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Commentary
With just days to go before the vote on Proposition 23, the California Air Resources Board released its draft regulations for implementation of A.B. 32. Under the draft regulations, nearly all allowances would be allocated for free during the first compliance period. In addition, regulated entities would be able to meet up to 8% of their compliance obligation with offsets . . . The National Association of Clean Air Agencies (NACAA) issued a status report concluding that Texas will be the only state that will not be legally authorized to issue Prevention of Significant Deterioration (PSD) permits for GHG sources once GHGs become regulated Clean Air Act pollutants on January 2, 2011.
Executive Branch
- President Obama Discusses Expectations for Climate and Energy Legislation in 2011. In an interview with National Journal, President Obama said that he expects to work with Republicans in Congress next year on "bite sized" legislative items that can win bipartisan support, such as a renewable electricity standard and support for investment in nuclear power and natural gas. The President called it "unrealistic" to expect "another big, omnibus, comprehensive, one-size-fits-all energy bill," but said that he would approach Republicans with proposals that are "smart to do" regardless of one's position on climate change. According to the President, this approach "can probably get a quarter of the way there in terms of where we need to be in terms of carbon emissions."
- EPA and NHTSA Issue Proposed GHG and Fuel Economy Standards for Heavy-Duty Trucks. The Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) issued a joint proposed rule that would establish coordinated greenhouse gas (GHG) and fuel economy standards for heavy-duty trucks produced in model years 2014 through 2018. The standards would cover CO2, N2O, CH4, and air conditioning-related HFC emissions from tractor-trailers, "vocational vehicles" (such as buses and fire engines), and heavy-duty trucks and vans, including trucks commonly used for long-haul freight transportation. According to the proposal, the standards will reduce GHG emissions and fuel consumption associated with the new heavy-duty truck fleet by 20%, yielding a total of $35 billion in net benefits from fuel savings over the lifetime of the vehicles. The proposed rule is available at http://epa.gov/otaq/climate/regulations/hd-preamble-regs.pdf.
- GAO Recommends Further Research on Fighting Climate Change Through "Geoengineering." A report by the Government Accountability Office (GAO) assesses Federal research efforts relating to strategies to mitigate climate change through modification of Earth's ecosystems, also known as "geoengineering." The report found that Federal agencies spent only $1.9 million on research directly related to geoengineering in fiscal years 2009 and 2010. Noting that the effectiveness – and potential unintended consequences – of geoengineering strategies remain uncertain, the report recommends the creation of a White House-led effort to coordinate research efforts across agencies and direct more Federal research funding to geoengineering research projects. The report is available at http://www.gao.gov/new.items/d10903.pdf.
Congress
- Graham Urges Republicans to Work With Democrats on Energy—Minus Cap-and-Trade. Sen. Lindsey Graham (R-SC) said during a radio interview: "My belief is, if we get back in power in the House and get close in the Senate, that we ought to really clamp down on spending and reform the government. But we ought to not put ourselves in the position of being the party that said 'no' to hard problems, that we ought to . . . come up with an energy policy without cap-and-trade that will create energy jobs in America, break our dependency on foreign oil, and clean up the air." Sen. Graham said that key energy issues that need to be addressed include domestic exploration for oil and gas; electric, hydrogen, and hybrid vehicles; and nuclear power. He also said that "the EPA's going to start regulating carbon in January if the Congress doesn't act. So one of the real priorities of the Congress and the nation ought to be energy independence."
Judicial
- Washington Court Dismisses Challenge to Executive Order on GHG Emissions. The Washington Superior Court dismissed a lawsuit challenging an Executive Order by Governor Christine Gregoire (D) that directed state agencies to prepare the state to implement a future cap-and-trade program. The May 2009 executive order directs the state Departments of Commerce, Ecology and Transportation to take actions to implement aspects of a state cap-and-trade bill that failed to pass the state's legislature. In particular, the order directs the Washington Department of Ecology to establish baseline GHG emissions for industrial sources that emit 25,000 tons or more of GHGs annually and to develop strategies that would enable those facilities to assist the state in meeting its 2020 GHG emission reduction goals. The lawsuit filed by the Evergreen Freedom Foundation sought a preliminary injunction that would prevent the state agencies from implementing the order.
