With Proposed Hazardous Waste Exemption, USEPA Shows Support for CCS

This post was written by David Wagner.

As we previewed a few months ago, the U.S. Environmental Protection Agency (USEPA) recently proposed a rule to exclude CO2 streams from Resource Conservation and Recovery Act (RCRA) regulations if they meet certain conditions, including injection for the purpose of geologic sequestration into specific wells regulated under the Safe Drinking Water Act. The proposed rule, which was published on August 8, comes on top of an earlier Safe Drinking Water Act regulation finalized in December 2010 that sets requirements for geologic sequestration, including the development of a new class of injection well called Class VI, established under USEPA’s Underground Injection Control (UIC) program. The UIC Class VI requirements are designed to ensure that wells used for geologic sequestration of CO2 streams are appropriately sited, constructed, tested, monitored, and closed in a manner that ensures USDW protection.

In developing the proposed rule, USEPA determined that CO2 streams captured at power plants and industrial facilities destined for a UIC Class VI well for the purposes of geologic sequestration would be a RCRA solid waste, as it is a “discarded material” as defined in RCRA § 1004(27). In its discussion of the rule, USEPA indicated that, while there is little information available to conclude that CO2 streams would qualify as a RCRA subtitle C hazardous waste, there is the potential for some CO2 streams to meet the definition of a hazardous waste. USEPA concluded that the management of CO2 streams under the proposed conditions does not present a substantial risk to human health or the environment, and will encourage the geologic sequestration of CO2, in a safe and environmentally protective manner.

The proposed exclusion, if finalized, may apply to generators, transporters, and owners or operators of treatment, storage, and disposal facilities engaged in the management of CO2 streams that would otherwise be regulated as hazardous wastes under the RCRA subtitle C hazardous waste regulations as part of geologic sequestration activities. This includes entities in the following industries: operators of CO2 injection wells used for geologic sequestration; and certain industries identified by their North American Industry Classification System (NAICS) code: oil and gas extraction facilities (NAICS 211111); utilities (NAICS 22); transportation (NAICS 48-49); and manufacturing (NAICS 31-33).
 

USEPA's Proposed Rule That Could Exempt CCS from Hazardous Waste Regulations Awaits White House Approval

This post was written by David Wagner.

A draft proposed rule that could exempt the geologic sequestration of carbon dioxide (CO2) from federal hazardous waste regulations is now moving through the regulatory process. On March 22, 2011, the U.S. Environmental Protection Agency (USEPA) sent a draft proposed rule to the White House Office of Management & Budget (OMB) that could conditionally exempt CO2 sequestered underground from Resource Conservation and Recovery Act (RCRA) requirements. It appears the rule would address the RCRA liability of owners and operators of carbon capture and sequestration (CCS) wells should CO2 leak and contaminate underground sources of drinking water. Following regulatory review by OMB, USEPA anticipates that the proposed rule will be published in the Federal Register in May 2011.

You’ll recall that on December 10, 2010, USEPA finalized a rule under the Safe Drinking Water Act’s Underground Injection Control Program (SDWA UIC Program) to create a new class of injection wells (Class VI) for geological sequestration of CO2. The new rule does not currently address the long-standing concern that owners and operators of Class VI wells could be liable under RCRA for environmental contamination should CO2 that meets the definition of a hazardous waste leak from the wells and contaminate underground sources of drinking water. The draft proposed rule before OMB explores a number of options, including a conditional exemption from the RCRA requirements for hazardous CO2 streams in order to facilitate implementation of geologic sequestration while protecting human health and the environment.

A CO2 Stream with Impurities Could Trigger RCRA Requirements

Under USEPA’s regulations, a solid waste is a hazardous waste if, among other things, it exhibits the characteristics of toxicity. While a CO2 stream is not itself a listed hazardous waste, captured CO2 could contain some impurities at levels that would require its classification as a “characteristic” hazardous waste. CO2 captured from sectors amenable to CCS, such as electric generating facilities, could contain toxic chemical constituents including arsenic, mercury, and selenium. A captured CO2 stream that meets the definition of a hazardous waste would have to comply with all applicable RCRA requirements.

As a result, the characterization of a CO2 stream as “hazardous waste” would make the RCRA waste management scheme applicable to the generation, transportation, treatment, sequestration, and/or disposal of the CO2 stream. Presumably, this could mean that underground injection and sequestration of a hazardous CO2 stream would need to meet the requirements for Class I hazardous waste wells under the SDWA UIC Program instead of the Class VI geologic sequestration wells.

But Not if the CO2 Stream is Exempt from RCRA

The draft proposed rule is not publically available, but an exemption from RCRA might allow the injection of a “characteristically” hazardous CO2 stream for the purpose of geologic sequestration to be permitted under the Class VI injection well requirements instead of Class I requirements. Interestingly, an exemption from RCRA could close a potential (and overlooked) gap that would enable owners and operators of CO2 sequestration wells to seek Class I well permits in order circumvent the stringent post-closure monitoring, care, and financial responsibility requirements imposed by the Class VI rules. On the other hand, owners and operators of CO2 sequestration wells would be able to avoid the complexities and inefficiencies of the RCRA regulatory regime. Most importantly, the exemption would provide much desired regulatory certainty to the CCS industry. Stay tuned.

