Download Legislative and Policy Initiatives Concerning Global

LEGISLATIVE AND POLICY INITIATIVES CONCERNING GLOBAL CLIMATE
CHANGE AND THE REGULATION OF GREENHOUSE GAS EMISSIONS
Hal J. Pos
Parsons Behle Latimer
May 2007©
A.
Introduction
The purpose of this paper1 is to provide a brief overview of the legislative and policy
initiatives that have been, or that are expected to be, developed at the international, national and
regional and state level concerning global climate change and efforts to constrain greenhouse gas
emissions and encourage alternative and renewable energy and energy efficiency. This overview
is intended to lay a foundation as to how global climate change is affecting or is likely to affect
what lawyers do as practitioners. Concerns over global climate change are likely to affect not
only practitioners in energy law, but also practitioners in other practice areas, including
environmental, natural resources, corporate, finance, tax, real estate, and litigation.
The issue of global climate change first appeared at the forefront of the political agenda
in the mid-1980’s as a result of an increasing number of scientific studies raising concerns about
global warming. Responding to theses studies, the World Meteorological Organization and the
UN Environment Programme established the Intergovernmental Panel on Climate Change
(“IPCC”) in 1988 to assess scientific, technological and socio-economic issues relevant to
understanding global climate change. In 1990, the IPCC issued its first assessment report,
confirming the climate change was indeed a threat. Most recently, in February 2007, the IPCC
issued a comprehensive report on the current knowledge of global warming, concluding that the
1
This paper is largely a compilation of existing writings. For a more comprehensive review of issues on global
climate change and the regulation of greenhouse gas emissions, see Lukin, Michael, “Climate Change Policies
Affecting Your Business: A Short Course on Worldwide Regulation,” (2007) and Sharp, Cate and Patrick, Roger,
“Challenging Perspectives: US and EU Approaches to Climate Change” (2007).
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“warming of the climate is unequivocal … [and] is very likely due to the observed increase in
anthropogenic greenhouse gas concentrations.”
Climate change issues are being addressed by many countries in varying ways. At the
international level, the Kyoto Protocol has now been ratified and through its binding emissions
targets and market-based mechanisms, a worldwide carbon market is emerging. Much of the
European Community has embraced the Kyoto Protocol and has established a climate change
program to meet its greenhouse gas emission reduction targets under the Kyoto Protocol. In
contrast, the United States, which did not ratify the Kyoto Protocol, has not adopted a national
approach to reducing greenhouse gas emissions. The new Democratic leadership in Congress
however has made climate change legislation a high priority. Additionally, some states in the
United States have decided not to wait on the federal government and have begun the process of
implementing their own emission reduction programs, including developing regional emission
trading programs. The result is an emerging regulatory framework, both complex and chaotic,
for reducing greenhouse gas emissions around the world.
Businesses across the world economy are being impacted by global climate change and
the policies being adopted to address such change. For some businesses, the risk is in the form
of emission reduction requirements, required implementation of new technologies or constraints
in the use and availability of carbon-based fuels. Other businesses will be impacted indirectly
through higher energy costs and higher insurance premiums driven by increased risks associated
with global climate change and the regulation of greenhouse gas emissions. Additionally, global
climate change policies are creating new markets and demand for new products and services
such as those related to renewable energy production, energy efficiency, decarbonised energy
projects and the carbon commodity market. As businesses focus their climate change strategies
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on emerging business opportunities, this will likely create new opportunities for legal
practitioners.
B.
International Climate Change Policy
In many respects, global climate policies originated in the United States with Congress
enacting several laws beginning in the late 1970’s and continuing into the 1980’s and 1990’s that
provided direction and funding for global climate change research and studies. Of particular
importance, the Global Climate Protection Act of 1987 established United States policy on
global climate change by promoting increased worldwide understanding of the greenhouse gas
effect, fostering international cooperation concerning research on the greenhouse gas effect,
identifying technologies and activities to reduce the adverse impacts on the global climate and
working toward multilateral agreements with other countries in the world. The Act made the
President “responsible for developing and proposing to Congress a coordinated national policy
on global climate change” and the Secretary of State responsible for coordinating United States
global change policy through multilateral agreements.
1.
UNFCCC
The international framework for regulating greenhouse gas emissions began with the
adoption in 1992 of the United Nations Framework Convention on Climate Change
(“UNFCCC”) in which the United States played a leading role.
The European Economic
Community signed the UNFCCC in June 1992 at the United Nations Conference on
Environment and Development in Rio de Janeiro. The EEC and its Member States ratified the
UNFCCC in December 1993 and it became effective in March 1994 after the required number of
signatures.
