Sustainability & Climate Change Reporter

U.S. Supreme Court Takes Another Run At Climate Change

Posted in Climate Change

Tuesday, April 19, will be a watershed day for climate change litigation as the U.S. Supreme Court hears oral argument in American Electric Power v. Connecticut.  At stake is whether states and private parties should be allowed to bring common law nuisance claims against utilities for their greenhouse gas (“GHG”) emissions.  While the authority of the federal Environmental Protection Agency to regulate GHG emissions is not directly at issue, the case will implicate the Court’s 2007 decision in Massachusetts v. EPA, which held that GHG emissions are a pollutant under the Clean Air Act and that states have standing to challenge inaction by the federal government.  Meanwhile, the elephant in the courtroom, so to speak, are the continuing efforts in Congress to curb the EPA’s adoption of regulations addressing climate change issues.

Underlying Lawsuit & Appeal

In 2004, eight states (Connecticut, California, Iowa, New Jersey, New York, Rhode Island, Vermont and Wisconsin), three private land trusts and New York City sued five utilities asserting a claim for federal common law public nuisance.  The lawsuit alleged that GHG emissions from the utilities’ power plants contributed to global warming and, thereby, threaten injury to the states and their citizens.  The district court dismissed the case as raising complex policy questions that should be decided by the legislative and executive branches, not by the courts.

The Second Circuit Court of Appeals reversed in a decision issued by two judges (the third, now-Supreme Court Justice Sonia Sotomayor heard oral argument but recused herself from the decision because of her subsequent nomination to the Court).  The Second Circuit held that the nuisance claims do not involve nonjusticiable political questions and, at least for purposes of determining the plaintiffs’ standing, the case could move forward through discovery and summary judgment, which would require plaintiffs to provide more evidence to support their claim.

Issues

The three primary issues before the U.S. Supreme Court are:

  • Whether the states and private parties have standing to bring a common law claim;
  • Whether there is even a common law nuisance action that would apply to climate change; and
  • Whether the federal common law claims are displaced by either the Clean Air Act or the EPA’s GHG regulations.

The briefing in the case has been extensive.  The Climate Law Blog at Columbia Law School’s Center for Climate Change Law has posted excellent summaries of the issues in the utilities‘ and states‘ opening briefs and the utilities’ reply.   In addition, the case has drawn 31 separate amicus briefs from a wide range of interests such as the U.S. Chamber of Commerce, National Association of Home Builders, Business Roundtable, Edison Electric Institute, major oil companies, National Automobile Dealers Association, American Trucking Association, Petroleum Marketers Association, CATO Institute and 23 states (all against allowing nuisance claims) to Defenders of Wildlife, Westinghouse Solar, a coalition of religious organizations and four states (in support of permitting nuisance claims).

A New Dynamic

When the utilities, six states (New Jersey and Wisconsin dropped out), land trusts and city argue before the Supreme Court on Tuesday, they will face a different Court than the one that decided Massachusetts. Justice Stevens, the author of the 5-4 majority decision, and Justice Souter, a member of the majority, have been replaced by Justices Sotomayor and Kagan.  Only eight of the justices, however, will consider the AEP case because Justice Sotomayor has recused herself due  to her participation in the Second Circuit case.  That leaves a potential for either a 4-4 tie, which would mean the Second Circuit decision stands, or one of the Massachusetts majority switches sides.  Because of this shift, the merits briefing in AEP no doubt has paid careful attention to the dissents in Massachusetts, which focused on the nonjusticiability of the states’ claims regarding standing and injury.

Another critical issue not raised by Massachusetts, but which may come up if a majority can get past the standing issue, is whether EPA’s GHG regulations have displaced, or will at some point in the future will displace, any common law claims.  Seth Jaffe of Foley Hoag points out the nuances in the parties’ briefs on this issue.  The irony is that the displacement argument may be good only so long as the EPA actually is allowed to regulate.  In the last budget vote, EPA’s climate change programs took substantial hits and some in Congress are aiming to go even further and enact either a complete ban on EPA regulating GHG or defund the agency’s programs to prevent implementation.  If, however, only one of the Justices switches to the Massachusetts dissenters’ position on standing, the Court would not even have to address displacement.

