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Regulation of Greenhouse Gases Heating Up in Washington North Carolina Chamber Environmental Summit November 2, 2009

Regulation of Greenhouse Gases Heating Up in Washington North Carolina Chamber Environmental Summit November 2, 2009. PRESENTED BY Margaret Claiborne Campbell Troutman Sanders LLP 600 Peachtree Street, NE, Suite 5200 Atlanta, GA 30308 404.885.3410 www.troutmansanders.com. Congress

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Regulation of Greenhouse Gases Heating Up in Washington North Carolina Chamber Environmental Summit November 2, 2009

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  1. Regulation of Greenhouse Gases Heating Up in WashingtonNorth Carolina Chamber Environmental SummitNovember 2, 2009 PRESENTED BY Margaret Claiborne Campbell Troutman Sanders LLP 600 Peachtree Street, NE, Suite 5200 Atlanta, GA 30308 404.885.3410 www.troutmansanders.com

  2. Congress EPA Copenhagen Courts Determined Administration CURRENT STATE OF PLAY

  3. Congress vs. EPAThe Go Ahead, Make My DayTheory of Governance Rep. Markey: "Do you want the EPA to make the decision or would you like your Congressman or Senator to be in the room and drafting legislation?... Industries across the country will just have to gauge for themselves how lucky they feel if they kill legislation in terms of how the EPA process will include them.”

  4. Supreme CourtMassachusetts v. EPA DecisionApril 2007 EPA can regulate under existing Clean Air Act (“CAA”) authority GHGs are CAA “air pollutants” which EPA must regulate if it finds endangerment to public health or welfare Case was in the context of GHG emissions from new motor vehicles, but precedent applies to sources across the economy

  5. EPA’s Proposed Endangerment Finding - April 2009 • Elevated concentration of six GHGs in atmosphere constitute “air pollution” under the CAA endangering both public health and welfare from climate change impacts • Four of these GHGs, including CO2, emitted by new motor vehicles cause or contribute to this air pollution • Once finding is final, EPA must regulate

  6. Path To EPA Regulation Under CAA April 17, 2009: Proposed Endangerment Finding May 19, 2009: Agreement with automakers on motor vehicle fuel economy standards that will include GHG regulations under the CAA September 15, 2009: Proposed motor vehicle regulations By Spring 2010: Final Endangerment Finding By Spring 2010 (March 31?): Final motor vehicle regulations

  7. Broad Implications of EPA Regulation Under CAA Once GHGs are “regulated” under the CAA, all major stationary sources of GHGs become potentially subject to GHG permitting and regulation. CAA permitting requirements: • Federal preconstruction permitting for green-field developments and major modifications to existing major sources • Operating permits for all “major sources”

  8. Who Will Be Affected? Once final auto regulations become effective, all “major” stationary sources: • Large industrial sources, including power plants, refineries, industrial boilers, etc. • But also any previously unregulated sources: office buildings, warehouses, health care facilities, hotels/ motels, food service facilities, churches and other places of worship, farms. • Why? CO2 is emitted in much larger quantities than traditionally regulated pollutants

  9. Statutory definition of “major source” for federal preconstruction permitting is 250 tons per year.  1.2 million new regulated sources (!) Statutory threshold for Title V Operating Permits is 100 tons per year. Must EPA Regulate Relatively Small Sources?

  10. EPA recognizes that requiring permits for relatively small sources would create gridlock. In October, proposed “tailoring” rules to limit permitting to sources > 25,000tons per year CO2e. Significant legal issues. Will anyone sue? EPA’s Proposed “Tailoring” Rules

  11. Other Important Regulatory Implications • New Source Performance Standards • EPA has been petitioned to set emission limits for defined categories of industrial sources. • New Sources • Existing Sources • National Ambient Air Quality Standards • Attainment vs. Nonattainment areas for GHGs? • Can EPA limit the impacts of its findings? • Will Congress limit impacts? • Preemption debate

  12. Waxman-Markey • First bill to pass mandating GHG reductions • Passed House June 26, 2009 • 219-212 vote – 8 Rs for, 44 Ds against • Floor debate limited to one afternoon • 1427 pages • 300+ page manager’s amendment filed at 3:00 am on day of vote