Proposed Federal Legislation Would Incentivize Carbon Capture and Storage

This post was written by David Wagner.

On March 31, 2011, a bill (S. 699) was introduced in the U.S. Senate that would authorize the U.S. Department of Energy (DOE) to enter into cooperative agreements to provide financial and technical assistance to as many as 10 large-scale (1 million tons of injected carbon dioxide or more) carbon capture and storage (CCS) demonstration projects at industrial sources. Along with three co-sponsors, Sen. Jeff Bingaman (D-NM) introduced the bi-partisan bill and it was referred to the Senate Committee on Energy and Natural Resources. This is the first step in the legislative process and it’s likely that the next step will be a public hearing on the proposal.

The proposed bill provides liability protection and federal indemnification for the CCS demonstration projects. Under the bill, DOE is authorized to indemnify projects up to $10 billion for personal, property and environmental damages that might be above what is covered by insurance or other financial assurance measures. Upon receiving the closure certificate for the injection site, the site may be turned over to the federal government for long-term site management and ownership. The proposed bill also outlines criteria for site closure certification and includes provisions for siting the demonstration projects on public land. In addition, it would establish and fund a CCS training program for state regulators.

By the way, this new proposed legislation (S. 699) is extremely similar to a 2009 bill (S. 1013) that was reported out of the Senate Committee on Energy and Natural Resources but died on the Senate floor as part of a larger energy legislative package that same year.

Uncle Sam Wants Your Input on a Clean Energy Standard

This post was written by David Wagner.

Last week Senators Jeff Bingaman (D-NM) and Lisa Murkowski (R-AK) released a white paper soliciting input on a clean energy standard (“CES”) from a broad range of interested parties. The white paper lays out some of the key questions and potential design elements of a CES and seeks responses to six general policy questions that the Senate Energy and Natural Resources Committee is considering in the development of a CES program. This effort builds on the 2011 State of the Union address in which President Obama urged lawmakers to establish a CES with a goal of 80 percent of the nation’s electricity to come from “clean” sources by 2035. The President emphasized that a CES would recognize electricity from not only renewable energy sources but also nuclear, coal with carbon capture and storage technology and natural gas.

Your response to the white paper is due by April 11, 2011.

Reed Smith's (Free) Quarterly Climate Change Teleseminar is March 16

This post was written by David Wagner.

We’re celebrating one year’s worth of climate change teleseminars with, you guessed it, another climate change teleseminar. Please join us on Wednesday, March 16 from Noon to 1 p.m. (EDT) for the First Quarterly Report on Climate Change in 2011. In this one-hour teleseminar, Larry Demase, Jennifer Smokelin, Todd Maiden and Dave Wagner will provide a regulatory update on significant international, national and state issues concerning climate change and the future of GHG regulation. In particular, the topics are:

  • A delay in the implementation of the Tailoring Rule? An exemption for GHG permit applications in process prior to January 2, 2011?
  • GHG permitting and biomass: EPA's permitting deferral and its affect on industries that use biomass.
  • Congressional efforts to develop a Clean Energy Standard that would require electric utilities to generate electricity from "clean" energy sources, including nuclear, coal with carbon capture and storage, and natural gas.
  • Developments in a recent California court decision addressing what additional work the California Air Resources Board must perform prior to implementing AB32.

If you would like to attend, please email Sandy Petrakis.

Will a Clean Energy Standard "Win the Future"?

This post was written by Todd Maiden, Jennifer Smokelin and David Wagner.

In the 2011 State of the Union address, President Obama urged lawmakers to establish a clean energy standard (CES) with a goal of 80 percent of the nation’s electricity to come from “clean” sources by 2035. The President emphasized that a CES would recognize electricity from not only renewable energy sources but also nuclear, coal with carbon capture and storage technology and natural gas. Calling the clean energy push “our generation’s Sputnik moment,” the President’s speech framed a clean energy standard in the larger context of improving the United States’ competitiveness in the global economy.

With this announcement, it’s fair to say we’ve officially shifted the federal political climate change discussion from cap and trade to the creation of a clean energy standard. Putting aside a comparison of the two approaches, here are a few things to know and watch for in the upcoming debate on a clean energy standard.