The oral argument on Tuesday should be fascinating and the comments of the Justices will be closely watched for clues as to the outcome, which is expected in June.

 

 

EPA Delays Greenhouse Gas Reporting to Summer 2011

Posted in Greenhouse Gas Reporting

The U.S. Environmental Protection Agency announced today that it is extending the deadline for reporting greenhouse gas emissions from March 31, 2011, to "later this summer."  According to the agency’s press release, "This extension will allow EPA to further test the system that facilities will use to submit data and give industry the opportunity to test the tool, provide feedback, and have sufficient time to become familiar with the tool prior to reporting."  Details will be announced later this month.

The extension is good news for the roughly 10,000 facilities affected by the GHG Reporting Rule.  As Reuters reported, both the National Petrochemical and Refiners Association and the American Chemistry Council applauded the decision.

The delay should have little, if any, impact on state GHG reporting rules.  For example, California has required facilities in that state to report since 2009; while Massachusetts and Oregon started requiring reports last year.  By contrast, the state of Washington rules (PDF) do not require the first reports until March 31, 2013, for 2012 emissions.

But the bigger question remains, what will Congress do?  If efforts are successful to delay or prevent EPA implementation of its various GHG rules, including the reporting rule, the current extension could become indefinite.

NIMBYs & Wind Farms in the Pacific Northwest

Posted in Wind Power

A new poll of Pacific Northwest residents shows very strong support for wind energy, which is not so surprising given the large number of wind projects here.  But what is significant is the high level of support for wind farms among rural residents, who bear the greatest impacts.  The poll of 1200 Oregon, Washington and Idaho residents shows nearly 80 percent of rural respondents would support a wind farm (10 to 20-story high turbines and 200-foot long blades) being built within sight of their homes, while 14 percent would oppose and seven percent don’t know.

The poll was conducted for the Northwest Health Foundation, public radio stations in the Northwest and the polling firm of Davis, Hibbitts and Midghall.  While the poll also reported that 87 percent of urban residents would support a wind farm, it’s the 8 in 10 rural respondents that really count since utility-scale wind projects are located in rural areas.

The high positive responses may be one reason why Oregon and  Washington have achieved the fourth and fifth place rankings in existing wind power capacity (behind Texas, Iowa and California), according to the American Wind Energy Association’s U.S. Wind Projects Database.

But even with strong support, some Pacific Northwest wind projects encounter opposition. For example, last November, voters in Union County, Oregon, narrowly defeated a resolution in support of the proposed Antelope Ridge wind farm.  The measure was non-binding and, at the end of December, the Oregon Energy Facility Site Evaluation Council deemed the project application complete and ready for public comment.  The first information meeting is scheduled for January 25 and its unlikely that the comments at the meeting will come anywhere close to the 80 percent support for wind power identified in the poll.

In 2008 it took a Washington Supreme Court decision to overcome objections by  some Kittitas County residents about visual impacts and setbacks for a large wind farm near Cle Elum, Washington.   Notwithstanding the decision, the Kittitas Valley Wind Power Project has not started construction and the developer has requested an amendment to the site certification to reduce the number of turbines from 65 to 52. * * *Construction on road upgrades for that project began in 2009, and the majority of work got underway last spring.  All 48 turbines are erected and the developer expects to complete construction by this spring.

There are substantially fewer wind projects under construction in Oregon, Washington and Idaho, but that may be due more to the recession, tight credit markets and access to transmission lines than to public opposition.  But for wind project proponents the poll results are an encouraging indication that there may be a strong “silent majority” in support of wind farms.

[*** Note: The WA EFSEC website erroneously stated that construction had not started.  The developer provided me with more current information.]

EPA Messes with Texas, Congress Likely to Mess with EPA

Posted in Cap & Trade

Two days before Christmas the U.S. Environmental Protection Agency handed the state of Texas the regulatory equivalent of a lump of coal for its stocking.  The agency announced that, effective January 2, 2011, it will follow through on the threat to take over issuance of air permits to industries in Texas.  This is a first for EPA and was prompted by the refusal of Texas to include greenhouse gas emissions in its air permit decisions.  The EPA’s action, however, is sure to raise the heat to long-simmering efforts by Congressional Republicans to halt the agency’s climate change regulations in its tracks.

