BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. The Roadmap to Climate Change Regulation for the Next Administration: EPA s GHG ANPR Roger R. Martella, Jr. rmartella@sidley.com (202) 736-8097 1
Climate Change Controls: Potential Impacts Mandating energy efficiency improvements to reduce GHG emissions New Source Review permitting Reporting requirements CO2 sequestration Renewable and alternative fuels (including IGCC) Impacts to upstream fuels (coal, gas, etc.) Impacts on Wall Street Downstream impacts Enforcement and penalties 2
Climate Change Regulation The Way It Should Work Global Consensus Federal Legislation Federal Regulation Regional and Local Implementation Litigation 3
Climate Change Regulation The Way It Is Working in the United States Global Consensus Federal Legislation Federal Regulation Regional and Local Implementation Litigation 4
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Impacts of climate change IPCC: 550 ppm CO2 equivalent > 2 degrees Celsius 450 ppm CO2 equivalent 50 percent likelihood < 2 degrees 400 ppm CO2 equivalent reasonable certainty < 2 degrees EPA in the ANPR references 440 ppm as a stablization scenario 6
7 Greenhouse Gas Effect
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9 Most pollutants have local effects
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But global pollutants affect the entire globe 11
12 Addressing traditional pollutants
13 Addessing GHGs
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April 2, 2007 -- Mass v. EPA: Two Key Holdings Greenhouse gases are air pollutants Because greenhouse gases fit well within the Clean Air Act s capacious definition of air pollutant, we hold that EPA has the statutory authority to regulate the emission of such gases from new motor vehicles. Agency must consider endangerment On remand, the Agency must pursuant to CAA Section 202(a): (1) Make a positive endangerment finding; (2) Make a negative endangerment finding; or (3) offer a reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do. 16
Massachusetts v. EPA Remand Clean Air Act Title II (Motor Vehicles) 20 in 10 regulations/ Executive Order 202(a) motor vehicles 211(c) and (o) fuels Mass v. EPA: Remanded ICTA petition to regulate GHGs from mobile sources under CAA 202(a)
Massachusetts v. EPA: Arguments Raised Clean Air Act Title II (Motor Vehicles) 20 in 10 regulations/ Executive Order 202(a) motor vehicles 211(c) and (o) fuels 2007 Energy (EISA) Act California waiver petition Clean Air Act Title II (Other Mobile Sources) 213 marine shipping vessels 231 aircraft 213 nonroad Mass v. EPA: Remanded ICTA petition to regulate GHGs from mobile sources under CAA 202(a) Clean Air Act Title I (Stationary Sources) NSPS rulemakings Permits Authorities for potential regulation 108 NAAQS? 111 NSPS? 112 HAP? Others? PSD/NSR Other Stationary Source Issues Mandatory reporting CO2 sequestration Natural Resource Issues NEPA Endangered Species Act EPA Water Strategy Other issues Legislative initiatives/ EPA Review International discussions Enterprise sustainability 18
Regulatory and Legislative Developments Now to January, 2009 Advance Notice of Proposed Rulemaking for Greenhouse Gases Greenhouse gas inventory rule proposal Renewable fuels rule proposal Carbon sequestration proposal Permitting decisions Climate legislation 19
ANPR: EPA s Menu of Issues* Clean Air Act Title II (Motor Vehicles) 20 in 10 regulations/ Executive Order 202(a) motor vehicles 211(c) and (o) fuels 2007 Energy (EISA) Act California waiver petition Clean Air Act Title II (Other Mobile Sources) 213 marine shipping vessels 231 aircraft 213 nonroad Mass v. EPA: Remanded ICTA petition to regulate GHGs from mobile sources under CAA 202(a) Clean Air Act Title I (Stationary Sources) NSPS rulemakings Permits Authorities for potential regulation 108 NAAQS? 111 NSPS? 112 HAP? Others? PSD/NSR Other Stationary Source Issues Mandatory reporting CO2 sequestration Natural Resource Issues NEPA Endangered Species Act EPA Water Strategy Other issues Legislative initiatives/ EPA Review International discussions Enterprise sustainability 20
Why the ANPR matters The most critical opportunity to date in the U.S. to engage and express views on climate change and GHG regulation. Perhaps the most critical opportunity to express views to the McCain or Obama Administration, which will rely on the ANPR if it chooses to move forward on regulations. Opportunity to identify as a stakeholder in further discussions before EPA, next Administration, and Congress. Will be consulted not only by EPA, but by Congress in enacting comprehensive legislation. Opportunity to express unique impacts of climate change regulation, and present novel solutions and contributions toward addressing global climate change. 21
Five Key Themes (1) From locomotives to lawnmowers, virtually all sectors of the economy are addressed (2) Proposals include technology/engineering and operational/human element components (3) Merger of policy and economics, with cap and trade as a prevalent theme (4) Recognition of PSD/Title V ramifications as unworkable administrative burden of using Clean Air Act; several novel solutions proposed (5) Underlying assumption that evidence of endangerment is compelling and robust 22