How a CES Would Work

In general, under a national CES, electricity supply companies would have to produce a certain percentage of their electricity from clean energy sources, purchase a like amount of credits, or a combination of both. Certified clean energy generators would earn credits for every unit of electricity they produce and could sell these along with their electricity to supply companies. The electricity supply companies would then submit the credits to a regulatory body to demonstrate compliance. Essentially, a CES is a form of “command and control” permitting on the electricity sector and would work much the same as if each electricity generating unit’s permit had an additional condition inserted to provide a certain portion of its electricity from clean (as defined in the proposal, see below) energy sources. But to the energy consumer, the CES proposal would look like a tax, in that the unit’s cost of energy would increase some finite amount, reflecting that cost to comply with the CES.

How is CES Different from RES?

A CES would require electric utilities to generate a portion of power from sources that emit less carbon dioxide such as solar and wind power. But the CES is broader - and presumably more palatable - than the Renewable Energy Standard (RES) legislation that failed to pass the Congress last year. As the President proposed last week, a CES would include nuclear, coal with carbon capture and storage, and natural gas, as well as typical renewable energy sources such as solar, wind, bioenergy, geothermal and hydroelectric power.

Core Principles of the Administration’s CES Proposal Includes Carbon Capture and Storage

It is important to note that a CES – due to its broad inclusion of many non-renewable, traditional energy sources such as natural gas - is, as portfolio standards go, generally viewed as a victory for business. The distinction between “clean energy” and “renewable energy” as described above has been supported by Republican administrations (see G8 Summit Declaration, paragraphs 59-64 (June 7, 2007), where the United States supported a definition of “clean energy” defined to include clean coal and nuclear as well as renewable sources) and a CES is by no means a new concept. How, exactly, the details of this Administration’s definition of the term differs from previous proposals remains to be seen.

Under the Administration’s broad CES proposal, one of its five core principles emphasized that full clean energy credits would be issued for electricity generated from renewable and nuclear power with partial credits given for coal using carbon capture and storage and “efficient” natural gas. It’s worth noting that one of the core principles also specifically proposed the promotion of new and emerging clean energy technologies, and, under this principle, the Administration singled out the promotion of coal with carbon capture and storage technology.
Political Wrangling over a CES

A diverse portfolio of fuels under a CES may attract some legislators while pushing some lawmakers away from certain fuels. For example, some commentators have observed that if natural gas is included in a CES that could result in electric utilities using less coal. And coal has strong backing in the U.S. Congress. There’s also likely to be debate on whether a CES bill should block the U.S. Environmental Protection Agency (EPA) from regulating the largest emitters of greenhouse gases. In other words, will the prospect of suspending EPA’s greenhouse gas regulations in exchange for a clean energy standard be used as a negotiating tool? Further, some legislators will have issues over enacting a government mandate that forces electric utilities to derive a certain percentage of their electricity from specific fuel sources.

Some CES Design Elements to Consider

In addition to discussing the portfolio of clean (or cleaner) energy sources, the discussion of a CES would also likely include issues such as determining partial credits for carbon capture and storage and natural gas, cost caps, cost recovery by utilities, the status of state renewable portfolio standards, state implementation issues, CES program coverage, and penalties for non-compliance.

Determining Partial Credits for Carbon Capture and Storage and Natural Gas

  • How would a CES calculate partial energy credits for coal with carbon capture and storage and for “efficient” natural gas?

Cost Caps on Utilities

  • Would a CES include a cap on the cost of the program or include some form of escape clause where the regulatory entity could exempt utilities from meeting its requirements? The possible inclusion of a cost cap arises from the difficulties in estimating in advance the actual cost of the program.


Cost Recovery by Utilities

  • Would electric utilities be allowed to recover the cost of penalties associated with non-compliance through a ratepayer surcharge?

Status of State RPS Programs

  • What would happen to the varying Renewable Portfolio Standards (RPS) currently in place in about 30 states? Would state RPS credits be eligible for a federal CES? Would a federal CES preempt these state standards? Alternatively, would a national CES establish a floor for using clean energy that states could exceed with their own standards?

Implementing a CES on the State Level

  • When it comes to the generation of clean energy, every state has a different starting point. Would a CES allow for differentiated clean energy targets among the states? How would it account for regional diversity in eligible clean energy resources?

CES Program Coverage

  • Would a CES carveout small utilities? Under some state RPS programs, small public utilities are exempt from the RPS target, have a lower target, or are required to develop their own targets.

Penalties for Non-Compliance

  • In order to motivate compliance, would a CES have enforceable standards with penalties for utilities that fail to reach the specified targets?

Banking

  • Would the CES standard allow for unlimited banking of credits, to encourage early investment?

Next Steps

These are just some of the issues to look for as the discussion of a CES ramps up. It’s early in the process but the Administration’s overriding interest in promoting economic growth, creating jobs, competing globally on green technology and investing in the country’s infrastructure is likely to spark significant interest in a national clean energy standard – and debate on Capitol Hill. Stay tuned.
 

California Review Panel Determines that Carbon Capture and Storage Could Help Reduce State GHG Emissions

This post was written by Todd Maiden and  David Wagner.