State Permits

For many years states such as Texas have been implementing aspects of the federal Clean Air Act, including issuing permits under the Prevention of Significant Deterioration (PSD) program, which regulates air pollution from new major industrial sources or major modifications to industrial facilities.  Up to now greenhouse gases have not been part of the PSD permit considerations.  But because the U.S. Supreme Court in Massachusetts v. EPA told the agency to make a decision whether greenhouse gases are "pollutants" under the Clean Air Act, and EPA did so with its December 2009 endangerment finding, the next step was to include greenhouse gases in permit programs. 

Texas Response

EPA notified state and local air permitting agencies that they would need to be in a position to issue PSD permits for greenhouse gases or a federal plan would step in to avoid delay in issuing permits to new or expanding facilities.  Texas responded last August with a strongly-worded letter (PDF):

In order to deter challenges to your plan for centralized control of industrial development through the issuance of permits for greenhouse gases, you have called upon each state to declare its allegiance to the Environmental Protection Agency’s recently enacted greenhouse gas regulations – regulations that are plainly contrary to United States law. To encourage acquiescence with your unsupported findings you threaten to usurp state enforcement authority and to federalize the permitting program of any state that fails to pledge their fealty to the Environmental Protection Agency. 

Although seven other states (Arizona, Arkansas, Florida, Idaho, Kansas, Oregon and Wyoming) also are not in compliance with including greenhouse gases in PSD permits, those states have indicated that they are in the process of revising their programs.  Only Texas has been adamant in its refusal and is part of lawsuits against EPA to block implementation of the agency’s rules.

In early December, the U.S. Court of Appeals for the District of Columbia rejected a motion by a coalition of parties, including Texas, to stay implementation of the EPA rules.  The court said: "petitioners have not shown that the harms they allege are ‘certain,’ rather than speculative, or that the ‘alleged harm[s] will directly result from the action[s] which the movant[s] seeks to enjoin,"

EPA Implementation 

In addition to the PSD program, EPA also has announced plans to release proposed updated pollution rules for existing power plants in July 2011 and for oil refineries by next December, with the two sets of rules to be finalized six to nine months after each release. 

The big question, however, remains whether Congress will put a stop to all this.  Newly-installed Republican committee chairs in the House, such as Rep. Fred Upton (R-MI), head of the House Energy and Commerce Committee, threaten to do just that.  In a Wall Street Journal article on December 28th, Rep. Upton characterized the EPA regulations as "an unconstitutional power grab that will kill millions of jobs — unless Congress steps in."  Rep. Upton said the best solution would be for Congress to overturn EPA’s regulations outright, but other tactics could include a two-year moratorium on EPA regulations, defunding EPA entirely or blocking funds for EPA’s climate change programs. 

First U.S. Economy-Wide Cap & Trade Coming to California

Posted in Cap & Trade

When California regulators took the major step on December 16th of adopting cap and trade regulations (PDF) , they did what Congress has been unable to do, and appears unlikely anytime soon, at the federal level.  At more than 3,000 pages in length, the regulations are the epitome of complex.  Even so there still are a number of important issues to be determined.  And while adoption might not have happened at all if California voters last November had approved an initiative to suspend the state’s landmark Global Warming Solutions Act (also known as AB 32), the fate of the new cap and trade program may yet depend on intepretation of another initiative that voters did pass. 

State Program

Cap and trade has been the centerpiece for compliance with AB 32′s mandate to reduce California’s greenhouse gas emissions to 1990 levels by 2020, amounting to a 15 percent overall reduction. Unlike the 10-state Regional Greenhouse Gas Initiative (RGGI) emissions trading program that focuses solely on power plant emissions, California’s will apply economy-wide. 

Starting in 2012, approximately 600 of California’s major industrial facilities and largest greenhouse gas emitters –not just power plants but also refineries and other large industrial plants – will be subject to a cap and have to obtain allowances for the excess emissions.  Three years later, in 2015, the program extends to transportation fuel and natural gas distributors.