The ANPR at a Glance Overlay issues II. Background (How we got here) III. Nature of Climate Change Forcing technology through regulation Distinguishing GHGs and other pollutants Outlining key policy and economic considerations (including cap and trade and carbon tax issues) Challenges for economic analysis of regulation IV. Clean Air Authorities - Interconnections of CAA provisions - Ramifications of regulation Endangerment Analysis - What is the air pollution - Science summary - Cause or contribute 23
The ANPR at a Glance Mobile sources/title II B. On-highway mobile sources 1. Passenger cars and light duty trucks 2. Heavy duty trucks C. Nonroad sectors 2. Nonroad engines and vehicles 1. Locomotives 2. Hundreds of other machines, outdoor devices 3. Marine vessels 4. Aircraft D. Fuels 24
The ANPR at a Glance Stationary sources/title I A. 108/109: National Ambient Air Quality Standards (NAAQS) B. 111: New Source Performance Standards (NSPS) C. 112: Hazardous Air Pollutants (HAPs) D. 129: Solid Waste Combustion Standards E. New Source Review/PSD Preconstruction Permits F. Title V Operational Permits G. Alternative Designs for Market-Oriented Regulatory Mechanisms for Stationary Sources 1. Emissions Cap-and-Trade 2. Rate-Based Emissions Program 3. Emissions Fee 4. Hybrid Market Based Approach 25
What else? Technical Support Document Benefits Document ID: EPA-HQ-OAR-2008-0318-0078 Technical Support Document Stationary Source Document ID EPA-HQ-OAR-2008-0318-0081 Draft Technical Support Document - Endangerment Analysis for Greenhouse Gas Emissions under the Clean Air Act Document ID: EPA-HQ-OAR-2008-0318-0082 Technical Support Document - Section 202 Greenhouse Gas Emissions Document ID: EPA-HQ-OAR-2008-0318-0083 Vehicle Technical Support Document - Mobile Source Document ID: EPA-HQ-OAR-2008-0318-0084 Plus, other support documents addressing specific sectors (such as heavy-duty trucks) in docket 26 (All documents available at www.regulations.gov)
Sidley Austin Sector Summaries Stationary sources Aircraft Cars and light duty trucks Marine vessels Locomotives Nonroad vehicles Heavy duty trucks Market based approaches Available at www.sidley.com/climatechange 27
The ANPR: Opportunities Identify your interests as a constructive stakeholder in the climate change dialogue that should be consulted in the deliberations moving forward both at EPA and Congress. Discuss issues pertaining to potential regulation of GHG emissions from your sector under various stationary source provisions of the Clean Air Act. Address need for solutions to New Source Review, which if left unchanged would require permits for modifications to most commercial buildings. Identify upstream and downstream impacts not factored into analysis. Emphasize perspectives on solutions to climate change and corporate sustainabilility initiatives that reduce greenhouse gases while preserving economic competitiveness. Discuss the need for EPA to credit early action efforts to reduce GHGs. Identify perspectives on the intersection of policy and economics regarding climate change. 28
Stationary Source Pathways Provision Summary Preclusive effect Comments 108/109 NAAQS Would set ambient GHG standards for nation, thus entire nation would be in or out of attainment; primary standard goes to health concerns, secondary standard goes to welfare; costs cannot be considered in setting standard Precludes listing under 112 and 111 for existing sources (but not new and modified sources) ANPR proposes four NAAQS scenarios; likely would take 10 years before any regulatory effect; 10 year horizon to achieve NAAQS ill suited to GHGs 111 New Source Performance Standards Sets performance standards for certain listed source categories ; provides for consideration of costs and discretion in type and size of facilities regulated; standard is BDT (Best Demonstrated Technology) Would trigger PSD and Title V permitting Stationary source TSD addresses specifics for industrial and utility boilers, petroleum refineries, and portland cement facilities; arguably strongest authority for trading programs; likely would combine efficiency and workplace standards 112 Hazardous Air Pollutants Provides little discretion to distinguish between sizes and categories; costs largely irrelevant; standard is MACT (Maximum Achievable Control Technology) GHGs would be exempt from PSD program; would preclude 111 standards for existing sources (but not new or modified sources) 10/25 ton threshold for regulation (includes large single family home) 29