As we mentioned in a recent blog post, carbon capture and storage momentum continues to build. Last week, California’s Carbon Capture and Storage Review Panel released its findings and recommendations for resolving legal, regulatory and financial issues that currently impede the deployment of carbon capture and storage (CCS) in the state. Among the key findings are:

  • There is a public benefit from long-term geologic storage of carbon dioxide as a strategy for reducing GHG emissions to the atmosphere.
  • Technology exists that can safely and effectively capture, transport and storage CO2 from power plants and other large industrial facilities.
  • There is a need for clear rules under AB32 regarding the treatment of CO2 emissions reductions from CCS projects.
  • There is a need for clear, efficient, and consistent regulatory requirements and authority for permitting all phases of CCS projects in California, including CO2 capture, transport, and storage.

Among others, the CCS Review Panel recommends that the state:

  • Recognize CO2 emission reductions achieved through CCS satisfy California’s requirements for GHG emission reductions under AB32.
  • Designate specific state regulatory agencies as the lead agencies for different aspects and activities related to CCS.
  • Consider legislation establishing an industry-funded trust fund to manage and be responsible for geologic site operations in the post-closure phase.
  • Declare that the surface owner is the owner of the subsurface “pore space” needed to store CO2.

 

11 Climate Change Issues in 2011

This post was written by Jennifer Smokelin and  David Wagner .

As we look forward to 2011, the Environmental Team at Reed Smith will be on top of a range of environmental issues, but offers the following analysis of what we view, in no particular order, to be 11 key climate change or greenhouse gas-related issues likely to affect you and your business in 2011 – call it “11 Climate Change Issues for ’11.” This post focuses on regulatory and transactional issues and we will analyze the outcomes of GHG-related court challenges as they unfold. Please return to blog regularly for updates and analysis on these and many other issues.

The 11 climate change issues are listed below.

1.         The Start of USEPA’s “Tailoring” Rule

Despite a lot of buzz, proposed bills and speculation, the U.S. Congress failed to comprehensively address GHG emissions last year. In filling the void, USEPA has taken several steps to regulate GHGs, including promulgation of the Tailoring Rule, the first rule under the stationary source provisions of the Clean Air Act controlling GHG emissions. It applies only to new and modified sources; certain larger GHG emission sources will be subject to permitting requirements for planned construction projects under the Tailoring Rule starting January 2, 2011. For further details on this and related issues, please contact Larry Demase, Lou Naugle, Todd Maiden, Harley Trice or Jennifer Smokelin.

2.         The Application of USEPA’s BACT Guidance for GHGs

USEPA recently released a key piece of the GHG permitting puzzle, a guidance entitled “PSD and Title V Permitting Guidance for Greenhouse Gases.” With the January 2011 implementation of the Tailoring Rule requiring large industrial sources to obtain permits for GHG emissions, this guidance aims to assist permitting authorities in enacting GHG permitting programs. In particular, the 97-page document addresses Prevention of Significant Deterioration (PSD) applicability to GHG and BACT (Best Available Control Technology), and other PSD requirements. The guidance also discusses Title V applicability requirements and GHGs, as well as permitting requirements for Title V permits with regard to GHGs. We’ve analyzed these BACT issues on our blog and discussed them in our quarterly climate change teleseminars. For further details on this and related issues, contact Larry Demase, Jennifer Smokelin or David Wagner.

3.         With the Defeat of AB 23 in California, the State Continues to Pursue Cap and Trade

Proposition 23 would have suspended California's Global Warming Solutions Act of 2006, also known as AB 32. AB 32 is one of the most aggressive and forward-thinking environmental laws in the United States, and sets targets to reduce greenhouse gas emissions to 1990 levels by 2020 and obtain 33 percent of the state’s power from renewable sources by 2020. California's voters’ rejection of a ballot measure to effectively suspend the implementation of AB 32 means California remains on track to issue aggressive cap and trade regulation of GHGs come 2012. For further details on this and related issues, contact Todd Maiden, John Lynn Smith, or Eric McLaughlin.

4.         SEC’s Corporate Disclosure Requirement Regarding Climate Change

Early last year, the Securities and Exchange Commission voted to adopt interpretive guidance addressing public company disclosure standards in connection with climate change. While this interpretive guidance is not intended to impose new standards, it continues to serve as an important reminder for public companies, potentially as part of their disclosure controls and procedures, to assess whether climate change may have a material impact upon their business and financial condition. For further details on this and related issues, contact Lou Naugle or Jennifer Smokelin.

5.         Following COP Failures in 2009 and 2010, Will 2011 Reverse the Trend?

This United Nations-sponsored conference of the parties (“COP”) in Copenhagen at the end of 2009 (also know as COP 15, as the 15th conference of parties under the UNFCCC) was thought to be the vehicle for a treaty on the reduction of GHG gases, but produced almost no significant results. Further, last month’s COP 16 did not seem to make any significant progress on major issues, but it did serve to affirm the UN as the venue for international climate action. With several UN climate meetings in 2011, including COP 17, we’ll again look for significant international agreement on climate issues in 2011. For further details on this and related issues, contact Larry Demase, Jennifer Smokelin or David Wagner.