Initially, about 90 percent of the allowances for each industrial sector will be distributed for free, with the rest to be auctioned at a floor price of $10/ton. By comparison, the most recent RGGI emissions allowance auctions have been selling for $1.86/ton and have never had clearing price above $3.51/ton.  Money generated from the electrical generating sector would go back to California ratepayers. 

Issues to be Resolved

While the regulations are extensive, they are not the final word on California’s cap-and-trade system. Several details remain to be filled in by later rules, including:

  • ·        Calculating allowance levels for emitters;
  • ·        Creating offsets;
  • ·        Determining whether biomass emissions should be inside or outside the cap; and
  • ·        Distributing revenue from non-utility auctions.

And it won’t just be regulators taking up some of these issues.  For example, the legislature will have to decide who gets non-utility auction revenue because regulators do not have that authority.  What will happen in the legislature is anyone’s guess.

Even before those issues are ironed out, the rules could face legal challenges.  One potential focus in the courts could be the newly-adopted Proposition 26, which requires a two-thirds’ supermajority vote to impose or imcrease fees. Right now it’s uncertain whether Prop. 26 applies to allowances under the cap and trade program and it may be up to the courts to decide.

Adoption of the cap-and-trade program also means that California can move forward with New Mexico and three Canadian provinces (British Columbia, Ontario and Quebec) in the Western Climate Initiative’s (WCI) cap and trade program.  New Mexico could still back out, particularly as the incoming governor opposes her state’s recent adoption of cap and trade rules and utilities there have filed appeals.  But without California, the eighth largest economy in the world and highest state gross product in the U.S., the WCI cap and trade probably couldn’t fly. By adopting cap and trade rules, California ensures that it will continue to have a considerable impact on greenhouse gas regulation throughout the U.S. and North America.    

UPDATE: Washington State Rule-Making Suspension Leaves Proposed Climate Change Regs Untouched

Posted in Climate Change

When is a one-year rule-making suspension ordered by a governor not a suspension?  In the case of the Washington Department of Ecology’s latest announcement, it’s when several exemptions allow continuation of most of the proposed regulations addressing climate change.  In response to Gov. Christine Gregoire’s executive order suspending all "non-critical" rule-making for one year, the agency is suspending seven proceedings — including revisions to the rules implementing the state’s mini-CERCLA statute, known as the Model Toxics Control Act, as well as dangerous waste regulations – but 18 other Ecology rule-making proceedings, including several addressing greenhouse gas emissions, will not be affected by the governor’s one-year hiatus.

Executive Order

On November 17, Washington Gov. Gregoire issued an executive order (PDF) to suspend all non-critical rule-making by state agencies due to the continuing recession and a need to re-focus scarce administrative resources.  A set of guidelines (PDF) for determining what constitutes a "non-critical" rulemaking contained a number of exemptions for rules required by federal or state law; to maintain federally delegated or authorized programs; required by court order; necessary to manage budget shortfalls or generate revenue; necessary to protect public health, safety or welfare or to avoid immediate threats to natural resources; or beneficial to or requested by affected regulated entities, local governments or small businesses.  Based on the scope of the exemptions, it appeared that few rule-making proceedings, particularly those by Ecology, would be halted by the order.

Ecology Response

In its November 30 initial determination (PDF) of the rules affected by the executive order, Ecology did not suspend the state’s proposed greenhouse gas reporting rules, the revisions to the State Implementation Plan ("SIP") or updates to the operating permit regulations. 

The reporting rules are required by state law to harmonize state regulations with federal greenhouse gas reporting requirements that start in 2012.  Similarly, the SIP revisions are necessary to align the state’s rules for regulating major air pollution sources with federal rules that now include greenhouse gas thresholds in permitting decisions beginning January 2011.  Ecology also needs to update the operating permit regulations by January 2, 2011, so that hundreds of small greenhouse gas sources do not have to seek permits for emissions above 100 tons per year.