The United States also signed the UNFCCC at the Rio Conference in 1992. In late 1992,
the President ratified the treaty following the “advice and consent” of the United States Senate as
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required by the United States Constitution concerning the UNFCCC. Significantly, the Senate’s
Foreign Relation Committee noted that it did not understand the UNFCCC as providing a basis
for legally binding emission reduction targets and timetables.
One of the guiding Principles of the UNFCCC is that “the developed parties should take
the lead in combating climate change and the adverse effects thereof.” The Parties to the
UNFCCC agreed to the common objective of stabilizing greenhouse gasses in the atmosphere “at
a level that would prevent dangerous anthropogenic interference with the climate system.” The
UNFCCC imposes various “commitments” on all the Parties “taking into account their common
but differentiated responsibilities and their specific national and regional development priorities,
objectives and circumstances.” The commitments include gathering and sharing of information
on greenhouse gas inventories, developing national policies and best practices for greenhouse
gas reductions; launching of national strategies for reducing greenhouse gas emissions and
adapting to expected impacts, including the provision of financial and technological support to
developing countries; and requiring of annual inventory estimates of greenhouse gas emissions
from developed countries. A total of 189 countries have ratified the UNFCCC.
2.
The Kyoto Protocol
Adopted as a binding addendum to the UNFCCC in December 1997, the Kyoto Protocol
establishes mandatory emission reduction targets for participating developed countries (referred
to as “Annex I Parties”). These targets require, collectively, reductions of greenhouse gas
emissions2 by approximately 5 percent compared to the 1990 levels between 2008 and 2012, the
so-called first commitment period. The level of required reductions varies among countries. For
the period after 2012, the Kyoto Protocol requires the Parties to begin a process, which is
2
Greenhouse gases include carbon dioxide, methane, nitrous oxide, hydofluorocarbons, perfluorocarbons, and sulfur
hexafluoride.
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currently underway, for considering the commitments of the Annex I Parties to further
greenhouse gas emissions. The Kyoto Protocol has been ratified by 168 countries. Of these
countries, 35 are Annex I Parties subject to mandatory emission reduction requirements under
the Protocol. Developing countries are not subject to such targets. Thus, large developing
countries like China and India, who currently rank in the top five largest producers of greenhouse
gasses, do not have mandatory emission reduction targets under the Protocol. The United States
is not a party to the Protocol.
The Protocol does not mandate the use of particular strategies for achieving national
emission reduction targets. Rather, counties are free to adopt a wide range of domestic policy
measures. To assist Annex I counties in achieving their specific target levels, the Protocol
authorizes the use of three market-based mechanisms. These mechanisms are known as (1) Joint
Implementation (“JI”), under which compliance may be achieved through emission reduction
projects between Annex I Parties; (2) the Clean Development Mechanism (“CDM”), which
allows for emission reduction projects to be implemented in non-Annex I countries;3 and
(3) emissions trading, under which credits generated by JI or CDM projects or surplus
allowances in countries over-achieving under the Protocol obligations can be purchased and sold
on the market.
JI allows countries that have high emissions reduction costs to undertake, finance or work
jointly on emission reduction projects in other Annex I countries where reductions are most cost
effective. Examples of JI projects include renewable energy production, energy efficiency and
reforestation. Reductions achieved through these projects are referred to as “emission reduction
3
Mexico has signed the Kyoto Protocol as a non-Annexed I country and, therefore, is not subject to any emissions
reduction targets. Mexico’s participation in carbon trading has grown steadily in the last year. There are
approximately 54 registered projects, most of which involve livestock methane recovery operations and other
projects such as landfills, incineration of HFC-23 and power generation projects such as hydroelectric and cogeneration. Additionally, there are over 90 projects in the registration process.
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units (“ERU”) and can be added to the allowable emissions of the sponsoring country that
financed or developed the project. Though the recipient country does not receive ERUs, it
receives foreign investment and advanced technology. In practice, this market-based mechanism
will likely promote the undertaking of JI projects in the accession European Community
countries and former Soviet Union countries that are financed by western European counties.
CDM projects function similar to JI projects with the difference being that it allows
Annex I countries to finance and undertake emissions reduction projects in developing countries.
Through CDM, developed Annex I countries can acquire “certified emission reductions”
(“CERs”) by investing in the greenhouse gas mitigation projects in developing countries. The
theory behind this mechanism is that it benefits the developing country financing the project
through the acquisition of emission credits while at the same time promotes sustainable
development in countries that could otherwise not afford it. The credits earned for emissions
reductions achieved through a CDM project can be used by the developing country to meet its
specific emissions reduction target.
The implementation of JI and CDM projects has grown significantly in the last couple of
years.
