The Role of Biomass in a Carbon-Constrained World

1. The Role of Biomass in a Carbon-Constrained World May 12, 2010 Forest Resources Association -- Western Region Spring Meeting Craig Gannett

2. Agenda • Context • Federal Legislation • Federal Regulations • Regional and State Activities • Risks and Opportunities

3. Context

4. Context (cont.)

5. Federal Legislation

6. Status of the Federal Legislation • Waxman-Markey (HR 2454) passed the House on June 26, 2009 • Kerry-Boxer (S. 1733) reported by the Senate Environment and Public Works Committee on November 5, 2009. Prospects for Senate floor action almost zero. • Senators Kerry, Graham, and Lieberman were working on a grand compromise, but Graham has now pulled back. • Action this year very unlikely.

7. Key Provisions • Cap and Trade • Forest Offsets • Renewable Energy Credits (RECs)

8. Cap and Trade • Overall goal: 80% reduction below 2005 levels by 2050 • Reductions across all sectors of the economy • One allowance must be submitted to EPA for each ton emitted • Transition from free allowances to full auction • GHGs from biomass-fueled electric generating facilities are exempt from the cap (W-M, p. 735)

9. Cap and Trade (cont.) • In addition to free allowances, covered entities can comply by obtaining allowances via -- • Purchasing at auction • Trading (not limited to covered entities) • Banking • Borrowing • Offset credits (W-M, p. 740-41) • Stiff penalties for non-compliance

10. Forest Offsets • An offset is the reduction or avoidance of GHG emissions, or sequestration of GHGs, in a sector not subject to the cap. (W-M, p. 780) • Forestry and agriculture are the primary sources of offsets • An offset credit is a tradeable compliance instrument, just like an allowance

11. Forest Offsets (cont.) • Forestry offsets include afforestation, reforestation, and forest management resulting in increased sequestration. (W-M, p. 1394) • Sequestration must be additional, verifiable, and permanent, and leakage and reversals must be accounted for. (W-M, p. 780-81; 787-90) • Proposed offset project plans must be submitted to USDA for approval. (W-M, p. 1406) • Potential for early offset credits (W-M, p. 802)

12. Renewable Energy Credits • Electric utilities must meet 20% renewables by 2020 (W-M, pp. 24, 31); can either produce or purchase RECs • Biomass-fueled electric generating facilities create RECs • Key definition for both cap and trade and RECs: “renewable biomass.” From federal lands, it includes: • materials removed as part of a federally recognized timber sale, or to reduce hazardous fuels, or to restore ecosystem health; • Not from Wilderness Areas, old growth, or late successional stands; • Harvested in environmentally sustainable quantities, as determined by the federal land manager

13. Renewable Energy Credits (cont.) • Renewable biomass from non-federal lands includes any organic matter that is available on a renewable or recurring basis. • Residues and byproducts from wood, pulp, or paper products facilities. (W-M, p. 857-59)

14. EPA

15. EPA Regulations • While Congress dithers, EPA moves ahead under Clean Air Act • GHG Reporting Rule (Final) • EPA expects approximately 10,000 facilities to report, accounting for nearly 85% of total GHGs • Reporting only – no emission limits or reductions • Monitoring required as of 1/1/10; first annual reports due 3/31/11. • Applies to pulp and paper facilities emitting more than 25,000 tons of GHG annually. (40 CFR 98.270 et seq.)

16. EPA Regulations (cont.) • Prevention of Serious Deterioration (PSD) Tailoring Rule (Proposed) • Due to endangerment finding, new or modified major stationary sources will be required, beginning next year, to address GHGs through the PSD permitting process. • High quantities of GHGs makes 100/250 tpy limits in the CAA unmanageable; therefore, EPA is “tailoring” the rule to cover only sources over 25,000 tpy. • No established technologies to capture GHGs; • Energy efficiency is only answer from EPA’s Climate Change Work Group so far.

17. EPA Regulations (cont.) • Possible PSD/tailoring rule outcomes – • Endangerment finding overturned • Rule implementation delayed further • Court enforces 100/250 threshold • Congress enacts climate change legislation

18. EPA Regulations (cont.) • Boiler and Process Heat Rule (Proposed) • Addresses toxics, not GHGs, but applies to biomass-fueled facilities • Would require Maximum Achievable Control Technology (MACT)

19. EPA Regulations (cont.) • Renewable Fuel Standard -- 3/26/10 Final RFS rule intended to dramatically increase amount of renewable fuels blended into all transportation fuels. • Biomass-based diesel to grow from 650 million gallons in 2010 to 1 billion gallons by 2012. • Feedstock includes slash and pre-commercial thinnings from non-federal forestland that is not ecologically sensitive.

20. USDA Rulemaking • Biomass Crop Assistance Program (BCAP) off to a rocky start -- • Much more expensive • Diverted wood fiber from higher value products • Proposed rule issued on 2/8/10 -- • Payment for wood waste limited to that which would not otherwise be used for a higher-value product • But payment allowed for slash chipped solely for purposes of transport • Alternative payment limits proposed • Comment period ended on 4/9/10; USDA says final rule will be issued “this year.”

21. Regional and State Efforts • Western Climate Initiative (WCI) • 7 states, 4 Canadian Provinces (including B.C and Manitoba) • Forestry offset rules • Constitutional problems • State RES requirements • Biomass definition is critical • Will RES percentages go up? • Will Congress preempt? • State GHG reporting requirements

22. Risks and Opportunities • Risks • Compliance with new EPA rules • Increased feedstock costs due to RFS • Inconsistent biomass definitions may hinder REC market • Opportunities • Exemption from cap and trade • Forest offsets • Ability to create RECs • Market pelletized biomass as substitute for coal • Market biofuels under RFS

23. Questions?