Climate Change Regulation Before Legislation in U.S.

Sen. John Kerry’s announcement on Nov. 16 that the Senate’s version of climate change legislation, the Clean Energy & American Power Act (S. 1733), probably won’t be considered until “early spring” 2010 now makes it more likely that the first move by the U.S. will come from the Environmental Protection Agency rather than Congress.

Sen. Kerry made the announcement after meeting with Senate Majority Leader Harry Reid and committee chairs. Its no secret that rounding up 60 votes to beat an expected filibuster is going to be difficult. Coal-state senators are wanting to make sure their constituencies aren’t hurt by the bill. Sen. James Webb (D-VA) signaled his opposition to cap and trade, calling it “enormously complex,” and joined with Sen. Lamar Alexander (D-TN) to propose a bill that would provide $20-billion to expand nuclear energy and fund alternative energy sources. Sen. Webb says his proposal addresses areas that are “achievable.”

That leaves pretty much an open field for the EPA to issue its long-awaited endangerment finding, which the agency sent to the White House Office of Management and Budget on Nov. 9. OMB has up to 90 days to consider it, but the EPA is hoping for a shorter review. The endangerment finding, together with EPA’s mandatory carbon reporting rules, means that, for now, the climate action is on the regulatory side rather than legislative.

Can the Marriage Between Smart Grid and Consumer Be Saved?

It all started with such promise, aided by $3.4 billion in federal stimulus funding for “advanced electricity-grid technology,” but there wasn’t even a honeymoon for some residential customers in Texas and California who saw their newly-installed smart meters result in higher electricity bills.  They reacted with suspicion, hostility and lawsuits, and now utilities regulators in both states have launched reviews. As Katherine Ling of Greenwire reported in The New York Times, a new group also has formed to act as a smart grid marriage counselor by researching consumer concerns and helping them understand smart grid.

“Its Not Me, Its You”

  • Texas —  When Oncor, the largest transmission and distribution system in Texas, started installing smart meters, customers almost immediately began complaining about higher bills.  The initial problems have been traced to mistakes by meter readers and not the meters, but some consumers are not buying it.  Upset Texas consumers launched a website launched dedicated to “fight utility meter abuse” and they filed a lawsuit seeking class action status. The Public Utilities Commission of Texas started an independent review (PDF) of the smart meters and a report is expected in June.
  • California — Last fall Pacific Gas & Electric (PG&E) also ran into opposition from residents upset with their bills after smart meters were installed.  PG&E said there was nothing wrong with the meters and that the higher bills were due to warmer weather creating more demand for air conditioning.  Nevertheless, PG&E halted its deployment of smart meters after a consumer lawsuit was filed. The California Public Utilities Commission now has selected a consultant to conduct an independent evaluation similar to the Texas review.

We Need to Talk

At the heart of the controversy is a breakdown in communication. Consequently, last month a group of utilities, consumer advocacy groups, consumer electronics and tech companies, and retailers formed the SmartGrid Consumer Collaborative (PDF) to work on building consumer acceptance and use of the smart grid. The SGCC has three priorities:

  • In-depth research on consumer awareness, acceptance, and use of the smart grid with emphasis on their needs, preferences and priorities;
  • Outreach and education to allow consumers to better understand the smart grid, its issues and its potential; and
  • Development of best practices to involve and empower consumers in the roll out of smart grid technologies.

The effort comes not a minute too soon. With nearly $4 billion in federal stimulus money to be spent on smart grid and a forecast that nearly half of all North American consumers will be using smart meters within the next five years, the difference between success and failure will depend on avoiding unrealistic expectations by consumers. Smart grid, particularly the metering part that consumers see, in large part provides the consumer with information to make choices about their energy use.  Turning information from the smart meters into action, rather than a lawsuit or complaint, will require much better education and communication going forward.