According to the World Bank, trading in Kyoto JI/CDM project credits was
approximately USD$2.7 billion in 2006, reflecting a five-fold increase from 2005.4
Additionally, the Kyoto Protocol allows Annex I countries to offset their emissions
through certain types of land use activities that remove greenhouse gases from the atmosphere,
commonly referred to as “carbon sinks.” Under the Protocol, countries can generate credits
known as “removal units” (“RMUs”) through eligible sink activities. Land use activities eligible
for removal units under the Protocol include afforestation, reforestation, forest management,
4
World
Bank;
State
and
trends
of
the
Carbon
http://carbonfinance.org/docs/StateoftheCarbonMarket2006.pdf.
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Market
(2006),
available
at:
cropland management, grazing land management and revegetation. However, the amount of
credits that can be claimed through these activities is limited.
Given the difficulties surrounding the negotiations of the Kyoto Protocol and the
approaching 2012 deadline, one major focus of the Parties to the Protocol in 2006 has been to
develop a framework for the post 2012 period. In 2006, the Parties to the Protocol met twice
(first in Montreal and later in Nairobi concurrently with meetings among the Parties to the
UNFCCC) to begin the process to consider further “commitments” for Annex I Parties for the
period beyond 2012. Chief among the issues discussed was whether negotiations for the second
post 2012 commitment period could be completed to ensure that the amendment to the Protocol
would be ratified by the Parties in time to avoid a gap between the first and second commitment
periods under the Kyoto Protocol.
C.
The European Union
The European Union (EU) and its Member States have been the strongest supporters of
international efforts to address global climate change. In order to meet its emissions reduction
targets under the Kyoto Protocol, the EU collectively, and its Member States individually, have
implemented a host of policy measures, including the establishment of the European Climate
Change Programme designed to identify the most environmentally-friendly and cost-effective
ways to enable the European Union to meet its targets under the Protocol. The European Union
must achieve an 8 percent reduction in greenhouse gas emissions from 1999 levels by 2008-2012
in the first commitment period under the Protocol.
The cornerstone of the European Union’s efforts to reduce greenhouse gas emissions and
meet its Kyoto Protocol targets is the European Union Emissions Trading System (“EUETS”),
which began operations in January 2005. The EUETS applies to energy-intensive companies
across the European Union’s 25 Member States. These include steel factories, power plants, oil
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refineries, paper mills and glass and cement facilities across Europe, which account for
approximately 40 percent of the European Union’s total carbon emissions.
The EUETS, which is the world’s largest market in greenhouse gas allowances, is a
mandatory scheme that establishes a cap on emissions of carbon dioxide from those industry
sectors subject to the scheme. The first phase of the scheme runs from 2005 to 2007 and the
second phase runs from 2008 to 2012. The European Union scheme operates on a cap and trade
basis. Under this system, each European Union Member State must set an emissions limit or cap
on the amount of emissions that can be released from all of its industrial facilities in their country
covered by the scheme. This is done under National Allocation Plans that must be approved by
the European Union Commission. Each covered facility is then issued allowances that authorize
a fixed amount of a pollutant to be emitted. At the end of each year, each covered facility must
present an audited emissions inventory to its government and is required to surrender allowances
equivalent to its actual emissions for that year.
In order to achieve overall reductions in
emissions the number of allowances distributed to the Member States is lowered for each new
compliance period.
Covered facilities have various options to ensure that they have sufficient allowances to
account for actual annual emissions generated. Effectively, they can meet their cap, reduce
emissions below the cap and sell or bank their excess allowances, or emit emissions above their
cap and purchase extra allowances on the market to account for the difference. Under the
scheme, excess allowances can be sold on the market to other companies, or they can be banked
and used or sold in future years.5
5
The United Kingdom government has plans to take forward an emissions trading scheme which goes beyond the
European Union scheme and indeed beyond plans by states in the United States. This scheme is known as the
Energy Performance Commitment and the intention is that allowances to emit carbon would be bought and sold
within an overall output ceiling set by government. Those made subject to the Energy Performance Commitment
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The EUETS currently allows for a number of exceptions. For example, certain economic
sectors are currently excluded, most notably aviation, which is a major greenhouse gas
contributor. Also, Member States can apply to exclude individual facilities and, in exceptional
circumstances, additional emissions allowances can be issued by the government.
The second trading period under the European Union scheme will run from 2008-2012 to
coincide with the Kyoto Protocol compliance period. The EU Commission has plans to improve
and expand the EUETS by widening coverage to include all greenhouse gases, not only carbon
dioxide; increasing the number of sectors to be covered, including possibly petrochemicals;
including aviation emissions beginning in 2011 in stages, first from all domestic and
international flights between European Union airports and one year later from all international
flights into the European Union; possible recognition of carbon capture and storage as part of the
EUETS scheme, which could potentially have a significant impact as it would likely be pursued
by power generators who are the primary emission producers under the EUETS; removing the
power to determine allowance allocations from the Member State level to the European Union
level; and linking other regional or national schemes, including links with US state schemes.
