment Finding EPA Endangerment Finding, 74 Fed. Reg. 66496 (Dec. 15, 2009) proposed 74 Fed. Reg. 18886 (Apr. 24, 2009) Ø Issued on eve of Copenhagen COP, effective Jan. 14, 2010 Ø CO2, CH4, N2O, HFCs, PFCs, and SF6 in the atmosphere may reasonably be anticipated to endanger public health and welfare. Ø GHGs from new motor vehicles engines contribute to air pollution. Ø Finding limited to CAA 202(a), but broader implications. Ø Similar finding prerequisite for NAAQS, NSPS, NESHAP. Ø EPA reserves flexibility to determine that emissions at a certain level or percentage contribute to air pollution. (25,000 tpy?) Ø Opens the door for PSD review for stationary sources when vehicle rules finalized in March 2010. 26
EPA Regulation Tailoring Rule Final Rule, 75 Fed. Reg. 31514 (June 3, 2010); proposed 74 Fed. Reg. 55292 (Oct. 27, 2009) Ø Raises thresholds for PSD and Title V from 100/250 to Ø 100,000 tpy for new sources (major source) (measured in CO2e) Ø 75,000 tpy for modifications (significance) Ø Phased in: Jan. 2011 (anyway sources); July 2011 (GHG trigger); June 2013 (smaller sources > 50,000 tpy) Ø Statutory level is 100/250 tpy (= 60 hp engine, 50,000 sq. ft. building, $5,000 in natural gas, 20-unit multi-family, addition of gas boiler or space heater). Source: EPA Small Entity Outreach. Ø Politically necessary to avoid burdening small diverse sources (e.g., small business, office buildings, farms). Ø 6 million major sources ð 15,550 major sources Ø Requires BACT analysis Ø Probably illegal. 27
Sleeper Issue: GHGs As Criteria Pollutants? Petition by Center for Biological Diversity and 350.org to designate CO2 as a criteria pollutant (Dec. 2, 2009) Ø Clean Air Act 108 requires listing of pollutants in the ambient air from numerous or diverse sources if endangers health or welfare Ø Clean Air Act 109 requires NAAQS for each criteria pollutant Ø The criteria pollutants listed to date are particulate (PM), ground-level ozone (O3), carbon monoxide (CO), sulfur dioxide (SO2), nitrogen oxides (NOx), and lead. Ø Clean Air Act 110 requires SIPs to attain NAAQS Ø Secondary NAAQS expressly address climate 28
EPA Regulation NSPS New Source Performance Standards CAA 111 requires EPA to regulate new and existing source categories that contribute to pollution Must review every 8 years (last reviewed in 1989) Sierra Club/EIP deadline suit (2/4/09); consent decree requires proposed rule by Nov. 2010, final rule by Nov. 2011 ØForthcoming NSPS Reviews 29 Cement (June 2010) punted on GHGs Electric utilities (Mar. 2011) Nitric acid plants (Nov. 2011) (Subpart G) oil/gas drilling petroleum refineries
NSPS Rulemaking Process Data gathering (Section 114 requests issued) Proposed rule/determination and public comment o o o o Determine no revision necessary Clarifying amendments Changes to emission limits New emissions limits for N2O and other Final Rule Litigation? 30
Conventional Pollutants Ratcheting Down Ozone Nitrogen (NOx) Sulfur Dioxide (SO2) Particulate (dust) (PM/PM2.5) Mercury (Hg) Ø Carper 3 pollutant bill will tackle NOx, SOx and Hg from EGUs (+ GHG?) Ø EPA finding SO2/NOx still causing acid rain and nutrient loading 31
Questions? David M. ( Max ) Williamson, Esq. (202) 256-6155 maxwilliamson@andrewskurth.com Andrews Kurth LLP www.andrewskurth.com 32