Tokyo Launches Asia’s First Cap & Trade Program

The Tokyo Metropolitan Government (TMG) on April 1 began a cap-and-trade program (PDF) that will cover approximately 1,400 industries, commercial buildings and large office buildings within the Tokyo Prefecture.  The emissions trading program is Asia’s first and was rolled out at the same time that the UK also is expanding cap-and-trade to non-industrial businesses and government buildings.

Introductory Phase

The first phase of the Tokyo program will run from April 1, 2010 to March 31, 2014 (fiscal years 2010-14).  The TMG set the baseline of CO2 emissions according to a facility’s average energy use between fiscal years 2002-07, with an introductory phase cap of six percent below the baseline (or eight percent for buildings that do not receive energy from district heating and cooling plans).

To comply with the cap, users can either implement energy savings to reduce their usage below the target or buy credits from small and medium-sized businesses that have earned credits from their own energy reduction, or from branch offices located outside Tokyo Prefecture, or buying renewable energy credits from power producers.

The first year of the program largely is a data collection period, so there will not be any actual trading of credits.  Trading is expected to start April 1, 2011.

Other features of the Tokyo program include:

  • A September 30, 2010, deadline for submitting applications to the TMG for base-year emissions.
  • Participating facilities must submit a Plan on Measures Against Global Warming by the end of November each year.
  • A point system to evaluate performance.  Installations that have made “outstanding progress” in the implementation of measuresa against global warming can be certified as “Top-level installations” and their compliance factor reduced by 1/2 percent.  Installations that have made “excellent progress” are certified as “Near-Top-Level Installations,” and receive a 3/4 percent reduction in their compliance factor.
  • Allowances that can be banked for future compliance years, but borrowing from future years is not allowed.
  • Violators are subject to requirement to reduce their emissions 1.3 times any shortage plus a monetary fine (~¥500,000 or ~$5,332 USD), public notice of the violation and payment to the TMG for the cost of buying any allowance credits for the shortage.

Second Phase

In the second phase of the program (fiscal years 2015-19) the emissions cuts will be deeper, requiring a 17% reduction below the 2002-07 baseline.

Through the combination of the eight percent reductions in the first phase and the 17 percent in the second, the Tokyo program expects to reach its 2020 target of 25% reduction from CO2 emission levels in 2000.

Tenant Obligations

One aspect of the Tokyo program that may raise some concern is the requirement for tenant participation:

  • All tenants are obligated to check their CO2 emissions and to implement emission deterrent measures;
  • All tenants have the obligation to cooperate with the emissions measures undertaken by building owners; and
  • Specified tenants (those who use more than 5000 sq. meters (53.8195 square feet) or more than 6 million kWh electricity per year) are required to submit their own emissions reduction plans to TMG through their landlords.

Based on the scope of the definition of specified tenants, it would appear that all but the smallest closet-sized commercial space would have an obligation to submit emissions reductions plans.  That represents a potentially significant cost for a small commercial tenant and it remains to be seen how that will be applied in practice.

Comparison to UK Program

The Tokyo program is similar to the UK CRC Emissions Reduction Scheme (PDF) that also started on April 1.  The two programs include non-industrial facilities within the scope of the cap-and-trade.  The UK program appears to be much broader, applying to about 20,000 public and private sector organizations throughout the country.  And, even though only about 5,000 will actually have to buy allowances in the UK, its still substantially larger than the Tokyo program.  Still, both programs appear to have a similar approach in addressing non-industrial buildings, which contribute a significant share of CO2 emissions.

The Tokyo program is particularly noteworthy because — unlike the UK and its participation in the European Union-Emissions Trading System — this program is occurring in a country and a region that has not adopted any other form of mandatory emissions caps.  Indeed, the Tokyo program is being touted as a potential model that could spread throughout Japan and other cities in Asia.

UK Rolls Out Carbon Trading for Businesses — Would the US Adopt It Too?

While the U.S. Congress argues whether or not to adopt climate change legislation that includes  cap and trade, the United Kingdom has rolled out a new mandatory carbon trading program sweeping in businesses that, up to now, have not been covered by the European Union’s Emissions Trading System.