- DOJ Defends Scientific and Legal Basis for EPA's GHG Regulations in Response to Motion for Stay. DOJ filed a 120-page brief responding to various motions seeking a stay of one or more of EPA's recent Clean Air Act regulations addressing GHG emissions, which were filed by various groups of petitioners challenging those regulations in cases before the United States Court of Appeals for the District of Columbia Circuit. The government's brief argues that petitioners have not met the heavy burden of evidence that warrants the "extraordinary and drastic remedy" of a stay of impending regulations, characterizing the petitioners' criticisms of EPA's December 2009 "endangerment finding" as "flyspecking" that does not undermine the "vast body of record evidence supporting the Administrator's conclusions." The brief also argues that having made the endangerment finding on the basis of the best evidence available, EPA had no choice but to issue vehicle GHG standards in April 2010 – and that this action automatically triggered PSD permitting requirements for stationary sources of GHGs under the plain language of the Clean Air Act. According to DOJ, petitioners are attempting to "relitigate" the Supreme Court's holding in Massachusetts v. EPA (2007) that GHGs are air pollutants under the Clean Air Act, and seek to "stay the Clean Air Act itself" by moving to suspend regulations that are mandatory under the statute.
States and Cities
- California Agency Releases Final Draft of State Cap-and-Trade Program. The California Air Resources Board (CARB or Board) issued the final draft of a proposed rule that would establish a cap-and-trade program in the state. The program, which is scheduled to go into effect on January 1, 2012, would cover 85 percent of the state's GHG emissions and would impact approximately 600 facilities. The rule calls for emission allowances to be distributed to covered entities for free during the early years of the program and, once auctions begin, sets a floor price of $10. The draft rule also contains provisions that would allow the program to link to the Western Climate Initiative (WCI), a regional cap-and-trade program being developed by a group of Western states and Canadian provinces. One significant change from a preliminary draft of the rule that was released earlier this year is an increase from 4 percent to 8 percent in the amount of a covered entity's compliance obligation that can be met using offset credits. After a 45-day public comment period, the program design will go before the Board for a vote at the Board's Dec. 16-17 meeting. Although the Board is expected to approve the draft rule, the future of California's climate program remains uncertain due to a proposition on the November 2 ballot that seeks to prevent implementation of the program unless the state's unemployment rate stays below 5.5 percent for four consecutive quarters. However, the most recent polls suggest that the ballot initiative, Proposition 23, is unlikely to pass. The proposed rule is available at http://www.arb.ca.gov/regact/2010/capandtrade10/capandtrade10.htm.
- British Columbia Details Cap-and-Trade Design. British Columbia's Climate Action Secretariat issued a consultation paper that provides details of the state's plans to implement a cap-and-trade program under the WCI. As described in the paper, the cap-and-trade program would cover aluminum and cement production, coal mining, industrial wastewater processing, petroleum refining, and pulp and paper production. The trading program would be based on a series of three-year compliance periods beginning on January 1, 2012. The program would hold quarterly emission allowance auctions and would permit covered entities to bank an unlimited quantity of allowances. The paper did not provide concrete details on the amount of allowances that would be distributed free to regulated entities versus those that would be auctioned nor did it establish specific thresholds for the number of offset credits that may be used for compliance purposes. Instead, those program details are to be determined periodically for each compliance period with the exact design specifications for the first compliance period to be established at a later date. The consultation paper will be available for public comment until December 6.
