Download Greenhouse Gas Challenges

Greenhouse Gas Challenges
Mark A. Thimke
Green Manufacturing Summit
August 31, 2010
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Mark A. Thimke
Mark A. Thimke is a partner with Foley & Lardner LLP. He is a member of the firm’s Environmental Regulation
Practice and the Energy Industry Team.
Partner
Foley & Lardner LLP
777 E Wisconsin Avenue
Milwaukee, WI 53202-5306
(414) 297-5832
[email protected]
Mr. Thimke’s practice encompasses all major environmental programs including the Clean Air Act and greenhouse
gas regulation. He has been involved in major air enforcement issues, permitting for major coal-fired power plant
facilities and developing innovative air permitting techniques with the Wisconsin Department of Natural Resources.
With respect to greenhouse gas issues, Mr. Thimke’s involvement goes back many years to early involvement with
clients that joined the Chicago Climate Exchange and reviewing contracts for the purchase of greenhouse gas credits
resulting from projects in developing countries.
Mr. Thimke was actively involved in the Midwest Governors Greenhouse Gas Accord process, which developed rules
for a regional Midwest greenhouse gas cap and trade program. Mr. Thimke currently provides comments on the
interpretation of “best available control technology” or BACT as applied to the Clean Air Act’s regulation of
greenhouse gas.
Mr. Thimke’s environmental practice also includes remediation and redevelopment of Brownfields properties, defense
of enforcement actions, cleanup of contaminated sediments in rivers and harbors and wastewater permitting.
Mr. Thimke has lectured on numerous environmental matters throughout the country and was a principal instructor
during a week-long session on environmental compliance at a federal facility in the Republic of the Marshall Islands.
He is a member of the Environmental Law Section of the Wisconsin Bar, and the Natural Resources Section of the
American Bar Association. He also is an author of the Wisconsin section of the Matthew Bender publication, State
Environmental Laws.
Mr. Thimke is a graduate of the University of Wisconsin Green Bay (B.A., summa cum laude, 1976) and Duke
University (J.D., 1979), where he was elected to Order of the Coif and served as a staff and editorial board member
on the Duke Law Journal. Mr. Thimke was selected by his peers for inclusion in The Best Lawyers in America® for
environmental law and to the Wisconsin Super Lawyers® for his environmental work. He was also selected for
inclusion in the 2010 edition of Chambers USA: America’s Leading Lawyers for Business.
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Background – Pre-crash of 2008
 Awareness of greenhouse gas issues (1990-
2008)
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1997 Kyoto Protocol – signed; effective 2005
European experience – EU trading
Clean Development Mechanism (CDM) used
for developing county offset market
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2007 – predictions made of future carbon markets
CDM and voluntary carbon offset projects abound
Major investment banks look at carbon market
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Societal Drivers
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Societal Drivers
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Background – Post-crash of 2008
 Politization of greenhouse gas issue (2008-
2010)
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Economic downturn
Turns into “right”/”left” issue
The climate skeptics/bloggers
Major legislation to adopt cap and trade –
stalls in U.S. Senate
 So – question for business: why be
concerned with greenhouse gas?
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Why be Concerned About Greenhouse
Gas?
 Answer – despite political rhetoric and web
blogging, greenhouse gas “controls” are
emerging
 Business needs to address as a “market
transition”
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Greenhouse Gas – What is Happening
 “Quiet regulation” of greenhouse gases
 Cap and trade – yes, it is here
 Disclosures and more disclosures
 The “Wal-Mart” factor
 Practical considerations for managing
greenhouse gas issues and risks
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“Quiet Regulation” of Greenhouse Gas
 Clean Air Act regulation
 Clean Air Act passed 40 years ago in 1970
 Focused on local (particulate), regional (ozone) and
even national (mercury) pollution
 U.S. Supreme Court in Massachusetts v. EPA (2007)
Opened the greenhouse gas door
 Greenhouse gas a “pollutant” under Clean Air Act
U.S. EPA issued an “endangerment finding” for
greenhouse gas (Dec. 7, 2009)
U.S. EPA – greenhouse gas regulated as a “pollutant”
for automobiles (light duty vehicle greenhouse gas
standards)
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“Quiet Regulation” of Greenhouse Gas
 So what does this mean to business?