Under the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), large private and public sector organizations in the U.K., such as banks, supermarkets, hotel chains, restaurant chains, hospitals and government offices and universities, will be required to report their CO2 emissions and some will have to buy allowances.  The registration period started April 1, 2010, and will run through September 2010.  An estimated 20,000 organizations will be required to report and about 5,000 will need to buy allowances starting in 2011.

Energy Conservation Goal

The purpose of the CRC is to encourage energy efficiency, which the program intends to accomplish by making the cost of buying allowances more expensive than reducing energy use.  One estimate is that the scheme will result in savings of about ₤1 billion (~ $1.5 billion USD) and a reduction of 4.4 million tons of CO2 per year by 2020.

While the goal apparently was to keep the program as simple as possible, the UK Environment Agency has issued a moderately helpful User’s Guide (PDF)  to explain all of the ins-and-outs of the program and its not that simple.  The first three years are the Introductory Phase consisting of several key time periods:

  • Qualification Period: This is the year for which an organization assesses its energy use (in the introductory phase calendar year 2008 is the baseline), then various calculations are made to arrive at the CRC emissions that must be reported;
  • Registration Period: Organizations that meet the reporting threshold must register between April 1 and September 30, 2010;
  • Footprint Year: Organizations will monitor and report their emissions during the first compliance year, which will be April 1, 2010 through March 31, 2011;
  • Annual Reporting Years:  Participants will continue to monitor and report their emissions during each subsequent year between April 1 and March 31, and, if necessary, surrender allowances to cover their reported emissions; and
  • Revenue Recycling:  A payment or penalty issued to participants after the close of each reporting year, the amount of which depends on the organization’s ranking based on energy use relative to other participants.

Allowances & Recyling Revenues

No allowances will be sold or surrendered the first year, but in the following two years, 2011-2013, the UK government will sell the allowances at a fixed price of ₤12 (~$17.98 USD) per ton of CO2.  This is a big difference from the European Union’s Emissions Trading System, which issued the allowances free and subsequently was criticized for flooding the market and reducing the value of the credits for trading.  In the subsequent phases of the UK’s scheme (referred to as the Capped Phases), which start April 1, 2013, the allowances will be auctioned by closed bids.

The scheme is intended to be revenue neutral, which it will accomplish by recyling the allowance revenues based on participants’ ranked performance in the previous year.  Revenue neutral, however, depends on a participant’s perspective.  If an organization is ranked low in the standings it could end up having to pay a penalty.

Could CRC Happen Here?

The UK seems to be on the forefront of carbon trading programs, first with its own Emissions Trading Scheme that predated the EU’s and now with the CRC.  While a CRC-like program is unlikely to be adopted anytime soon in the US due to wide disagreement over cap and trade and various attempts to roll back existing programs, such as California’s AB 32 measures, it nevertheless could become a template for the future.  It will be important, however, for CRC to avoid becoming a poster child against cap-and-trade by demonstrating that it is not subject to the various problems that have plagued the EU’s Emissions Trading System, including price collapses, hackers and improper recycling of certified emissions reductions.

Oregon’s Renewable Energy Tax Credit Program Undergoes Revisions

Oregon’s legislature has adopted modifications to the Business Energy Tax Credit (BETC) program. HB 3680 will place new financial limits on the BETC program, and give more discretion to the Director of the Oregon Department of Energy (“ODOE”) to reject BETC applications and to reduce the amount of BETCs delivered to projects.

