CO 2 LITIGATION AND REGULATION An Overview of Recent Events Peter Glaser

1. CO2 LITIGATION AND REGULATIONAn Overview of Recent EventsPeter Glaser U.S. Chamber of Commerce Wednesday, October 5, 2005

2. OVERVIEW • National System of Mandatory Controls: “You Cannot Pass” • So Proponents Try Ways Around: • Regulation through litigation • State regulation

3. LITIGATION SCENE • Is CO2 a Clean Air Act Pollutant? • Do CO2 Emissions Constitute a Nuisance? • Can California Air Resources Board Regulate Tailpipe CO2 Emissions? • Should Global Climate Change Be Considered in EISs?

4. Is CO2 a CAA Pollutant? Background • Clinton Administration EPA says it is • Environmental organizations file petition with EPA asking it to regulate tailpipe CO2 emissions • No action on petition when administration leaves office • State AGs and environmental organizations file district court action seeking to compel EPA regulation of tailpipe CO2 emissions • EPA then denies administrative petition • That action appealed to D.C. Circuit, and district court action dismissed

5. Is CO2 a CAA Pollutant? Decision • Large line-up of petitioners and intervenors – SRO at oral argument • Petition for review denied on two-to-one vote, with both judges in majority writing separately and neither reaching the main issue of whether EPA has authority under the CAA to regulate CO2 emissions. • Judge Randolph: Regardless of whether EPA had authority to regulate CO2 emissions, EPA correctly applied judgment in denying the petition • Scientific judgment as to asserted environmental impacts • Policy judgment as to desirability of regulating CO2 emissions under CAA • Judge Sentelle: Petitioners do not have standing because their asserted grievance is general and not particular to them • Judge Tatel: lengthy dissent on all issues

6. Is CO2 a CAA Pollutant?Aftermath • Petition for rehearing and rehearing en banc • Other CAA actions forestalled?

7. Do CO2 Emissions Constitute a Nuisance? Background • Major expansion of tort law in attempt to create a substitute path for regulation • Over the last several years, increasing speculation as to whether coal-based electric generation would become the target of tort lawsuits • Mercury lawsuits • Law review articles on potential CO2 lawsuits

8. Do CO2 Emissions Constitute a Nuisance? The SDNY Lawsuit • 8 states sue 5 utilities over CO2 emissions from powerplants in 20 states – only plaintiff state with powerplant being challenged is WI • Suit alleges CO2 emissions create a public nuisance • Parallel lawsuit by environmental organizations alleging public and private nuisance • Seeks order permanently enjoining each defendant to abate its contribution to the nuisance by requiring it to cap its CO2 emissions and then reduce them each year for at least a decade – but doesn’t say by how much

9. Do CO2 Emissions Constitute a Nuisance? The Decision • Suit dismissed on motion because it raises a political question that Court does not have jurisdiction to decide • Potential global climate change raises issues of policy that should be resolved in Congress, not the Courts • “While at times, some judges have become involved with the most critical issues affecting America, political questions are not the proper domain of judges.” • Court does not reach a number of other arguments raised by defendants • Appeal filed in Second Circuit

10. Can California Air Resources Board Regulate Tailpipe CO2 Emissions? • CAA gives California authority to establish its own more stringent tailpipe emissions standards • CARB establishes CO2 emissions standards • No way to lower vehicle CO2 emissions other than by increasing fuel economy • Autos bring two lawsuits • Federal action claiming CARB regulations preempted by federal CAFE standards • State action claiming defects in administrative process • Motions to dismiss pending

11. Should Potential Global Climate Change Issues Be Considered in EISs? • Surface Transportation Board – DM&E Railroad • Border Transmission Line • OPIC/Ex-Im Bank financing - Lending for $32 billion worth of power plants, oil fields and pipelines overseas over a 10-year period - 9th Circuit orders district court to hold on to case – motion to dismiss for lack of standing denied

12. State Regulation - California • CPUC $8/ton imputed carbon adder in utility resource procurement process • CEC proposes GHG performance standard: fossil plants cannot emit GHGs in greater amounts than a new comparably sized CCGT plant – coal plants typically emit twice the CO2 as CCGT plants – may kill new coal plants to serve California • Governor’s GHG goals • Washington and Oregon are watching

13. State Regulation – Northeast • Regional Greenhouse Gas Initiative (RGGI) • NJ, NY, CT, MA, RI, VT, NM, ME • Powerplant cap and trade program, though none of these states are major users of coal-based electricity • Because of Commerce Clause issue, RGGI is limited to in-region powerplants – may create “leakage” of generation and emissions to other states • But is program legal anyway? • MD and PA are watching • 8/24/05 Staff working paper – RGGI must adopt – then individual states must implement

14. State Regulation – The West • Western Governors Association Clean and Diversified Energy Advisory Committee (CDEAC) • Goal is to foster development of 30,000 MW of “clean energy” by 2015, including from “clean coal” • But what is “clean energy” and “clean coal” – should there be a standard applied to GHGs as well as CAA-regulated emissions?

15. State Regulation - Other • MA, CT, OR each limit CO2 emissions from powerplants • New Mexico recently became the first significant coal producing state to adopt GHG reduction targets: 2000 levels by 2010, 10% below 2000 levels by 2020, and 75% below 2000 levels by 2050 • North Carolina – legislation to study potential GHG regulation

16. The Challenge of Building New Coal Plants • Even before Katrina, apparent that gas could no longer be the fuel of choice for new electric generation • “Saudi Arabia of coal” needs to rely on coal for new baseload generation as well as revitalize nuclear industry • But almost all new coal plants are being challenged – with global warming one of key underlying issues – is IGCC BACT? • In-Between Period: Need the coal generation now, but advanced generation with carbon capture and storage still not ready