PSD/NSR and Title V PSD/NSR permits are pre-construction permits Title V permits are operating permits. PSD Threshold is 100 or 250 tons per year Standard is BACT (Best Available Control Technology) (can consider costs); ANPR suggests could require carbon capture and sequestration (486) Would encompass small industrial sources, large office and residential buildings, hotels, large retail establishments, and similar facilities Would be effective immediately at time GHGs are regulated pollutants EPA proposes several suggestions include Congressional fix, tailoring approaches, legal arguments to craft relief from strict language; streamlined regulatory approaches; general permits; higher thresholds; EnergyStar as presumptive BACT 30 Title V Threshold is 100 tons per year Requires a permit contain all applicable requirements under the Clean Air Act; EPA anticipates improved energy efficiency and operational changes EPA estimates 550,000 additional sources (compared to 15,000-16,000 current Title V sources Must apply for permit within 1 year of being subjected to Title V EPA proposes several suggestions including legal arguments to craft relief; higher GHG cutoffs; deferral approach; general permits; adjusted fee structure
Alternative Designs for Market-Oriented Regulatory Mechanisms (1) Cap and trade (2) Rate-based emission credit program (tradable performance standard) (3) Emissions fee (4) Hybrid option 31
The ANPR Opportunities for other sectors Discuss need to consider downstream impacts beyond GHG emitters and unique impacts to other business models. Address need for solutions to New Source Review, which if left unchanged would require permits for modifications to most commercial buildings. Emphasize perspectives on solutions to climate change and corporate sustainabilility initiatives that reduce greenhouse gases while preserving economic competitiveness. Identify interests as a stakeholder in the climate change dialogue that should be consulted in the process moving forward. Identify perspectives on the intersection of policy and economics regarding climate change. 32
Mandatory GHG Inventory Reporting The omnibus appropriations bill appropriated $3.5M to EPA to draft a rule requiring the mandatory reporting of GHG emissions above appropriate thresholds in all sectors of the U.S. economy. EPA is to use its existing authority under the CAA to propose a rule within 9 months of the date of enactment and issue a final rule within 18 months of enactment. State laws also may require reporting, such as in NY, where NY Attorney General charged Xcel Energy for failing to disclose to shareholders the "increased financial, regulatory, and litigation risks" that are likely to be triggered by construction of coal-fired plants. Could provide first instances of federal enforcement of climate change rules. 33
Renewable and Alternative Fuels Energy Independence Security Act (Dec. 2007) Fuel Efficiency Standards (DOT) In April, DOT proposed 25 percent increase in fuel efficiency for cars and light trucks ending in 2015 (4.5 percent per year), increasing CAFE from 27.5 mpg to 35.7 mpg by 2015 for cars. Comment period closes in late June. Scoping for CAFE EIS currently ongoing. Renewable Fuel Standards (EPA) Provides for 36 billion gallons of renewable fuels by 2022. EPA has indicated publicly it is working on regulations to implement renewable fuel mandates in the EISA. Regulations presumably will include several significant definitions, including Lifecycle Greenhouse Gas Emissions and accounting for indirect impacts Pursuant to savings clause in EISA, EPA regulation will not trigger GHG regulation under other Clean Air Act provisions. 34
Carbon Sequestration Proposed EPA Rule July 2008 Public comment period Through November Final Rule 2010 (?) 35
Carbon Sequestration Class I Class II Class III Class V 36
Geologic Sequestration of CO 2 WRE450: 2020 WRE450: 2035 U.S. electric utility sectoral deployment of carbon dioxide capture and storage (CCS)-enabled generation systems WRE450: 2050 37
Stationary Sources Permits EPA is considering several stationary source permits where parties have argued that GHG controls are required. EPA has not issued a stationary source permit where GHG concerns have been raised since September 2007. Certain members of Congress have sought to stay EPA from issuing further permits until GHG controls are imposed on stationary sources. New Source Performance Standards EPA has taken the position it is not required to review air pollutants not covered under prior previous versions of performance standards (see petroleum refinery NSPS, April 30, 2008) According to EPA, nothing in the 8-year review provision mandates that EPA include a new standard of performance for an air pollutant not already covered by the standard of performance under review. EPA has indicated it will consider comments on GHG regulation for stationary sources in the ANPR. EPA appears to be taking this position consistently with proposed NSPS standards as well. See cement kiln NSPS, May 30, 2008. 38
Climate Change Controls: Potential Impacts Mandating energy efficiency improvements to reduce GHG emissions New Source Review permitting Reporting requirements CO2 sequestration Renewable and alternative fuels (including IGCC) Impacts to upstream fuels (coal, gas, etc.) Impacts on Wall Street Downstream impacts Enforcement and penalties 39
Thank you. For more information, please contact: Sidley Austin LLP Roger R. Martella, Jr. rmartella@sidley.com (202) 736-8097 40