6.         Increasing Interest in Regulations Related to Carbon Capture and Storage

Although carbon dioxide (CO2) is a valuable and marketable commodity, there are several barriers to the near-term deployment of commercial-scale carbon capture and storage (CCS) projects in the United States. They include cost and the related lack of economic drivers, regulatory uncertainty, and an inadequate legal framework for CCS. There is, however, a growing federal interest in CCS, and Jennifer Smokelin recently discussed a few examples of this interest, including USEPA’s BACT guidance and a GHG reporting rule. In particular, a USEPA rule requires permit holders to create a CO2 monitoring, reporting and verification plan, and to report the amount of CO2 sequestered using a mass balance approach under the Clean Air Act. Regulated entities must collect data in 2011 and begin submitting reports to USEPA by March 31, 2012. Also, in 2011, look for more CCS activity on the state level, including recommendations in support of a comprehensive legal/regulatory framework for permitting proposed CCS projects in California. Internationally, we expect the International Energy Agency to work with countries to implement its CCS Model Regulatory Framework. To learn more about CCS issues, please contact Jennifer Smokelin or David Wagner.

7.         Mandatory GHG Emission Monitoring and Reporting Requirements

GHG reporting requirements from certain sources that emit 25,000 metric tons or more of GHGs per year are due March 31, 2011. Douglas Everette addressed issues and problems to consider regarding GHG emissions monitoring and reporting in Reed Smith's 4th Quarter Climate Change Report. In addition to this rule and the GHG reporting requirements related to carbon capture and sequestration (discussed above), USEPA finalized a rule that requires the annual reporting of GHG emissions from qualifying facilities in the upstream oil and natural gas sector, including onshore production. USEPA is operating on an expedited timetable, requiring applicable industries under these rules to begin collecting data January 1, 2011, and begin submitting the first round of reports to USEPA by March 31, 2012. For more information on the rules, please go to Jennifer Smokelin’s post or send her an email.

8.         Single Stationary Source Determinations for Oil and Gas Operations

Here’s an air issue of particular relevance to Marcellus Shale well sites: whether and to what extent air emissions from the exploration, extraction and production activities related to well sites should be aggregated. The aggregation of gas (and oil) activities by regulatory bodies will influence whether they must obtain a minor source permit or a major source permit for purposes of Title V permitting, new source review and prevention of significant deterioration. With respect to Marcellus Shale, the pollutant-emitting activities include individual compressor stations, such as internal combustion engines, boilers, and emergency generators, and multiple compressor stations connected by pipelines. In 2011, aggregation will be an issue related to USEPA’s upcoming air quality standards for ozone and fine particulate matter (PM 2.5), technical guidance developed on the state level (including by Pennsylvania’s Department of Environmental Protection), and the scope of the federal requirement to report GHG emissions for “all petroleum and natural gas equipment … located in a single hydrocarbon basin.” To discuss these issues, please contact Lou Naugle, Larry Demase, Jennifer Smokelin or David Wagner. 

9.         For the First Time, USEPA Will Issue GHG Emission Standards

Under a recent settlement filed in federal appeals court, USEPA will propose GHG emissions standards for power plants by July 2011 and for refineries by December 2011. The standards, known as New Source Performance Standards, would set the level of GHG emissions new facilities may emit and also address emissions from existing facilities. For more information, contact Larry Demase, Lou Naugle or Jennifer Smokelin, or visit Larry’s blog post on this development.

10.       With the Approval of the Cape Wind Renewable Energy Project in Nantucket Sound, Other Approvals Are Expected in Late 2011

In early 2010, the federal government approved the Cape Wind energy project in Nantucket Sound, a $1 billion wind farm in the U.S. Outer Continental Shelf. According to the government, the Cape Wind project will generate enough power to meet 75 percent of the electricity demand for Cape Cod, Martha's Vineyard and Nantucket Island combined, and, as compared with conventional power plants, will cut carbon dioxide emissions by 700,000 tons each year. Building on the Cape Wind lease, the U.S. Department of the Interior announced in November that it would work quickly to identify priority areas and expedite leases for offshore wind projects in the Atlantic Ocean. The first leases are expected to be offered in Maryland, Delaware, New Jersey, Virginia, Rhode Island and Massachusetts waters by the end of 2011, to be followed shortly thereafter by New York, Maine, North Carolina, South Carolina and Georgia. For questions related to this issue, including applications for offshore transmission lines, please contact Larry Demase or David Wagner.