1.
Other European Union Initiatives to Address Global Climate Change
In addition to the EUETS, the European Commission has adopted a number of other
legislative initiatives aimed at reducing greenhouse gas emissions and addressing global climate
change. Some of these initiatives include:
may include not just the major carbon emitters, but also organizations like supermarkets, banks, pubs and hotel
chains. The key to the number of parties obligated will be annual electricity consumption across the affected
organizations - this will be looked at on a United Kingdom-wide basis rather than on a site-by-site basis. A
threshold of 3,000MW annual electricity consumption would bring about 5,000 organizations within the Energy
Performance Commitment, while a higher threshold of 10,000MW would limit it to 1,200 obligated organizations.
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a.
Energy Efficiency Action Plan (2006)
The European Union’s 2006 Energy Efficiency Action Plan establishes a number of
measures aimed at improving energy efficiency with a goal of achieving a 13 percent reduction
in energy use by 2020 compared to 2006 energy use. Some of the key measures proposed in the
Plan include an increase in fuel efficient vehicles and increased use of public transportation. In
addition, the European Union governments have adopted the Energy Performance of Buildings
Directive (2002/91/EC), which requires the Member States to set common minimum
performance standards for energy efficiency in existing and new buildings.
b.
Promotion of Renewable Energy Sources (Directive 2001/77/EC)
Under the Directive on the Promotion of Electricity from Renewal Energy Sources in the
Internal Electricity Market, Member States are required to promote electricity produced from
non-fossil renewable energy sources (such as wind, solar, geothermal, wave, tidal, hydroelectric,
biomass, landfill gas, sewage treatment gas and biogas energies) with a target of 12 percent of
gross energy consumption by 2010. In addition, in its 2006 Renewable Energy Roadmap, the
European Commission proposes that the European Union increase the level of renewable energy
in its overall energy mix from 7 percent to 20 percent by 2020. This initiative envisions that
Member States would submit National Action Plans to the Commission that set fort how the
bindings target will be met.
c.
Promotion for Bio-Fuels for Transport (Directive 2003/30/EC)
In order to decrease dependency on oil, Member States are required under this Directive
to promote bio-fuels (liquid or gaseous fuels used for transport and produced from biomass) with
a target of approximately 6 percent in the share of fuels sold to be reached by 2010.
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d.
Reduction of Methane Emissions from Landfills (Directive 1999/31/EC)
Landfills are a significant contributor to greenhouse gas emissions. Methane, a potent
greenhouse gas with a far greater global warming potential than carbon dioxide, constitutes
approximately 50 percent of the gases emitted from landfills. Under this Directive, Member
States are required to gradually reduce the amount of biodegradable waste at the landfill to 35
percent of the 1995 level by 2016, which will, in turn, reduce the amount of methane emissions
emitted from landfills.
e.
Minimum Taxation for Mineral Oils, Coal, Natural Gas and Electricity
(Directive 2003/96/EC)
This Directive extends the minimum taxation rates of mineral oils to coal, natural gas,
used as motor and heating fuels, and to electricity. The minimum taxation is intended to
encourage more efficient use of energy and authorizes Member States to grant tax advantages to
businesses that take specific measures to reduce their emissions.
D.
United States Climate Change Policy
The United States federal government has not adopted a mandatory regulatory regime for
reducing greenhouse gas emissions. The Bush Administration has opposed the imposition of
regulatory controls on greenhouse gas emissions, beyond those now in effect, such as vehicle
fuel economy standards and has, instead, focused on promoting voluntary emission reductions
and investing in climate-related science and technology research. To date, the United States
federal government has viewed mandatory reductions of greenhouse gas emissions as premature
and as a potential threat to the United States economy. Consequently, the Bush Administration
links economic growth and regulatory controls on greenhouse gas emissions in its policies and
initiatives concerning global climate change. In 2002, President Bush launched the United States
Global Climate Change Initiative, which is intended to reduce the greenhouse gas intensity
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(defined as greenhouse emissions per unit of gross domestic product) by 18 percent by 2012.
The United States federal government estimates that its greenhouse gas intensity has dropped by
25 percent from 1990 to 2002.
1.