Some of the key modifications, as summarized by my collegues in the Lane Powell Portland office, include:

  • New Program-Wide Caps – The bill establishes separate caps on “the total amount of potential tax credits” for renewable energy facilities and renewable energy equipment manufacturing facilities. For renewable energy facilities, the caps are $300 million for the biennium ending June 30, 2011, and $150 million for the year beginning July 1, 2011, and ending June 30, 2012. For manufacturing facilities, the caps are $200 million for the biennium ending June 30, 2011, $200 million for the biennium ending June 30, 2013, and $50 million for the six month period starting July 1, 2013, and ending December 31, 2013. These program-wide caps apply to all facilities receiving preliminary certificates after June 2009. For other types of facilities, such as energy efficiency and recycling facilities, no program-wide cap has been imposed.
  • Reduced Credits for Larger Wind Facilities – The credit for a wind facility with over 10 megawatts of installed capacity is limited to 5 percent of the cost of the facility, effective for all facilities receiving preliminary certificates after 2009. The maximum eligible cost for such a facility is further capped at $7 million if the preliminary certificate is issued in 2010, $5 million if the preliminary certificate is issued in 2011, and $3 million if the preliminary certificate is issued in 2012. Any wind facility that received a preliminary certificate in 2009 or earlier is not affected by these changes.
  • Delayed Use of Tax Credit for Larger Renewable Energy Facilities – In the case of a renewable energy facility that has over $10 million in certified costs and receives final certification after January 1, 2010, the five-year credit period begins with the tax year after the tax year in which the application for final certification is filed. This delay does not affect other facilities such as energy efficiency or manufacturing facilities.
  • New Dates for Termination of BETC Program – For facilities other than manufacturing facilities, final certification must be received before July 1, 2012. For manufacturing facilities, preliminary certification must be received before January 1, 2014.
  • Credit Allowed for Facilities Manufacturing Electric Vehicles and Renewable Energy Storage Devices – The bill adds electric vehicles, electric vehicle component parts (not including batteries), and renewable energy storage devices to the types of property that may be manufactured by an eligible “renewable energy resource equipment manufacturing facility.” The bill limits the total eligible cost for an electric vehicle manufacturing facility to $2.5 million. Electric vehicle batteries may be included by rule in the definition of renewable energy storage devices.
  • 10 Percent Overrun Provision Eliminated – The bill provides that the Department of Energy may not certify an amount of eligible cost for a facility that is more than the amount approved in the preliminary certificate.
  • Greater Discretion Given to ODOE in Administering the BETC Program – The bill codifies many of the program-tightening proposals contained in the temporary rules issued by ODOE in November 2009 and in ODOE’s recommendations provided to the Governor in December. For example, ODOE is directed to establish a “tiered priority system” for evaluating preliminary applications for renewable energy facilities, taking into account factors such as relative cost, investment payback period, job creation, strength of business plan, satisfaction of environmental standards established by ODOE, and amount of energy generation. The bill also provides greater discretion to ODOE to allocate BETCs among manufacturing facilities when the program is oversubscribed. For a facility that receives preliminary certification, the bill empowers ODOE to deny or revoke final certification if the applicant cannot demonstrate that the facility will remain in operation for at least five years, or if the facility ceases to operate.
  • Reduced Return for Investors in Pass-Through Program – While not part of HB 3680, another significant change to the BETC program has resulted from temporary rules issued by ODOE in November 2009. In those temporary rules, ODOE increased the pass-through rate that must be paid to an owner of a facility eligible for a 50 percent BETC from 33.5 percent to 42.7 percent. From an investment perspective, the change in formula means the annualized rate of return for the pass-through partner will be reduced significantly. While the new rates are intended to provide more capital to project owners and less return on investment to pass-through partners, there is great concern that the lower rates of return will make it difficult for project developers to monetize BETCs.

Passage of HB 3680, which the governor said he will sign, is a big deal for Oregon and renewable energy. The local newspaper, The Oregonian, campaigned long and loud to eliminate BETC entirely and with a significant shortfall in state revenues the arguments against BETC had some traction. But BETC also had some strong support as a way to keep Oregon in the forefront of renewable energy and provide long-term benefits.

Vancouver B.C. Green Olympics

Nashville TN lawyer and blogger Lena Babaeva Coridini has a post today about the Vancouver 2010 Winter Olympics getting a gold medal for sustainability. Aside from the convention center’s green roof, a number of the things she mentions that Vancouver has done right are not things you would notice because they deal with things like using recycled wood and LEED certification.