11.       The Clean Development Mechanism and the Uncertainty in the Carbon Markets Created by HFCs

The United Nations’ Clean Development Mechanisn (CDM) allows industrialized countries to invest in emission reductions wherever it is cheapest globally, and certified emission reductions (CERs) are a type of carbon credit issued by the CDM Executive Board for emission reductions achieved by CDM projects.  In late November, the CDM Executive Board decided to revise the rules governing hydrofluorocarbon-23 (HFC-23) destruction on the basis that carbon credits related to HFC-23 are creating windfall profits and threatening the integrity of the carbon market.  The CDM Executive Board’s decision came just days after a European Commission proposal to ban the use of HFC-23 in the EU Emissions Trading Scheme as of January 2013. The Commission explained that “the acceptance of credits from industrial-gas projects has been controversial for some time. Certain gases [such as HFC-23] have a very high global-warming potential, and abatement is very cheap. This can create huge financial rewards for project developers.” A majority of CERs issued to date have come from HFC-23 projects, mostly in China and India, and these two countries, especially China, are not happy. As Larry Demase anticipated in Reed Smith's 3rd Quarter Climate Change Report, this issue is creating significant uncertainty and it could have a destabilizing effect on the CER market. To learn more, please contact Larry Demase or Jennifer Smokelin.

Reed Smith's 4th Quarter Climate Change Report: Slides and Audio Available Here

This post was written by David Wagner.

If you missed Reed Smith's Quarterly Climate Change Teleseminar on December 16, 2010, feel free to listen to an audio recording of the event while watching the slide show. We discussed:

  • Significant developments at COP16 (Jennifer Smokelin)
  • The Impact of California's new "Proposition 26" on the implementation of California's Global Warming Solutions Act (aka "AB 32") (Eric McLaughlin)
  • USEPA's issuance of PSD and Title V Permitting and BACT Guidance for GHG sources subject to the "Tailoring Rule" (Larry Demase)
  • Recent Carbon Capture and Storage Developments (David Wagner)
  • Issues and problems to consider regarding 2011 GHG emissions monitoring & reporting (Douglas Everette)

Cancún or Can'tcún? Summary of COP 16

This post was written by Jennifer Smokelin.

Last year, after months of build up, politicians, scientists, environmental activists, and Reed Smith attorneys flocked to Copenhagen for COP15: a conference that many hoped would produce a binding international agreement on carbon emissions and an actionable plan for addressing climate change. These goals, of course, weren't realized. Nearly twelve months later, the Conference of the Parties convened once again, this time in Cancun, Mexico. The issues, controversies, and conflicts were very similar.

The outcome of COP 15 last year was the Copenhagen Accord – an agreement that was not adopted by the UN congress as a whole because of the objections of 5 countries. The outcome of this year’s COP (over the objection of one country, Bolivia) are the Cancun Agreements. The Cancun Agreements are a lot less than the comprehensive agreement that many countries wanted and leave open the question of whether any of its measures, including emission cuts, will be legally binding. This is a modest step in international climate negotiations and in its modesty highlights the international discord on the subject and punts a lot of the harder decision to future COPs. For example, the Cancun Agreements declare that deeper cuts in carbon emissions are needed, but do not specify any given mechanism for achieving the pledges each country has made.
 

The following is a summary of progress (or lack thereof) on key international issues.

Future of the Kyoto Protocol

As background, the Kyoto Protocol is the binding international agreement regarding greenhouse gas emissions and is the framework for international reduction of such emissions. The protocol was signed at COP 3 with the signatures of (now) 121 countries. The agreement sets binding greenhouse gas emissions targets for 37 industrialized countries including the European Union in a first phase from 2008-2012. Because it is legally binding it has been instrumental in framing countries’ legal response to climate change – like the EU ETS, Europe’s cap and trade system. But what happens after 2012?

At COP 16, there was clearly a divide between rich and poor countries over the future of the Kyoto protocol after 2012. Maintaining Kyoto is crucial to the future of the Clean Development Mechanism and the offset market, such as LULUCF and REDD+. The Kyoto Protocol is the connecting tissue on all the international GHG framework issues –if it falls (like a house of cards) so do the rest.

From the get-go of COP16 it was clear there was disagreement with regard to the future of the Kyoto Protocol. The crisis over Kyoto erupted at the start of the talks when Japan said it was not prepared to sign on to a second phase of the agreement without commitments on reducing emissions from emerging economies such as India and China because without these other economies, the Kyoto Protocol only committed 30% of the world’s GHG emission to any sort of emission reduction. By the end of COP16, Japan softened its position but Russia and Canada became even more forceful about scrapping Kyoto – meaning that if all three backed out, only 18% of global carbon emissions would be covered by the second phase of the Kyoto Protocol. 18% is not enough to do any sort of good from a climate standpoint.