 U.S. EPA triggered new source review permitting as of
January 2011 – four months from today
 U.S. EPA “tailoring rule” to limit greenhouse gas new
source review to large sources (May 13, 2010)
 Challenged and may/may not hold up
 But larger facilities (such as coal burning utilities)
subject to new source review greenhouse gas
permitting
 Wisconsin DNR – adopting emergency rules to be able
to permit in 2011
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“Quiet Regulation” of Greenhouse Gas
 New source review permitting means – BACT
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Best available control technology (BACT) for greenhouse
gas
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Traditional pollutants – end of stack controls, such as
oxidizers, scrubbers, catalysts
No such end of pipe controls readily available
U.S. EPA looking at energy efficiency standards
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Questions – unresolved; apply to entire plant or just
“affected equipment”
Will be mandatory part of air permit
 Which means need measurement method, recording,
reporting and potential enforcement
 No guidance available for states or companies
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Cap and Trade – The Regional
Greenhouse Gas Initiative (RGGI)
 YES – there is cap and trade in the United States
 Northeastern states -- cap and trade with carbon
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caps; carbon credits; auctions and offsets
RGGI – applies to power sector but discussions to
expand
Reduce power sector CO2 emission – 10% by 2018
Raises substantial funds for states
Other regional programs in the wings – Midwestern
Governors Greenhouse Gas Accord (MGGA);
Western Climate Initiative (WCI)
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Proceeds by Auction
New Jersey
New York
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State Scenarios of Greenhouse Gas Reductions
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Greenhouse Gas Disclosures
 SEC Interpretative Release (Feb. 2, 2010)
 ASTM E 2718-10 (Apr. 5, 2010)
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SEC “Interpretative Release” on
Climate Change Risk Disclosure
 SEC guidance issued February 2, 2010
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Applies to publicly-traded companies
Not a new rule but guidance on disclosures
Key points from guidance
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Pending legislation “reasonably likely to be
enacted” must be assessed
Standard – in the negative “unless management
determines not reasonably likely…”
And if “material,” then disclosure
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SEC “Interpretative Release” on
Climate Change Risk Disclosure
 In order to assess, companies need
 Information about greenhouse gas emissions
 Operational limitations/challenges due to climate
change
 Information about supply chain or key contractual
relationships
 Consideration of “reputational damage” based on
public perception of company
 Interplay with Sarbanes-Oxley requirements –
appropriate procedures/documentation to assess
greenhouse gas consequences
 For 2010 – generic disclosures provided by many
companies, but sufficient for future?
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Westar 10-K
“There is substantial uncertainty with respect to whether
U.S. federal GHG legislation will be enacted into law or
whether the EPA will regulate GHG emissions, and
there is additional uncertainty regarding the final
provisions and implementation of any potential U.S.
federal GHG legislation or EPA rules regulating GHG
emissions. We cannot predict with certainty the
outcome of the legislative and rulemaking processes or
a specific related impact on our generating facilities and
consolidated financial results”
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DTE 10-K
“We may also incur liabilities as a result of potential
future requirements to address climate change issues.
Proposals for voluntary initiatives and mandatory
controls are being discussed both in the United States
and worldwide to reduce greenhouse gases such as
carbon dioxide, a by-product of burning fossil fuels. If
increased regulation of greenhouse gas emissions are
implemented, the operations of our fossil-fuel
generation assets and our unconventional gas
production assets may be significantly impacted. Since
there can be no assurances that environmental costs
may be recovered through the regulatory process, our
financial performance may be negatively impacted as a
result of environmental matters.”
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ASTM Counterpart – E 2718-10
 Applies voluntarily to both public and private
companies
 Framework for assessing climate change risk
to business
 Takes broader view of climate business risks
than SEC guidance
 Like most ASTM approaches – methodical
assessment process
 May see references to ASTM disclosures in
buy/sell transactions
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ASTM – Details
 Factors to be assessed for disclosure
 Laws/regulations, including “predicted
changes in federal, state and local [laws] …
anticipated to have a material affect on capital
expenditure, earnings and competitive
position”
 Predicted changes/trends in resource costs
 Predicted changes in assets due to financial
impacts – climate change
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Weather
Resources availability
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ASTM – Details
 Sources of information
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Public/internal records
Proposed laws
Studies on trends/forecasts
 Estimating financial consequences
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More than remote
Severe impact
Near-term (next year)
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ASTM – Details
 Disclose either –
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Financial implications of climate change
Basis for concluding financial affects due to
climate change not occurring
 If financial consequences due to climate
change uncertain/speculative –
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Disclose types of financial affects it foresees
Reasoning for determining quantitative
analysis/disclosure not feasible
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Other Disclosure-based Greenhouse