Having just come back from a day at the Olympics, and comparing with many previous visits to Vancouver, the emphasis on public transit and minimizing the number of cars in downtown Vancouver is probably one of the biggest and most obvious “green” differences. We paid $2.00 to park our (hybrid) car at a park and ride garage well away from downtown and next to Hwy. 99 (the main north-south road into Vancouver). An all day pass on the brand new 19 km long Canada Line light rail train, took us from the Bridgeport Park & Ride to stops in downtown, including the waterfront, a block from the convention center and Olympic cauldron.

This has a huge impact on reducing the carbon footprint of the Olympics since 36% of British Columbia’s CO2e emissions come from transportation (thanks to plentiful hydro power reducing the region’s reliance on coal-fired power generation). Kudos to Vancouver for literally walking the walk and taking the train when it comes to real sustainability. And thanks also for the big t.v. screens set up in Yaletown where we could watch USA-Canada men’s hockey live with a few thousand of our closest Canadian friends!

Weather v. Climate Change

Diane O’Neil has a good post on the Electric Utility Consultants, Inc. (EUCI) blog that’s an open letter to the media to stop using the major east coast snow storms and the lack of snow for the Winter Olympics as evidence that proves or disproves global climate change. She says:

Taking a single moment in time and trying to extrapolate it out to have any significance whatsoever on such a complex issue is irresponsible and disingenuous. As anyone who has ever taken a statistics class can explain, using a sample size of one to make conclusions about an overall situation is patently incorrect. The snow in the east, or the lack of it in the west, is merely an anecdote.

I would add politicians to Diane’s open letter since all too often the media simply parrots what some elected official (or uninformed celebrity like Donald Trump) says without question or challenge. This is a complex and serious issue that merits more than soundbites.

A Rising Tide Raises More Than Boats

hightide_1bgThe Washington Department of Ecology has released photographs depicting what a rising sea level might mean for waterfront properties in the future. The photos taken in early and mid-January 2010 during extreme high tides are a preview of what’s to come even with a medium sea level rise of six inches by 2050.

Seattle P-I.com also published photographs of some of the high tides at Bainbridge Island. A six inch rise in sea level would mean these extreme high tides might occur as many as 10 times a year instead of one or two times now. In addition, the higher sea level and higher extreme high tides would also make properties more susceptible to storm damage, such as what happened to some Camano Island property owners when strong winds accompanied the January high tides.

The next series of extreme high tides in Washington are February 1 through 3, and Ecology is requesting more photographs.

Another Conflict Brews Over Renewable Energy Versus Endangered Species

The desert tortoise is this week’s poster critter as the California Energy Commission holds evidentiary hearings on the proposed Bright Source Energy Ivanpah Solar Power Complex, which will occupy 6.2 square miles of public land near I-15 and the California-Nevada border. At issue is the desert tortoise, 25 of whom live in Ivanpah Valley. Project backers have set aside three times as much land in the valley as the project will displace for a new home to the tortoises, but environmentalists say the tortoises may not be able to survive such a move.

The Energy Commission hearings will attempt to balance protection of an endangered species with the state mandate to increase dramatically California’s renewable energy. As was seen, however, in the recent Maryland court decision effectively stopping a West Virginia wind project due to an endangered bat, this won’t be easy. Its difficult to say how this one will turn out, particularly in light of the Maryland bat case, but it definitely will not be the last project to face this dilemma.

Is it Possible to Avoid Wind Turbine Litigation?

One of the top renewable energy legal decisions in 2009 has to be the injunction issued on December 8 by U.S. District Judge Roger Titus in Animal Welfare Institute v. Beech Ridge Energy LLC. The ruling halted the construction of a 122-turbine wind project in West Virginia due to the failure to study adequately the impacts of the turbines on the endangered Indiana bat. The case highlights the importance of heeding the formal advisories of agencies, such as the U.S. Fish and Wildlife Service (USFWS), in the pre-construction evaluation of a project’s impacts on local fauna.