Midway through the second week, EU and a group of small island Pacific states jointly proposed a new international treaty at the talks to commit developing and developed countries to reducing their climate emissions. The move outraged many developing countries, including China, Brazil and India, who fear that rich countries will use the proposal to lay the foundations to ditch the Kyoto protocol and replace it with a much weaker alternative

In the end the continued resistance by some countries to the Kyoto Protocol was a stumbling block for any meaningful and comprehensive reduction agreements. Still, negotiators finally found a compromise in the Cancun Agreements and, late into the night, delegates cheered speeches from governments that been demanding during negotiations – as, one by one, they endorsed the final draft. However, not much concrete was actually agreed to. The Cancun Agreements state that countries will “aim to complete” work about extending the Kyoto Protocol “as early as possible and in time to ensure that there is no gap between the first and second commitment periods.” Developed nations will consider extending the Kyoto Protocol, but only as part of a wider agreement that commits all countries to making emissions cuts. The text refers to findings by the UN panel of climate scientists that greenhouse gas emissions by developed nations would have to fall by between 25 and 40 percent below 1990 levels by 2020 to avoid the worst damage

Green Climate Fund

The debate over the future of the Kyoto agreement was not the only potential breaking point in the talks. The US climate envoy, Todd Stern, was accused of blocking a deal on the Green Climate Fund by insisting the details be fully worked out at Cancún – instead of deferred to the next set of climate negotiations. If you recall, the Copenhagen Accord (negotiated at COP 15) created the Green Climate Fund, where developed nations promised new funds "approaching $30 billion for 2010-2012" to help developing countries. In the longer term, "developed countries commit to a goal of mobilizing jointly $100 billion a year by 2020." However, the Copenhagen Accord was never formally adopted by the UNFCCC congress and the Copenhagen Accord avoided the crucial point of how to fund this Green Climate Fund, particularly the long-term $100 billion. Of the agreed $30 billion that was pledged since Copenhagen, only $8 billion has actually been committed to international climate change programs and only $4 billion has actually been received. Going into COP 16, a recent report from the high-level Advisory Group on Climate Change Finance convened by UN Secretary General Ban Ki-Moon found that while it will be challenging, the developed countries can meet their pledges.

The Cancun Agreements formally set up a financial structure or “Green Climate Fund” that provides funding and technology to less developed nations to stave off the threats posed by climate change. The Fund will manage the annual $100 billion pledged by developing countries at the Copenhagen COP, money that is to be handed out beginning in 2020.

In the Cancun Agreements, the structure of the fund is set out in detail, including governance, voting and accountability. The board will have 15 members from developed and 25 from developing countries. The World Bank is appointed to serve as Trustee for the first 3 years.

Going in to COP16, negotiators recognized the big problem in designing the Fund was giving its operational control to a body with significant financial proficiency, and identifying a financial caretaker for the fund that has the institutional capability to handle billions of dollars. The Cancun Agreements resolved the financial caretaker issue (World Bank), but didn’t advance significantly on the first part of the problem

CCS

Discussions on whether CO2 capture and storage (CCS) can be included under the Kyoto Protocol’s Clean Development Mechanism (CDM) have been underway since COP-10 in 2005. At each COP, a decision is often discussed and yet ultimately postponed, with Parties’ positions on support or opposition seeming immobile. At COP-16, on December 4th, the Subsidiary Body for Scientific and Technical Advice (SBSTA) proposed a draft decision that, while recognizing that there are issues with CCS and CDM, provided a new context that both respects the issues and establishes a process for resolving them. In contrast, previous decisions on this issue have simply listed concerns, framing the decision in a “yes” or “no” framework.

In the end, the COP parties adopted as one of the Cancun Agreements a decision that carbon dioxide capture and storage in geological formations is eligible as project activities under the clean development mechanism, provided that the issues identified at COP 15 (in decision 2/CMP.5, paragraph 29, to be exact) are resolved and the next SBSTA “elaborate modalities and procedures for the inclusion of carbon dioxide capture and storage in geological formations as project activities under the clean development mechanism, with a view to recommending a decision to the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol at its seventh session (that is, COP 17)” Thus there is now a path towards getting CCS included under CDM.

REDD+

REDD+ (“reducing emissions from deforestation and (forest) degradation”) essentially supports developing countries financially and technically, to either prevent deforestation or regenerate forests through afforestation. The resulting carbon sequestration is aimed to reduce overall emissions, while the move itself will enable sustainable forestry and halt degradation. The negotiating language covering REDD+ was the most settled coming into Cancun.

The final language is a careful compromise among the parties. The negotiation points in COP 16 were limited to a few obstacles, specifically related to financing (see above) and whether REDD+ can be counted in countries'" Nationally Appropriate Mitigation Actions". The Cancun Agreements build an international system to reduce deforestation, another important step in officially adopting proposals from the Copenhagen Accord. For much of the developed world, REDD is being viewed as a mechanism to reduce global GHG emissions. At present, developed nations are facing severe economic and political roadblocks to implementing concrete emissions reduction targets through domestic legislation – they can use REDD credits instead to meet reduction targets. However, funding REDD remain unclear, particularly in the long term. As of now, REDD would be financed in an adhoc approach through seed funds set up by developed nations and through private sector voluntary carbon markets. When negotiators meet next year in South Africa they will need to add more substance to these efforts.