Gas “Drivers”
 Martin Act probe by New York Attorney General
 Several settlements achieved requiring greater
greenhouse gas disclosures from companies
 Xcel
 AES Corporation
 Dynegy
 CERES – greenhouse gas resolutions
 2010 – investor group filed 95 greenhouse gas
resolutions; average vote of 24.6% favorable
 Successful with Massey Energy; Layne Christensen
 40% of Kroger shareholders voted for assessment of
greenhouse gas affects on supply chain
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Adopt Greenhouse Gas Reduction
Goals – 2010 “Proxy Season”
Company
ExxonMobil
Massey Energy
CMS Energy
Ryland
Vote in Favor
27.2%
53.1%
35.1%
37.4%
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Issue Sustainability Report, Including Greenhouse
Gas Reduction Strategies – 2010 “Proxy Season”
Company
Boston Properties
St. Jude Medical
Chesapeake Energy
EQT Corporation
Federal Realty Inv. Trust
Layne Christensen
Vote in Favor
44.1%
42.8%
31.5%
37.4%
44.6%
60.3%
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The Wal-Mart Factor
 Businesses implementing their own
greenhouse gas reduction programs
 Ford Motor Company (May 20, 2010)
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Survey 35 top suppliers on greenhouse gas
emissions
Goal of reducing auto related greenhouse gas
emissions (Ford internal goal – 30% by 2020)
“Suppliers play an important role as we look to
reduce our overall carbon footprint …” (Tony
Brown, Group VP-Global Purchasing)
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The Wal-Mart Factor
 Nike
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Calculated energy input (greenhouse gas
impact) of components of running shoe
Nike focus – reduce greenhouse gas
emission; sourcing materials for the shoes
 Hewlett-Packard
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Requiring supply chain companies to report
greenhouse gas emissions
“Establish expectations … regarding energy
efficiency”
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World Resources Institute Supply
Chain Accounting/Reporting Standard
 60 companies participated in “road test” of global
supply chain greenhouse gas measurement protocol
 Work completed August 2010 with final standard
spring of 2011
 Companies included –
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3M
BASF
IKEA
Kraft Foods
Pfizer
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Siemens
S.C. Johnson
Airbus
Levi Strauss
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Wal-Mart – Supply (Value) Chain Greenhouse
Gas Reduction Program (Feb. 25, 2010)
 Goal – 20 million ton reduction of greenhouse
gas from supply chain by December 31, 2015
 Reasons
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Wal-Mart consumer image
Make supply chain more efficient; less cost;
lower price and Wal-Mart more competitive
 Wal-Mart participating with Environmental
Defense Fund and PricewaterhouseCoopers
for transparency
 Detailed guidance issued August 3, 2010
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Wal-Mart Guidance – Key Elements
 Wal-Mart “champion” – oversees and
documents supplier greenhouse gas
reductions
 Supplier – develop business as usual (BAU)
greenhouse gas emissions and reductions
from BAU scenario
 Environmental Defense Fund/ClearCarbon –
review reduction claims
 PricewaterhouseCoopers – audits supplier
data/greenhouse gas reduction claims for
Wal-Mart
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Suppliers to Wal-Mart
 Data and documentation are essential under
this program
 More than just greenhouse gas “baseline”;
develop greenhouse gas based on “business
as usual” scenario
 Reductions need to be “additional”
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Example – Energy Star product with 5%
increase in energy efficiency; product must go
beyond Energy Star standard
Example – must go beyond requirements
imposed by law or regulation
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Practical Considerations – Business
Side of Greenhouse Gas
 Climate Change – What’s Your Business
Strategy (authors – Hoffman/Woody)
 Climate change – business perspective
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Not a political issue
Not an environmental issue
A market transition in energy, and energy
affects prices in virtually all sectors of
economy
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Business Side of Greenhouse Gas
 All business leaders – should determine
where risks exist in a carbon constrained
world
 Opportunities are present to take full
advantage of the change
 In other words – with greenhouse gases are
you betting on the “Hummer” or the “Prius”
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Next Steps to Address Greenhouse Gas
Issues
 Essential – know where you are in the carbon
world
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Carbon footprint
“Business as usual” greenhouse gas
emissions
Part of whose supply chain
Energy
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Source of energy (coal, nuclear, renewable)
Projected cost of energy
Efficiencies
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Legal Related Aspects of Greenhouse
Gas
 Transactions – buy/sell
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Due diligence on carbon “accounting” and
supply chain commitments
Air permitting
 Disclosures
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Adequacy of internal assessment
Appropriateness of disclosures –
shareholders/financial institutions
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Legal Related Aspects of Greenhouse
Gas
 Managing the greenhouse gas commitments/
requirements
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Tracking greenhouse gas reductions
Managing differing supply chain requirements
Compliance with permitting requirements
Compliance certifications
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“The strange truth is that while scientific
assessments … can still be met with skepticism
in a wary public …. If businesses spend money
on [climate change], then it must be true.”
Climate Change: What’s Your
Business Strategy, at 97
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Questions?
Mark A. Thimke
Foley & Lardner LLP
777 East Wisconsin Avenue
Milwaukee, WI 53202-5306
414-297-5832
[email protected]
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