- Oregon Finalizes GHG Emissions Reporting Program. The Oregon Environmental Quality Commission (EQC) issued a final rule that establishes a GHG emission reporting program for stationary sources that emit 2,500 tons or more annually of GHGs. The program, which is based on a temporary reporting scheme put in place last year, will go into effect January 1, 2011. The reporting program will be funded by fees on the approximately 180 major emitting sources covered by the rule. The reporting protocols will also apply to approximately 215 fuel distributors and electricity suppliers, although those entities will not be subject to the fee.
- NACAA Claims Texas Will Be Sole State Unprepared to Issue GHG Permits in 2011. The National Association of Clean Air Agencies (NACAA) issued a status report concluding that Texas will be the only state that will not be legally authorized to issue Prevention of Significant Deterioration (PSD) permits for GHG sources once GHGs become regulated Clean Air Act pollutants on January 2, 2011. The report observed that EPA has preliminarily determined that thirty-six states have authority to carry out PSD permitting for GHG sources under the agency's "Tailoring Rule." Of the fourteen remaining states, seven claim that they will have regulations in place to carry out the permitting program by January 2 or "very shortly thereafter"; and the remaining six are prepared to accept an EPA-issued Federal Implementation Plan (FIP) as of January 2 while they undertake changes to their Clean Air Act permitting programs. Bill Becker, the executive director of NACAA, said that the report shows that "the rhetoric and the exaggerations that opponents of this program are spewing are getting out of hand." The report is available at http://www.4cleanair.org/Documents/NACAAGHGSIPCallletterssummaryfinal.pdf.
Industry and NGOs
- CCX to End Voluntary Emission Trading in 2010. Citing a collapse in the volume of trading, the Chicago Climate Exchange (CCX) announced that it would terminate its emission allowance trading program at the end of this year after seven years of operation. CCX is a voluntary cap-and-trade program with over 300 member companies, including firms located in Australia, China, and India. CCX said that it will continue to register offset projects under a new registry to be created next year, and that the Chicago Climate Futures Exchange (a subsidiary of CCX) will continue to operate once the voluntary cap-and-trade program ends.
- Industry Associations Urge Senators to Impose Moratorium on EPA GHG Regulations. Twenty-one industry and trade associations, including the U.S. Chamber of Commerce, the American Petroleum Institute, the National Association of Manufacturers, and the American Chemistry Council, sent a letter to ten Senators urging them to include a moratorium on EPA development of GHG regulations for stationary sources in spending bills once Congress reconvenes after the elections. With progress on appropriations bills temporarily stalled, the Federal government is currently being funded by a congressional resolution that expires on December 3. The letter calls the moratorium "one of America's top priorities" and claims that EPA regulation of GHGs under the Clean Air Act will result in "substantial costs and burdens on U.S. jobs and state resources while intruding on Congress's important leadership role in developing energy policies that reduce greenhouse gas emissions." The letter is available at http://www.americanchemistry.com/s_acc/bin.asp?CID=217&DID=11455&DOC=FILE.PDF.
Studies and Reports
- CRS Report Favors Allowance Auctions and Economy-Wide Vs. Piecemeal Cap-and-Trade. An analysis of Europe's Emission Trading System (ETS) by the Congressional Research Service found that restricting the ETS to only 6 sectors at the beginning of the program raised the cost of meeting emission reduction targets from 6 billion euro annually to 6.9 billion annually (2009 euro). The report concluded that "adding sectors to an emission trading program can be a slow and contentious process. . . . If one believes that the economy as a whole needs to begin adjusting to a carbon-constrained environment to meet long term goals, then a more comprehensive approach may be justified. The [European] experience suggests the process doesn't necessarily get any easier if you wait." The report also found that the free allocation of emission allowances in the 2005-2007 pilot phase of the ETS resulted in windfall profits for recipients such as the power industry, and that the planned expansion of auctions will allow market economics to more fully influence compliance decisions. In addition, the report noted that the most important variables influencing allowance price changes in the ETS were oil and natural gas price changes, which "raises the possibility of market manipulation, particularly with the inclusion of financial instruments such as options and futures contracts."
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