Updated Determinations

After a very short comment period, Ecology on December 8 issued revisions (PDF) to the suspension list, but did not suspend any of the proposed greenhouse gas emissions rules.  In the revisions, the primary changes move proposed regulations for lower emissions vehicles from the "To Be Determined" category to "Continued," and diesel engine idling reduction rule-making shifts from "Delayed" to "To Be Determined."

The stated rationale for the change in the anticipated rule-making for lower emission vehicles is that technical updates are required to ensure consistency with the California clean car standards.  Washington is one of several states that have opted to follow California’s vehicle emissions standards that are more stringent than the federal government’s and as California updates its rules, so must Washington state.

Moving the diesel engine idle reduction proposed rule-making to the "To Be Determined" category is based on new, more stringent federal air quality standards expected next year that could result in increased non-attainment designations for local governments.  Rule changes by the feds regarding emissions of soot, dust and unburned fuel (known as PM 2.5 standards) and of ozone could create a situation where emissions from diesel engine idling pushes a city or county out of compliance (a/k/a non-attainment), which in turn could mean economic and environmental impacts for the jurisdiction.  Whether the proposed diesel engine idle reduction rule moves to "Continued" status may depend on whether local governments see a need for a rule.

The bottom line is that it appears the Washington Governor’s suspension order will have little affect on Ecology’s climate change rule-making.

UPDATE: WA Draft GHG Rules Adoptions to Continue

Posted in Climate Change

Within in a day of Washington Governor Christine Gregoire issuing an Executive Order suspending state agencies’ adoption or development of non-critical rules, the Washington Department of Ecology has identified three proposed greenhouse gas regulations, among others, that it considers critical and will proceed with adoption during the moratorium.

Ecology listed the following three draft rules as "critical:"

  • The greenhouse gas reporting rule applicable to stationary facilities in Washington that emit at least 10,000 metric tons of greenhouse gases per year, or suppliers of liquid fuel products equivalent to at least 10,000 metric tons of carbon dioxide annually (roughly 1.1 million gallons of gasoline);
  • Revisions to the general operating air permit requirements, including an exemption from new source review requirements for facilities emitting less than 75,000 tons of greenhouse gases per year; and
  • Updates to the operating permit regulations to include greenhouse gas emissions and avoid approximately 1,000 Washington facilities that emit less than 100,000 metric tons of greenhouse gases having to apply for permits after July 1, 2011.

For each of these draft rules, Ecology cites an exemption under Criteria 3(a) of a November 16, 2010 implementation memorandum, allowing agencies to proceed with adopting and developing rules that are required by federal or state law or required to maintain federally designated or authorized programs. 

Consequently, it appears that the Executive Order moratorium on agency rule development and adoption will not have any impact on the state’s proposed greenhouse gas regulations.  All three rules are scheduled for adoption in December 2010. 

 

Washington State Suspension of Agency Rulemaking May Not Affect Proposed GHG Rules

Posted in Climate Change

Washington Governor Christine Gregoire issued an Executive Order (PDF) on November 17  suspending until December 31, 2011, state agencies’ development and adoption of all "non-critical" regulations.  The order is premised on providing a "stable and predictable regulatory and policy environment," but it’s not at all clear what will constitute "non-critical" rules.  Two proposed greenhouse gas emissions rules slated for adoption in December 2010 may not be affected because of exemptions described in an implementation memorandum.

The Governor’s order refers to unprecedented economic times, which certainly is the case with the state’s budget.  Legislators are facing an anticipated $5.7-billion budget shortfall in the next two years, which they will have to close through cuts only since voters turned down tax increase measures in the last election.  And this is in addition to a $9-billion gap in the last budget, which was balanced through $4-billion in cuts and $5-billion in one-time fixes.   

What is "Non-Critical?"

The state finance director issued a November 16 implementation memorandum (PDF) to agency directors, statewide elected officials, presidents of higher education institutions and boards and commissions.  The memo sets out the guidelines for what rules can be developed or adopted during the moratorium.  According to the memo, all rule making proceedings are non-critical unless they are:

  • required by federal or state law or required to maintain federally delegated or authorized programs;
  • required by court order;
  • necessary to manage budget shortfalls, maintain fund solvency, or for revenue generating activities;
  • necessary to promote public health, safety and welfare or necessary to avoid an immediate threat to the state’s natural resources; or
  • beneficial to or requested or supported by the regulated entities, local governments or small businesses that it affects.