Existing United States Programs on Global Climate Change
In terms of addressing issues of greenhouse gas emissions and global climate change in
the implementation of its commitments under the UNFCCC, the preferred response of the Bush
Administration has been to pursue various voluntary domestic and international measures along
with bilateral and multilateral international agreements and partnerships. Specific measures have
included: public-private partnerships in which 14 energy intensive sectors have agreed to meet
greenhouse gas or energy efficiency targets and over 70 major companies have agreed to
establish greenhouse gas reduction goals and to maintain emissions inventories; tax incentives
for alternative fuels; incentives for land management practices to sequester carbon; tax credits
for methane projects; voluntary agreements and requirements to increase the energy efficiency of
products and buildings; agreements to improve transportation efficiency; research on aerosols
carbon sources and sinks and methods of observing and modeling climate variation; research and
development in energy efficiency, renewable energy, nuclear power and clean use of coal;
agreements with other countries on research, observation, monitoring, emissions and carbon
sequestration; initiatives to conserve tropical forests, combat illegal logging, and recover
methane emissions from landfills, coal mines and natural gas and petroleum operations; and
bilateral and multilateral climate change agreements with other countries. In all, the Bush
Administration estimates that it has committed $37 billion to climate change initiatives,
including climate-related science, technology, international assistance and incentive programs
since 2001.
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2.
Pending Climate Change Legislation
Despite these initiatives, there appears to be a growing consensus among the general
public, the business community and the new Democratic leadership in Congress that the federal
government should take a more prominent role in addressing global climate change than it has
today under the Bush Administration. Whether that results in any significant change in United
States policy on global climate change remains to be seen.
The 110th Congress convened in January 2007, and within the first two weeks, three very
different climate bills were introduced in the Senate. At least six major climates measures have
been addressed in the Senate. Some of the more significant bills are briefly summarized below:
a.
Climate Stewardship and Innovation Act - S. 280
This bill would create a cap and trade program that covers approximately 85 percent of
the United States greenhouse gas emissions. Regulated facilities would include those that emit
more than 10 million tons of greenhouse gases annually (e.g., power plants, large manufacturing
facilities and transportation fuels at refineries). Emissions would be capped at 2004 levels
beginning in 2012. Thereafter, emissions would be reduced 14 percent below 2004 levels by
2020; 33 percent below 2004 levels by 2030; and 65 percent below 2004 levels by 2050.
b.
Global Warming Pollution Reduction Act - S.309
This bill would amend the Federal Clean Air Act by adding a new title that focuses
exclusively on addressing global climate change. Included in the bill are programs that establish
strict emission limits for power plants, establish a national renewable portfolio standard, impose
new greenhouse gas emission standards on all automobiles, mandate an increase in the use of
biofuels and establish energy efficiency targets for products and buildings. Emissions would be
capped beginning in 2010. Thereafter, emissions would be reduced 14 percent by 2020; and 83
percent by 2050.
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c.
Electric Utility Cap and Trade Act – S. 317
This bill sets up a cap and trade program that covers only electric utilities and would
require nationwide reduction in power plant greenhouse gas emissions to 2006 levels by 2011.
By 2015 emissions must reach 2001 levels. Thereafter, emissions would be reduced 1 percent
annually from 2016 to 2019 and after 2020 by 1.5 percent annually.
d.
Bingaman Bill – S.1766
Unlike other proposed bills that seek absolute reductions in greenhouse gas emissions,
this bill focuses on cutting emissions relative to economic growth. The bill would establish
annual emission caps based on targeted reductions in greenhouse gas intensity (defined as
emissions per dollar of gross domestic product). The bill proposes intensity reductions of 2.6
percent annually beginning in 2012 through 2021 and reductions of 3 percent beginning in 2022.
The bill also creates an emissions trading market, which would include a price cap of $7 on the
cost of carbon emission, and provides research and development funding for zero-or low-carbon
energy technologies, advanced coal technologies, cellulosic biomass and advanced technology
vehicles.
e.
Kerry – Snow E. Bill - S. 485
This bill would maintain atmospheric greenhouse gas concentrations at 450 parts per
million and would establish an economy-wide greenhouse gas cap and trade program. The
reduction targets and the bill include a return to 1990 emission levels by 2020. Emissions would
be cut 2.5 percent annually from 2021 to 2030 and 3.5 percent annually from 2031 to 2050.
f.
Climate Stewardship Act – H.R. 620
This bill is the House of Representatives version of the Climate Stewardship and
Innovation Act – S. 280. The chief difference is that this bill sets more aggressive long-term
emission reductions.
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g.
Safe Climate Act – H.R. 1590
This bill is the House of Representatives version of the Global warming pollution
Reduction Act – S. 309.
