Climate Change

On October 23, 2008, the New York Attorney General announced a settlement with another major power producer — Dynegy — regarding disclosures to investors of the risks presented to the company due to climate change.  Dynegy’s agreement follows a similar settlement between Xcel and the AG’s office in August 2008 (see article dated August 28, 2008).  These two settlements arose out of the State’s investigation of the adequacy of climate change risk disclosures by five power companies (in addition to Dynegy and Xcel, the State has been investigating AES, Dominion Resources and Peabody Energy).  The State issued subpoenaes on these companies in late 2007 pursuant to New York securities and commercial laws.  Dynegy, like Xcel, will be disclosing financial risks arising from climate change risk in its SEC filings and annual reports to investors.  The disclosures will include, among other things, projections of Dynegy’s CO2 emissions from coal-fired power plants that are in the planning stages.

Higher temperatures, more precipitation, changing vegetation patterns, risks to water supplies, risks to agriculture….  In October 2008, the Union of Concerned Scientists released its study of the impacts of global warming on Pennsylvania’s climate, resources and population.  Like the UCS reports for other states, this one includes projections of impacts under a scenario in which there is considerable reduction of greenhouse gas emissions, and under a scenario of higher emissions.   Some of the highlights of the UCS’s findings:

- The average temperature in Pennsylvania is expected to increase 2.5 degrees F by 2039, and by 2099, the average temperature is projected to have increased by 4 - 8 degrees F.

- The number of days above 90 degrees F in Pennsylvania may double, and may even more than double in some regions of the State.

- With warmer temperatures and more extreme high temperatures, summer air quality is expected to deteriorate due to increased ground level ozone.

- The amount of precipitation in the state is expected to continue an upward trend, with an expected 5% increase over historical averaqges by mid-century and 12 % by late century.

- Increased precipitation and storm intensity is expected to place an increased burden on existing waste water and water supply infrastructure.

- Increasing sea levels are expected to cause the “salt water” line in the Delaware River to move upstream, putting additional strain on existing water supply systems that draw water from the River.

As with any computer modeling, the output is only as good as the input and the validity of the underlying model.  Time and further scientific study will tell whether the UCS’s projections have merit.

As reported here previously, the Senate Committee on Environment and Public Works held hearings on September 23rd on the regulation of greenhouse gases under the Clean Air Act.  Testimony was offered by representatives of the Competitive Enterprise Institute, the U.S. Chamber of Commerce, the Sierra Club, the USEPA (Robert Meyers, Principal Deputy Administrator), the Diesel Technology Forum, and the California Air Resources Board, and by one private citizen (a former EPA Deputy Administrator).

Most of the witnesses touched on the potential economic burdens of treating CO2 as a “regulated pollutant” under the CAA.  The Chamber of Commerce cautioned the Senate that regulation of GHG under the CAA would have such a huge impact on the economy, that it would in effect turn the EPA into an economic regulatory entity:

” EPA truly believes that it can control the economy through the programs embedded within the CAA.  This is far too much economic control by an agency that was created by Executive Order without an overarching mission set forth by Congress.”

Likewise, the Competitive Enterprise Institute warned that applying the NAAQS program to CO2 “could turn the CAA into something resembling an economic suicide pact”.

In contrast, the California Air Resources Board advised the Committee that the CAA has enough flexibility in it that the “doomsday scenarios” spun out by the business community can easily be avoided through smart implementation of the Act. 

Alarmist statements aside, most witnesses offered some actual suggestions to the Senate, including:

- Pass legislation preventing EPA from regulating GHG under the CAA and let Congress develop a comprehensive climate change package (Chamber of Commerce);

- Congress should (before the December 2009 climate change meeting in Copenhagen) limit regulation of GHG under the CAA to new and existing and power plants and approve California’s vehicle emissions standards nationally, and then focus on other regulatory measures to control GHG (Sierra Club);

- Use the CAA as a complement to a broader federal climate change policy by (inter alia) regulating limited GHG sources under the CAA (i.e., power plants), approving the California vehicle emissions standards, and developing a low-carbon fuel standard under section 211 of the CAA.  (Calif. Air Resources Board).

The testimony can be found at the Committee’s website.