  13. Cap-and-Trade Covers 85% of U.S. GHG emissions principally large industrial sources emitting ≥ 25,000 tpy CO2e Reduction Targets and Timetables All reductions are from 2005 levels - 3% by 2012 - 17% by 2020 - 42% by 2030 - 83% by 2050 Compliance: Allowances + Offsets

  14. Dividing the Pie: Allocations • Electric utilities 35% • Natural gas distribution 9% • Auto industry 3% • Energy-intensive industries 15% (begins 2014) • Oil refiners 2+% (begins 2014) • Auction 15% • proceeds to low-/moderate-income families (tax credits, direct payments) • States • 10% for renewables / energy efficiency • 1.5% to benefit users of home heating oil / propane • Various incentives, programs (CCS, worker training) • Remainder: auction with proceeds to Treasury • Initially 13% in 2012-13, dropping to 1% 2014 with sunset in 2023.

  15. Preemption • Preempts worst of CAA regulation • Preconstruction permitting • NAAQS • Limited preemption of state programs, and states can drain allowances “out of bottom of allowance bucket”

  16. Renewable Energy Standards • 20% by 2020 • Federal Energy Regulatory Commission • 15% renewables / 5% efficiency from utilities with sales > 4000 MW • Alternative compliance payments • “Renewable” includes wind, solar, geothermal, biomass and other biofuels, landfill gas, wave/tidal power, incremental hydro • Excluded from baseline: new nuclear, existing hydro, fossil with CCS

  17. Waxman-Markey Climate Bill Would Increase Energy Costs Projected U.S. household increases in costs inclusive of carbon costs for natural gas, motor fuels and electricity, relative to business as usual* Projected impact on household purchasing power, stated in terms of 2010 income levels* *Based on CRA reference case results Data source: CRA prepared for the National Black Chamber of Commerce, “ Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R. 2454),” August 2009.

  18. U.S. Economic Impact of Waxman-Markey* • Waxman-Markey would cause the loss of millions of jobs relative to business as usual • Waxman-Markey would cause GDP losses of $150 billion in 2020, $250 billion in 2030 and $630 billion in 2050, relative to business as usual • A region’s industrial impact, and hence employment effects, strongly correlate with the region’s composition of industries and the energy-intensity of these industries *Based on CRA reference case results Data source: CRA prepared for the National Black Chamber of Commerce, “ Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R. 2454),” August 2009

  19. The Senate • 6 Committees have jurisdiction over bill, leading committee is Boxer’s Environment & Public Works • Majority Leader Reid had asked for all Committees to complete work by late-September but health care debate intervened • Kerry-Boxer Bill: • Introduced September 30th (as work in progress) • EPW Committee hearings held last week • Scheduled for Committee markup this week • Republican members may boycott

  20. Kerry-Boxer • Cap-and-Trade • Modeled after Waxman-Markey • Allowances + offsets • Important distinctions • Overall Targets and Timetable • Similar to W-M except: • 20% by 2020 vs. 17% in W-M • Allocations – Smaller Pie • CBO “Haircut”: increasing percentage of allowances auctioned for Treasury (10%, 22%, 25%) • One estimate: 1.46 Billion fewer allowances overall • Preemption – none (yet)

  21. Renewable Energy Standard • Not Addressed in Kerry-Boxer • Separate Bill - S.1462 approved by Energy & Natural Resources Committee in June • Renewable energy / energy efficiency • 15% by 2021 vs. 20% by 2020 in W-M • May be combined into broader Senate bill to parallel W-M

  22. Key Political Considerations • Northeast/West Coast vs. Heartland • Overwhelming complexity of bills and of harmonizing work of different committees in Senate, plus between House and Senate • Health Care • Unemployment Rate • Copenhagen in December • A determined President

  23. Strategic Considerations: EPA vs. Congress • EPA and Congressional leadership are trying to use threat of CAA regulation as sword to soften up industry on cap-and-trade • National legislation is preferable to CAA regulation, but not at any cost • Two-front battle to get a sensible climate change program

  24. GHG REGULATION: HOW MUCH PAIN?

  25. Margaret Claiborne Campbell Troutman Sanders LLP 600 Peachtree Street, NE, Ste 5200 Atlanta, GA 30308 404.885.3410 margaret.campbell@troutmansanders.com

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