Other exemptions exist for: 

  • rules that are the subject of negotiated rule making;
  •  pilot rule making that involved substantial participation by interested parties before the development of the proposed rule;
  • permanent rule making that has previously been covered by emergency rules; or
  • expedited rules that relate only to internal government operations.

Impact on Pending GHG Regulations

The Washington Department of Ecology ("Ecology") has proposed at least two regulations concerning greenhouse gas emissions that could be affected by the executive order moratorium:

  • Greenhouse gas reporting rules, first proposed in October 2009 and revised in September 2010, would apply to Washington facilities that have annual emissions starting in 2012 greater than 10,000 metric tons of CO2 equivalent . 

Because state law requires Ecology to adopt the regulations, that might qualify the proposed rules as exempt under the November 16 memo.   The authorizing statute, however, originally required rule adoption to start with 2009 emissions.  For a variety of reasons, that did not happen, but when the legislature amended the statute earlier this year, it did not change the date requirement.  Thus, it is unclear whether state law actually requires Ecology to adopt a reporting rule now.  

  • Operating permit regulations would establish when facilities that already have an air operating permit must begin reporting their GHG emissions and require facilities that do not currently need an air operating permit to apply for one before July 2012 if they have the potential to emit at least 100,000 metric tons per year of GHG.  This rule is intended to match the federal Environmental Protection Agency’s "Tailoring Rule," which raises the current very low threshold for air pollution sources that need a permit to a substantially higher level for GHG emissions.        

The operating permit rules might be exempt from the Governor’s suspension order because they are required by federal rules that take effect January 1, 2011.  Unless the state rule is revised so that it is consistent with the federal rule, approximately 1,000 Washington businesses would need permits for GHG emissions, at a cost of between $20,000 to $135,000.

Before the Executive Order, Ecology had planned to adopt both rules in December.  The agency’s first statement after the Governor’s order acknowledged that the range of circumstances for exemption are likely to be narrow, but signaled that rule making such as the proposed GHG rules may continue.

Much of Ecology’s rule-making work is required by the state Legislature or is in response to changes in federal rules or legislation. Some of our draft rules under way simplify reporting requirements for businesses, synchronize state and federal rules, modernize cleanup standards, and ensure local government eligibility for federal construction dollars.

The moratorium doesn’t extend to other regulatory work we do, such as permitting and policy guidance. In the spirit of the Governor’s effort to help businesses and local governments, Ecology will put increased emphasis on providing technical assistance and helping the regulated community comply with permits and other existing regulations. We will also direct additional resources to enforcing existing laws and requirements.

Thus, while at first glance the Executive Order appears broad, the numerous exemptions and the specific circumstances involving Ecology’s proposed GHG rules may not derail the planned adoption next month.

California Releases Cap & Trade Design to An Uncertain Fate

Posted in Cap & Trade

The California Air Resources Board (ARB) has released its proposal for a cap-and-trade program (PDF) just as voters weigh the  pros and cons of an initiative that, if passed, would put a hold on the statutory basis for the program.  While the cap-and-trade design has been in the works for some time now, its fate hinges on the outcome of the November 2 election 

Program Design

ARB’s proposed cap-and-trade would start January 1, 2012, for electricity generators, including imports, and large industrial facilities, then expand to distributors of transportation fuels, natural gas and other fuels starting in 2015.  Approximately 360 businesses, representing 600 facilities, would be covered.

The initial cap will be based on a forecast of greenhouse gas emissions for 2012, and will expand in 2015 to include emissions from combustion of fuels.  The cap will decline by two percent per year during the initial period and, after 2015, decline by three percent each year to reach a cap in 2020 that is 15 percent below 2012 levels.

Allowances will free at the outset, but transition to an auction basis.  Offsets will be allowed for up to eight percent of a facility’s compliance obligation, with offsets to come from forestry, urban forestry, management of livestock manure/methane and removing existing stocks of ozone-depleting substances.  Independent verification of the allowances will required.