Even with the pressure to find a fix to the current financial crisis, the U.S. Congress managed to direct some attention to the renewable energy tax incentives that will expire at the end of 2008 unless extended by the Congress.  In May 2008, the House sent Bill 6049 to the Senate — the Renewable Energy and Job Creation Act of 2008.  On Monday, September 23, 2008, the Senate passed the bill with amendments, and directed the revised bill back to the House on September 29th.  The renewable energy tax credit provisions of the bill do not appear to be the source of controversy between the two houses. The Senate added a number of other tax credit provisions to the bill that the House will have to consider.  More work ahead.

On September 23, 2008, the Western Regional Climate Initiative announced its plan for a regional greenhouse gas cap and trade program.  Unlike the Northeastern states’ Regional Greenhouse Gas Initiative (RGGI) which currently is limited to electric power generating facilities, the WCI’s cap and trade program will include industrial sources of greenhouse gases in its first phase.   

The WCI includes Arizona, California, Montana, New Mexico, Oregon, Utah and Washington, as well as the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec.

The U.S. Senate Committe on the Environment and Public Works has scheduled a hearing on September 23rd starting at 10:00 a.m. on the regulation of greenhouse gas emissions under the federal Clean Air Act.  The Committee has not yet announced a list of witnesses expected to give testimony.

Late on September 16, 2008, the U.S. House of Representatives passed the Comprehensive American Energy Security and Consumer Protection Act.  (H.R. 6899).  The focus and most controversial aspect of the bill is off-shore drilling, but the bill also includes a few measures designed to promote energy efficiency and development of alternative energy:

• Requiring mandatory periodic updates in the national model building energy codes to achieve energy savings in both residential and commercial properties.
• Establishing a federal renewable electricity standard pursuant to which major electricity suppliers would have to include 15% of their supplies from renewable sources by 2015.  The program would require gradual increases in the percentage of electricity generated from renewable sources (from 2.75% in 2010, 3.75% by 2012, etc.).  The program would also permit electricity suppliers to satisfy the renewables requirement by purchasing renewable energy and energy efficiency credits.
• Providing continuing tax incentives to wind power and other alternative energy projects (the Energy Tax Incentives Act of 2008).

The U.S. Senate will now take up consideration of the bill.

The issues of energy independence and climate change were on the agendas in both in the U.S. Senate and House of Representatives last week. 

On September 12, 2008, the U.S. Senate Committee on Energy & Natural Resources held a day-long Bipartisan Energy Summit.  The goal of the Summit was to “foster a bipartisan dialogue on how we achieve a more secure, reliable, sustainable and affordable energy future” for the United States.  Testimony was offered by, among others, representatives of mulitple industry sectors (e.g., energy, financial, automotive) and academia.  Central to the dialogue was the challenge of reducing reliance on fossil fuels, enhancing reliance on clean energy, and reducing emissions of greenhouse gases. 

The House Select Committee on Energy Independence and Global Warming also held a hearing last week (September 10th) on the need for the United States to increase its investment in energy R&D.  According to witness testimony, federal funding in energy research has dropped 58% since 1980 (with the federal government directing only 2% of its research dollars to energy) and the energy industry’s own investment in research lags far behind that of other industry sectors.  Some of the recommendations included an immediate three-fold increase in federal funding of energy research, increased funding of climate research, federal support for specialized innovative energy research, and improved means of sharing technological advances and ideas across government, academia and the private sector.

Pennsylvania’s new Climate Change Advisory Committee held its first meeting on September 5, 2008.  The Committee was authorized by the state’s recently-enacted climate change law — “Act 70″ — and is responsible for developing the state’s climate change mitigation strategies.  You can read the press release about the Committee at Pennsylvania’s website.

In June 2008, a Georgia court denied an operating permit for a coal-fired power plant because the facility’s permit application failed to consider, among other things, CO2 emissions. In that challenge to the facility’s permit, the Sierra Club and other environmental groups had successfully argued that CO2 was a “regulated pollutant” that required analysis under the Clean Air Act’s “prevention of significant deterioration” (PSD) provisions. Not surprisingly, that decision is being challenged by the power plant owner, Longleaf Energy. It is going to be heard by the State of Georgia appellate court. The Sierra Club and other environmental groups are advancing this argument in multiple other forums and are making some headway. This is an issue to watch.