In sum, in Cancun 193 nations attempted to hammer out their differences and finalized the Cancun Agreements that alone will not solve global warming. The Cancun agreements did formalize many of the proposals of the Copenhagen Accord and establish a temperature target for climate change mitigation, an agreement on reducing emissions from deforestation and forest degradation (REDD), and the architecture for a climate green fund that apply to all parties and not just developed countries. Look for clarification on all these issues at the next COP. Most agree that REDD will rapidly move forward over the next few years with encouragement from developed nations (for the cheap offsets) and developing countries (for the preservation of forests and offset profit) that view REDD as a faster vehicle to control deforestation and GHGs, as well as a source of economic incentives to tackle clear cutting and forest fires.
 

Know When to Hold (Sequester) 'Em: Is USEPA Giving Away Its Hand Regarding CCS?

This post was written by Jennifer Smokelin.

From the U.S. Environmental Protection Agency’s (USEPA’s) BACT guidance to recent rules finalized by USEPA, all signs appear a “go” for USEPA to give the nod to carbon capture and sequestration (CCS) as a control technology of greenhouse gas (GHG) emissions in the future. In the second “niche” article on the blog, this post takes a look at USEPA’s references in the BACT guidance to carbon sequestration and asks whether this portends CCS being listed in USEPA’s central data base of air pollution technology information known as the RACT/BACT/LAER Clearinghouse in the near future. At this point, the answer is definitely possibly.

Prior to the release of the BACT guidance, industry groups had worried that USEPA would require facilities to use costly CCS technology to trap carbon dioxide and store it underground, but the guidance does not go that far.

The guidance states that: “[w]hile CCS is a promising technology, EPA does not believe that at this time CCS will be a technically feasible [best available control technology, or BACT] option in certain cases.”" It adds that ”[a] permitting authority may conclude that CCS is not applicable to a particular source, and consequently not technically feasible, even if the type of equipment needed to accomplish the compression, capture, and storage of GHGs are determined to be generally available from commercial vendors.” The BACT Guidance also states that “there may be cases at present where the economics of CCS are more favorable (for example, where the captured CO2 could be readily sold for enhanced oil recovery)….

But at another place in the BACT guidance, in one case study regarding refineries, carbon capture is ruled out as a possible emissions control technology. The guidance clarifies that, even if the technology would allow CCS at the facility, officials would be justified in rejecting it as a control strategy if the hypothetical facility were far from the nearest storage site and there were no pipeline to move the emissions there.

In short, USEPA’s guidance clearly does not require CCS as BACT for any facility, but USEPA is subtly indicating that, although CCS technology is not quite ready for prime time, it is likely to be “prime” in the future.

USEPA gives away its hand less subtly with the finalization of two rules recently that pave the way to CCS regulation. One rule creates a new "Class VI" injection well for carbon sequestration that would be regulated under a different set of construction, monitoring and testing requirements under USEPA's Underground Injection Control (UIC) Program authorized by the Safe Drinking Water Act.

The second rule would require permit holders to create a CO2 monitoring, reporting and verification plan and to report the amount of CO2 sequestered using a mass balance approach under the Clean Air Act.

International Energy Agency (With Help from Reed Smith) Publishes Legal Framework for Carbon Capture and Storage

This post was written by David Wagner.

Earlier this month, the International Energy Agency released the Carbon Capture and Storage Model Regulatory Framework. Reed Smith environmental attorneys Dave Wagner, Jennifer Smokelin, Steve Nolan and Ariel Nieland were core contributors to the development and drafting of the Model Regulatory Framework. The Model Framework aims to assist national and regional development of regulatory frameworks for carbon capture and storage (CCS) by harnessing the regulatory work of early-movers such as Australia, Europe and the United States. Building on the progress to date, the Model Framework proposes key principles for addressing a broad range of regulatory issues associated with capturing, transporting and storing carbon dioxide.

Significant analysis by the International Energy Agency indicates that CCS will play a vital role in worldwide, least-cost efforts to limit global warming, contributing around one-fifth of required emissions reductions in 2050. For CCS to reach this potential, rapid deployment of CCS technology is necessary. The International Energy Agency estimates that about 100 CCS projects must be implemented by 2020 and over 3,000 by 2050. Such rapid deployment raises many regulatory issues that must be considered before this scale of deployment can occur.
 

Altogether, 29 critical regulatory issues for CCS are addressed in the Model Framework, which provides an explanation of each issue and examples of how the issue has been addressed in existing legislation. The Model Framework also provides model legislative text for countries to consult in developing their own national carbon capture and storage regulatory framework. It is also structured to provide guidance to authorities around the world, operating in diverse legal and regulatory environments and with varying levels of existing legislation. Obviously, if you have an interest or want further information, you can contact us for some "inside" perspective.