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CO 2 Regulation – Soon a Reality

CO 2 Regulation – Soon a Reality. Ruth H. Silman Nixon Peabody LLP 100 Summer Street Boston, MA 02110 rsilman@nixonpeabody.com. Scott M. Turner Nixon Peabody LLP 1100 Clinton Square Rochester, NY 14620 sturner@nixonpeabody.com. Daily Coverage. Source: The New York Times 1/10/07.

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CO 2 Regulation – Soon a Reality

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  1. CO2 Regulation – Soon a Reality Ruth H. Silman Nixon Peabody LLP100 Summer StreetBoston, MA 02110rsilman@nixonpeabody.com Scott M. Turner Nixon Peabody LLP1100 Clinton SquareRochester, NY 14620sturner@nixonpeabody.com

  2. Daily Coverage Source: The New York Times1/10/07 Source: The Wall Street Journal 1/11/07

  3. Pressure From All Angles Federal Legislation State Initiatives CO2 State Legislation Litigation Permit Proceedings

  4. Federal Legislation • The mid-term elections changed everything in the Senate • Sen. Boxer as key chair instead of Sen. Inhofe • Sens. Bingaman, Boxer, Feinstein, and McCain/Lieberman, drafting legislation • Things are less clear in the House

  5. Litigation • Cases arise in three different contexts • Clean Air Act litigation • NEPA litigation • Nuisance litigation

  6. CAA Litigation • Massachusetts v. EPA • Coke Oven Environmental Task Force v. EPA

  7. NEPA Litigation • Border Power Plant Working Group v. DOE • Friends of the Earth v. Watson • Mayo Foundation v. Surface Transportation Board

  8. Nuisance Litigation • Connecticut v. American Electric Power • California v. General Motors • Comer v. Murphy Oil

  9. Permit Proceedings • IGCC and BACT determinations • State NEPAs

  10. State Laws and Initiatives ME, NH, VT, CT, NY, NJ, DE, MD (as of 1/07) = RGGI DC, MA, PA, RI – Observing RGGI Process AZ: 2000 levels by 2020; 50% below 2000 levels by 2040 CA: 2000 levels by 2010; 1990 levels by 2020; 80% below 1990 levels by 2050NM: 2000 levels by 2012; 10% below 2000 levels by 2020; 75% below 2000 levels by 2050OR: Stabilize by 2010; 10% below 1990 levels by 2020; 75% below 1990 levels by 2050 www.pewclimate.org/what_s_being_done/in_the_states/emissionstargets_map.cfm www.rggi.org/about.htm

  11. Regional Greenhouse Gas Initiative (RGGI) • Cooperative regional effort to reduce carbon dioxide emissions from electric power generators in participating states • Cap-and-trade program with a market-based emissions trading system • In future, may include other sources of CO2/GHG emissions, and GHGs other than CO2 Source: www.rggi.org

  12. RGGI Process Source: http://www.ccap.org/domestic/srt05presentations/(Franz_Litz)_%20RGGI_Update.pdf

  13. Memorandum of Understanding – 12/20/05 • Commitment to address the challenge of climate change while increasing energy efficiency investments and stimulating emerging clean energy technology markets • 2009-2015: stabilize CO2 emissions from region’s power plants at current levels • By 2019: 10% reduction in CO2 emissions from region’s power plants

  14. RGGI Model Rule – August 15, 2006 • CO2 budget unit = at any time on or after January 1, 2005, serves electricity generator with a nameplate capacity equal to or greater than 25 MWe • Program begins 1/1/2009 (or date unit commences operation) • State regulatory agency issues CO2 budget permit • Compliance Certification Report due by March 1 of year following control period • CO2 Allowance Tracking System

  15. RGGI – Issues • Allowance Allocation • Auction v. Giveaway? • 25% of allowances must be to consumer benefit or strategic energy purpose • Early reduction CO2 allowances • Voluntary renewable energy market set-asideVoluntary limited industrial exemption set-aside • Banking allowed • Leakage

  16. RGGI – Offsets • CO2 equivalent emission reductions or carbon sequestration • Real, Additional, Verifiable, Enforceable, Permanent • Offset project types (must commence after 12/20/05) • Landfill methane capture and destruction • Reduction in SF6 • Carbon sequestration due to afforestation • Reduction/avoidance of CO2 emissions from natural gas, oil or propane end-use combustion due to end-use energy efficiency • Avoided methane emissions from agricultural manure management operations

  17. RGGI – Offsets (cont’d) • If average price of allowance < $7.00, offsets may be used from across the US; 50% discount from outside RGGI region; up to 3/3% of generator’s emissions • If average price of allowance > $7.00, offsets may be used from across North America at 1:1 ratio; up to 5% of generator’s emissions (“Offset Trigger”) • If average price of allowance = $10.00, offsets may be used from international projects; up to 20% of generator’s emissions (“Safety Valve Offset Trigger”)

  18. RGGI – Next Steps • Governors of participating states have agreed to propose regulations by 12/31/08 • Regional Organization (“RO”) • Administration of Allowance Auctions • Emission and Allowance Tracking • Guidance Documents • NY – 12/5/06 Pre-Proposal Draft • www.dec.state.ny.us/website/dar/preproposal.htm

  19. AB 32 – California Global Warming Solutions Act of 2006 (9/27/06) • Reduce GHG emissions to 1990 levels by 2020 • By 2050, ↓ GHG emissions to 80% below 1990 levels • CARB must develop regulations and market mechanisms • Adopt mandatory reporting rules for GHG sources

  20. Examples from Other States • NM: Executive Order (12/28/06) - Reduce GHG emissions to 2000 levels by 2012, 10% below 2000 levels by 2020 and 75% below 2000 levels by 2050 • AZ: Executive Order (9/8/06) - Reduce GHG emissions to 2000 levels by 2020, and 50% below 2000 levels by 2040.

  21. Conclusions • CO2 regulation is a reality, at least locally and regionally • National regulation is a question of “when,” not “if” • Owners of existing power plants should push for broad cap and trade systems, rational allowance allocations, new source set asides, and a wide array of offset opportunities • Developers of new coal-fired power projects early on must develop strategies to deal with CO2 in the permitting process

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