Despite statements by members of Congress, including 2008 Presidential hopefuls, that
Congress soon will pass comprehensive climate change legislation, the prospects for such
legislation in the next two years appear uncertain. The relatively large number of expected bills
suggests that there may be no consensus in Congress on how to regulate greenhouse gas
emissions, and that alone may hinder efforts to pass a measure by 2008. The positions of many
in the two houses appear unclear, and may likely turn not on political party affiliations but on
regional and economic issues. Though many in Congress express concern over global climate
change many represent states that are economically-dependent on energy intensive sectors (coal
mining, steel producing, automobile and truck manufacturing, etc.) - sectors that would likely be
the target of regulatory controls on greenhouse gas emissions.. Even state governors who
support state or regional greenhouse gas emissions initiatives are criticized by local politicians
who are protective of their state’s economic interests. Questions will likely arise whether
greenhouse gas emissions should be directed at one sector (e.g., electric utilities or
transportation), multiple sectors or, like in California, the entire economy. Also, concerns will
likely arise as to the nature of the regulatory requirements, their costs and their impact on issues
such as national security, energy needs, consumers, small businesses, national trade deficit,
manufacturing base and jobs.
Even if comprehensive climate change legislation could make it through the Congress,
without the Bush Administration’s support a Presidential veto is possible.
Barring any
unforeseen change in views, the Bush Administration is not likely to support any law that
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includes mandatory greenhouse gas emissions. In that case, a two-thirds majority vote would be
required to overturn the veto, a result which would be uncertain given the split Congress.
Finally, the position of the American public on global climate change appears mixed.
Though Americans rank global climate change as the country’s most pressing environmental
issue, global climate change was not a critical issue in the 2006 elections and trailed other issues
such as terrorism, the Iraq war, heath care, fuel and oil prices, illegal immigrants, the economy,
quality of governmental leaders, social security and education.
Apart from specific legislative measures on climate change, the 110th Congress is
expected to address other proposals with implications on greenhouse gas emissions. These
include measures to increase the average fuel economy standards for new passenger cars and
light trucks (“CAFÉ standards”), to promote clean, alternative and renewable energy and to
expand coal liquefaction. Though these proposals will not be free of controversy, there may be
more room for agreement on these measures as the Bush Administration has shown support for
these measures in the past.
E.
U.S. State Response to Global Climate Change
In the absence of comprehensive federal climate change policy, state and local
governments across the country are adopting measures aimed at reducing greenhouse gas
emissions.
Examples of the types of policies and strategies being implemented include
emissions reporting requirements, development and implementation of statewide emissions
reduction targets, automobile performance standards, clean energy promotion and energy
efficiency. In addition to individual state actions, a number of states have formed regional
alliances to address global climate change.
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1.
California AB 32
In August 2006, California became the first state in the United States to adopt an
economy-wide cap on carbon dioxide emissions. The Global Warming Solutions Act of 2006,
also known as AB 32, requires California to reduce its statewide greenhouse gas emissions to
1990 levels by 2020 and 80 percent below 1990 levels by 2050.
Reductions are to be
accomplished with the use of a statewide emission cap that will gradually be phased in beginning
in 2008. The new law specifically contemplates that the California Air Resources Board will
adopt, among others, regulations that establish market-base approaches such as emission trading,
offsets and credits to achieve required emissions reductions. CARB is required to consult with
other states, the federal government and other countries to facilitate the development of
integrated and cost-effective regional, national and international greenhouse gas reduction
programs. AB 32 provides that CARB may impose criminal or civil penalties for violations.
2.
Washington Executive Water 07-02
In February 2007, Washington’s Governor signed an Executive Order that outlines goals
for addressing global climate change. The Executive Order establishes a series of measurable
targets and goals that are intended to reduce Washington’s contribution to global climate
pollution, grow Washington’s clean energy economy and move Washington towards energy
independence. Among its goals, the Executive Order requires by 2020 reductions of greenhouse
gas emissions to 1990 levels; by 2035 reductions to levels 25 percent below 1990 levels; and by
2050 reductions to levels 50 percent below 1990 levels.
Other state initiatives, more modest in scope continue to move forward. Oregon is
working on a power plant cap and trade proposal that is expected to be considered by its
legislature in 2007. New Mexico’s Governor signed an executive order in December 2006 that
establishes a team of officials to implement climate change recommendations made by a state
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task force, including creating a market-based greenhouse gas registry and reduction program.
Florida’s Governor released a “white paper” recommending, among other things, that the state
consider implementing carbon constraints, including a future carbon pricing program for
electricity generation.
F.
U.S. Regional Climate Change Initiatives
In addition to state initiatives, there have been regional state initiatives to address global
climate change.
1.