ARB’s regulations have a framework to link to Western Climate Initiative partner programs and provide a recommendation next year for linking with programs in New Mexico, British Columbia, Ontario and Quebec.

Proposition 23

California voters, however, could slam the brakes on the whole process next Tuesday if they approve Prop. 23.  That measure would suspend AB 32, the California Global Warming Solutions Act, which provides the statutory authority for ARB to adopt cap-and-trade regulations, until the state’s unemployment rate falls to 5.5 percent for four consecutive quarters.  The last time that happened was in 2007 and occurred only three times in the past 25 years.

A Los Angeles Times/USC poll released on October 25 showed the initiative failing by a 48-32 margin among likely voters.  ARB’s release of the cap-and-trade program might have an effect on votes.  Indeed, perhaps with an eye on the polls, ARB Chair Mary Nichols characterized the proposed regulations as helping drive innovation, create more green jobs and cleanup the air and environment.  "We have worked closely with all interested parties and stakeholders to make sure that the program provides flexibility to reach our emissions reduction goals while taking into consideration the current economic climate and the need to fully protect California’s economy."  We’ll soon find out if voters agree.

Should Prop. 23 fail, ARB’s public comment period will run through December 15, 2010, and the Board will consider adoption of the program at its December 16 meeting.

UK Carbon Allowance Rebate Scheme to Become a Carbon Tax

Posted in Cap & Trade

The U.K.’s nascent Carbon Reduction Commitment (CRC) Energy Efficient Scheme appears to be making a dramatic change from a rebate program to an outright tax.  Before the first carbon allowances have even been sold, Britain’s efforts to reduce its budget deficits  apparently are the driver for taking the CRC from a scheme that "recycles" carbon allowance revenues back to users and converting it to the government keeping that revenue to "support public finances."

Original CRC Scheme

The U.K. just launched the CRC on April 1 this year to apply to roughly 20,000 businesses, including banks, hotels, government facilities (including schools), and industries.  As outlined in the CRC User Guide (PDF), organizations that use more than 6,000 MWh of electricity a year, about one-fifth of all covered users, would have to buy carbon allowances based on their energy usage.  The initial phase of the scheme set a fixed price of ₤12/tonne of carbon (US $18.86) for allowances, with sales to begin in April 2011.  The plan was to recycle the carbon allowance revenue back to users according to an organization’s energy performance — those who ranked highest in energy efficiency would get the most back.  The first rebates were to be paid out in October 2011.

Budget-Driven Changes

Faced with a government policy to reduce the country’s substantial budget deficits, the 2010 Spending Review for the next four years would take the "revenue from the CRC Energy Efficiency Scheme to support public finances (including spending on the environment), rather than recycled to participants."  This could amount to about ₤1 billion per year (US $1.57B) that won’t be recycled to CRC participants.  Notwithstanding the repurposing of CRC and other budget cuts,  DECC remains committed to increasing environmental expenditures to meet the U.K.’s goals of reducing greenhouse gas emissions by 34 percent and increasing the share of renewable energy to 15 percent by 2020.

At the outset , the CRC scheme was complex and, when last we blogged about it, things were looking a little dicey because as many as 40 percent of U.K. businesses didn’t even know they were supposed to register for the scheme by September 30, 2010.  Switching from a rebate program to a tax certainly would eliminate some of the scheme’s complexity, for example, it appears that the league ranking system to determine who qualified for what amount of rebates is no longer necessary, but it remains uncertain what other changes might result.  

Good News or Bad?

The shift to a tax was announced on October 20, so it’s a little early yet to assess the reaction or consequences.  Generally, it’s likely that environmental groups and some businesses that prefer a carbon tax may find the change preferable.  But it’s also just as likely that many of the 5,000 or so U.K. businesses and industries that will have to pay the tax will not be too happy with the increase in costs. 

For those of us in the U.S., it’s hard to imagine that a federal or state government could ever adopt a CRC-like scheme here, let alone convert it from a rebate program to an outright tax.   Nevertheless, the U.K. experience is more than just an academic exercise.  For better or for worse, it may add  fuel to our own debates regarding pros and cons of cap-and-trade versus a carbon tax.