Beech Ridge Project

The project obtained its siting certificate in 2006 with the West Virginia Public Service Commission concluding that the evidence before it did not support a conclusion that Indiana bats lived near the project. Following a trial in October 2009, the U.S. District Court in Maryland concluded otherwise and criticized the project’s consultant for disregarding the repeated formal advisories of USFWS to conduct multi-year studies using a variety of tools (radar, thermal imaging, acoustical studies, mist-netting and other appropriate sampling techniques) during spring and fall to determine the presence and risks to endangered Indiana bats. The consultants primarily relied on surveys using mist-nets (small-screen fine-mesh nets) conducted during two summer seasons, and only incidental, and apparently unintended, collection of acoustical data.

This did not sit well with the judge, who said that the mist nets, which did not capture any Indiana bats, at best could only establish that the bats were not present in large numbers during the summer, but did not establish absence of the bats at other times of the year.

The acoustic data, which apparently a field technician collected on his own, did not get evaluated until trial and arguably indicated that some Indiana bats might be present. The court relied heavily on this disputed acoustic data to confirm “to a virtual certainty” the presence of Indiana bats and to conclude it is “a virtual certainty that Indiana bats would be harmed, wounded or killed” by the wind project in violation of the Endangered Species Act.

The court reluctantly issued an injunction halting the Beech Ridge project and chided the developer for “disregard[ing] not only repeated advice from the [US]FWS but also fail[ing] to take advantage of a specific mechanism, the [incidental take permit] process, established by federal law to allow their project to proceed in harmony with the goal of avoidance of harm to endangered species.”

Had the Beech Ridge project followed the USFWS suggestions and combined acoustic data with the mist net surveys the developer might have been in a position to make a case for an incidental take permit under the Endangered Species Act and to have better evidence to oppose a court challenge. The cautionary tale in all this is that the injunction effectively halted the project, which at the time had poured foundations for the initial 67 turbines, taken delivery on turbines and strung transmission lines.

Wind Turbine Guidelines Advisory Committee

In the meantime, the USFWS Wind Turbine Guidelines Advisory Committee (Advisory Committee)is preparing a set of recommended measures to reduce or minimize impacts to wildlife and their habitats related to land-based wind energy facilities. The American Wind Energy Association (AWEA) lists completion of the Advisory Committee work among its wind power trends for 2010, and the Beech Ridge decision suggests that such draft guidelines, if followed, might be helpful to avoid the harsh results of the case.

The sixth draft issued by a workgroup of the Advisory Committee in late October 2009 proposes a five-tiered approach to wildlife assessment and siting decisions that includes pre-construction evaluation of avian and bat impacts.

The draft guidelines specifically recommend against using mist-netting to assess the presence of bats and birds, in part because it is not feasible at the heights of the rotor-swept zone, and captures below that zone may not adequately reflect risk of fatality. If mist-netting is used, the draft guidelines recommend using it in combination with acoustic monitoring.

Litigation Likely

The Beech Ridge court’s critique of the methodologies used in that case lends some credence to the Advisory Committee’s draft recommendations. Even, however, as that process works toward final guidelines for approval by Interior Secretary Ken Salazar, they may not prove to be a hallmark event in wind power development for 2010 because of the strong likelihood of a court challenge.

Indeed, the attorney who represented the plaintiffs in the Beech Ridge case wrote a letter earlier in 2009 asking Secretary Salazar to disband the Advisory Committee because its draft recommendations “contain little but vague bromides and generic pronouncements” and “read more as an unabashed endorsement of wind power than a rigorous effort to address the harmful — and ever growing — effects of poorly sited and constructed wind power projects on wildlife.” While that letter was written well before the current draft guidelines, it indicates that the final recommendations could well face litigation.

In the absence of implimentation of the guidelines, the Beech Ridge case provides a strong signal that it does not pay to ignore or minimize an agency’s formal advisories in the pre-construction evaluation of a project.