Regional Greenhouse Gas Initiative
This initiative is a cooperative effort by seven Northeastern and Mid-Atlantic States to
reduce carbon dioxide emissions from fossil fuel fired power plants greater than 25 megawatts
through the use of a regional cap and trade system. Beginning in 2009, the regional emissions
budget will be approximately 121 million tons, which is roughly equivalent to the current
emission level. This cap would remain in place until 2015. Thereafter, States will be required to
achieve a 10 percent reduction in emissions by 2019.
2.
Western Regional Climate Action Initiative
In February 2007, the governors of Washington, Oregon, California, Arizona and New
Mexico announced that they intend to work cooperatively to develop a joint regional strategy for
reducing greenhouse gas emissions that would include the creation of a regional emission trading
system. Since February 2007, Utah and the Canadian province of British Columbia have joined
the Initiative. The agreement requires theses states to set a regional greenhouse gas emissions
reduction goal within six months. Within a year after setting the regional greenhouse reduction
goal, the states are to develop a market-based strategy, such as a cap and trade program, to assist
in achieving required reductions. To facilitate the trading program, the states have agreed to
participate in a multi-state greenhouse gas emissions registry, intended to track, manage and
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credit emissions reductions. These states will also push for energy conservation and a greater
use of renewable energy sources, such as wind, hydropower, geothermal and solar energy.
3.
Multi-State Climate Registry
A group of approximately 31 states are working on a multi-state climate registry in which
entities would report emissions from various individual sources.
G.
Non-Governmental Initiatives
In addition to governmental programs, various groups in the United States are pushing
their own private initiatives concerning greenhouse gases. One of the best known is the Chicago
Climate Exchange, which is a self-regulated exchange intended to gain experience with
greenhouse gas trading schemes and to raise public awareness. Initially, Members made legally
binding commitments to reduce their greenhouse gas emissions by 4 percent below the average
of their 1998-2001 baselines prior to 2006. This program has been extended for an additional
four years with a reduction target of 6 percent below baseline. In 2006, 10 million metric tons of
carbon dioxide were traded on the Exchange with prices ranging between $3 and $4.50 for most
of the year.
In January 2007, a few United States manufacturers, power companies and environmental
groups formed the United States Climate Action Partnership to urge implementation of
mandatory Federal climate emissions trading system. Members include General Electric, Alcoa,
Caterpillar, Duke Energy, NRDC, Environmental Defense, Pew Center, BP America, DuPont,
Lehman Brothers and World Resources Institute, among others.
H.
Impact of Global Climate Change on Law Practitioners
The concerns of global climate change and regulatory controls over greenhouse gas
emissions will undoubtedly affect what lawyers do as practitioners not only in the area of energy
law, but across a wide range of practice areas, including environmental, natural resources,
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corporate, finance, tax, real estate, and litigation. Following are some examples of how the legal
practice has been affected or will likely be affected by global climate change and policies to
address such change:
1.
Increased Business Transactions
JI and CDM projects have grown significantly in the European Union during the last
couple of years. New JI and CDM projects involving business transactions between developed
Annex I countries and between developed Annex I countries and undeveloped countries will
likely be on the rise as countries seek project emissions credits under the EUETS and other
emerging emissions trading markets.
2.
Environmental Impact of New Projects
Developers and energy producers are now required under state-based National
Environmental Policy Act (“NEPA”) laws in the United States to quantify direct and indirect
greenhouse gas emission impacts in environmental impact reports and to identify measures to
avoid, minimize or mitigate greenhouse gas emissions associated with new projects. Emission
reduction measures might include energy efficiency improvements in buildings, use of on-site
renewable energy, use of clean and alternative fuels, transportation demand management
(locating projects near mass transit) and use of systems for on-site reuse and recycling of
construction and demolition materials, among other measures.
3.
New Zoning Laws
Another significant impact will be emissions trade contracts, emissions reduction
conditions in permits, and the impact on development projects (whether commercial, retail or
residential) of likely new zoning requirements in relation to achieving carbon dioxide reductions.
The last of these will undoubtedly have an impact on areas of practice like real estate as
developers will need to consider how best to secure compliance with new requirements. In the
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United Kingdom, for example, there is increasing interest in what is referred to as combined heat
and power or as co-generation. Developers are not yet generally used to procuring heat and
power networks along with new build developments, but mat be required to do so in the future.
4.
Mandatory Emissions Reductions
State initiatives to address global climate change will likely result in a number of new
laws, regulations and permit requirements to control greenhouse gas emissions. In the United
States, the floodgates for such new developments may have opened with the United States
Supreme Court’s recent decision in Massachusetts v. United States Environmental Protection
Agency, which held that carbon dioxide and other greenhouse gasses are air pollutants under its
Clean Air Act and may, therefore, be regulated by the United States Environmental Protection
Agency. This decision will likely fuel new state regulations on greenhouse gas emissions, which
will likely extend beyond automobile emissions to emissions from power plants, coal mines,
power plants, refineries, steel plants and industrial boilers, among other facilities. These new
regulations will likely impose to new permitting and reporting requirements.
