1. Year in Review: Climate Change EPA Heats Things Up Presented by: Tom Wood Stoel Rives LLP October 8, 2010

2. Air Permitting and GHGs • Issue: • PSD triggered for source with ≥100 tpy emissions of regulated air pollutant if one of designated source categories • e.g., fossil fuel fired steam electric plants of more than 250 MMBtu/hr heat input • PSD triggered at ≥250 tpy of regulated air pollutant for other source categories • EPA has declared that GHGs are regulated air pollutant • Creates unworkable program burdens • EPA wanted to “tailor” PSD applicability requirements

3. EPA Tailoring Rule • Published June 3, 2010: • Relies on the • “Absurd Results” doctrine • “Administrative Necessity” doctrine, and the • “One Step at a Time” doctrine • GHGs subject to PSD starting January 2, 2011 • EPA imposed tiered GHG permitting scheme

4. EPA Tailoring Rule • Phase 1 (January 2, 2011) • PSD only triggered for GHGs if both • The source triggers PSD for another pollutant, and • The project increases GHGs by 75,000+ tons/yr CO2e • Phase 2 (July 1, 2011) • PSD will apply to GHGs if both • The source has GHG PTE ≥100,000 tons/yr CO2e, and • There is a net emission increase for GHGs ≥75,000 tons/yr CO2e

5. So What Does This Mean? • Oregon has a SIP approved PSD program • Oregon rules do not change to match EPA shifts • Oregon does not include GHGs as a regulated air pollutant • EPA will declare Oregon SIP inadequate • Starts SIP call process • EPA must give Oregon reasonable time to cure • 1 year v. ~21 days • FIP simultaneously proposed • EPA cannot implement until DEQ blows deadline • FIP starting January 1, 2011

6. So What Does This Mean? • DEQ normally issues PSD permits without Region 10 involvement • Starting January 2, 2011, EPA will need to issue any PSD permit for GHGs • Can result in considerable delay if the project triggers PSD • Creates powerful incentive to avoid PSD • DEQ to seek FIP delegation authority • DEQ also seeking to take revised Oregon GHG PSD program • Won’t happen until February 2011 at earliest

7. So What Does This Mean? • Permitting in interim? • Confused • Could result in significant delays

8. Greenhouse Gas & Biomass • EPA implemented GHG reporting rule earlier this year • Applies to more pollutants than Tailoring Rule • Applies to portions of facilities • Biomass derived emissions do not trigger reporting by themselves • Different approach under Tailoring Rule & PSD • EPA not treating biomass emissions as carbon neutral for permitting purposes at this time • Oregonian Editorial October 6, 2010

9. Greenhouse Gas & Biomass • Big debate as to whether biomass combustion is carbon neutral • Debate heavily influenced by attitude towards forest management • Many of the criticized biomass sources are not relevant to NW biomass projects • e.g., whole log chipping for hog fuel, closed loop biomass fuel crops • In NW, biomass is typically either diseased logs (salvage timber), forest thinning/slash or residuals from timber processing

10. Greenhouse Gas Neutrality • Carbon release takes places as either: • Uncontrolled combustion (slash burning or forest fire) • Landfilling • Other decomposition • Set amount of carbon in wood residual • Slash burning releases same amount of CO2 as controlled combustion, but dramatically more of conventional air pollutants • Decomposition releases CH4 (methane) which has global warming potential of 21

11. Greenhouse Gas Neutrality • Excellent study of benefits of biomass combustion: • Pacific Institute (May 2008) • “Atmospheric greenhouse-gas levels in 2006 were lower by 70 million tons of CO2 equiv. of fossil greenhouse gases and by 62.5 million tons of CO2 equiv. of biogenic greenhouse gases as a result of solid-fuel biomass power production in California during 1980-2006.” • Opposing point of view: • Manomet study (June 2010) • “For biomass replacement of coal-fired power plants, the net cumulative emissions in 2050 are approximately equal to what they would have been burning coal; and for replacement of natural gas cumulative total emissions are substantially higher with biomass electricity generation.”

12. Greenhouse Gas Neutrality • So who is right? • Manomet issued statement after study released clarifying conclusions • Noted it was very Massachusetts-centric • On NY Times blog, Manomet President stated: “over time using wood for energy can lead to lower atmospheric greenhouse gas levels.”

13. Greenhouse Gas Neutrality • Groups such as AF&PA criticize Manomet study • Manomet assumed half of the annual timber harvest was diverted from lumber production to hog fuel • Manomet only considered carbon from the moment that timber is harvested so ignored the sequestration leading to harvest • Manomet focused on single stands so ignored the sequestration continously occurring among managed stands • Manomet did not recognize slash burning as the alternative to use of the fuel in a biomass plant • Study: http://www.manomet.org/node/322 • Blog: http://green.blogs.nytimes.com/2010/06/22/q-and-a-woody-biomass-pros-and-cons/