5.
Increased Litigation Risks
Issues of global climate change and reductions in greenhouse gas emissions will,
undoubtedly, result in a proliferation of litigation on many fronts. In the United States, court
challenges have been filed to force governmental agencies to regulate greenhouse gas emissions
and other climate change impacts in environmental reviews and land use planning documents.
Court challenges are also expected on many regional, state and local climate change initiatives,
such as the Regional Greenhouse Gas Initiative and California state law initiatives to regulate
greenhouse gas emissions. Also pending in the United States courts is the question of whether
civil liability can be used to impose greenhouse gas controls. Eight states, along with New York
City and several environmental groups, have sued five utilities that allegedly account for 10
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percent of overall emissions in the United States on the grounds that their emissions are creating
a Federal common law public nuisance.
6.
Climate Action Plans
Climate action plans are being developed at the city planning level in the United States,
which adopt goals of increasing public transit, encouraging construction of environmentallyfriendly buildings, expanding bike and pedestrian infrastructure, implementing commercial
parking taxes, developing multi-modal transportation within neighborhoods, developing "urban
villages" that encourages mixed used development as a means of reducing vehicle trips and
achieving zero net greenhouse gas emissions. These plans will raise interesting land use issues
for real estate and business lawyers involved in development projects.
7.
Emissions Trading
Issues of global climate change will likely result in a growing number of emission trading
markets concerning carbon emission and other greenhouse gas emission markets at the
international, national, regional and state level. These market opportunities have driven, and will
continue to drive, new business opportunities that will likely translate into more acquisitions and
transactions involving greenhouse gas emissions credits.
8.
Emissions Reduction Technologies
The development and implementation of new technologies to reduce greenhouse gas
emissions and promote low carbon energy sources will, undoubtedly, trigger numerous legal and
regulatory issues that will need to be addressed globally. One of the leading greenhouse gas
emissions reduction technologies, carbon dioxide capture and subsurface storage (“carbon
sequestration”), for example, is a case in point.
Legal issues associated with carbon
sequestration include, among others, liability for emissions associated with subsurface, lateral
leakage of carbon dioxide and release of carbon dioxide to the atmosphere, the status of carbon
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dioxide as a waste or beneficially useable product, and, at least in the United States, Safe
Drinking Water Act requirements for underground injection wells.
In addition, carbon
sequestration raises complex legal issues related to real property rights associated with
subsurface property ownership (particularly at the depths contemplated for deep storage),
impacts on water rights and mineral resource conflict issues and legal issues associated with
acquisition of privately-owned, federally-owned or state-owned subsurface rights for carbon
dioxide storage.
9.
Disclosure of Climate Change Risks in Required SEC Filings
The pressure on companies to disclose information on the materiality of risks posed by
global climate change is likely to increase as regulations governing greenhouse gas emissions
develop. Recent events such as the implementation of the European Union’s emission trading
system, California’s adoption of comprehensive climate change legislation, establishment of
regional greenhouse gas trading systems and increase in climate related litigation are likely to
bring the materiality of the financial risks of global climate change to the forefront of corporate
management as they contemplate their disclosure obligations.
10.
Carbon and Energy Due Diligence
The growing number of mandatory and voluntary carbon regulations and markets are
creating major opportunities and risks for businesses, including those involved in the acquisition
and sale of businesses. Going forward, acquisitions will need to include a comprehensive due
diligence on the many legal and regulatory issues implicated by global climate change and
greenhouse gas emissions.
In addition, environmental scrutiny of corporate policies and
practices by stakeholders, financial institutions and regulators is likely to grow.
Careful
consideration of energy and carbon management issues, both during a due diligence and post
closure of a transaction, will likely reduce legal risks.
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11.
Threatened and Endangered Species Act
The listing or proposed listing of threatened and endangered species based on adverse
impacts to critical habitat caused by global climate change or greenhouse gas emissions could
potentially subject new energy intensive projects in the United States to greater environmental
scrutiny. New projects or expansion of existing projects on federal land or involving federal
permits on private land could trigger Section 7 consultations under the Threatened and
Endangered Species Act. Remarkably, because of the global nature of the emission, these
consultations now involve the assessment of impacts of increased greenhouse gas emissions
generated from a proposed project on threatened and endangered species located all over the
world, not simply within the proximity of the proposed project. This trigger would likely lead to
increased transactional costs and could possibly lead to constraints on or rejection of such
projects.
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